The Wall Street Journal
by Stephanie Yang and Ryan Dezember
America is awash in natural gas. In parts of the country there’s hardly a drop to burn.
Earlier this year, two utilities that service the New York City area stopped accepting new natural-gas customers in two boroughs and several suburbs. Citing jammed supply lines running into the city on the coldest winter days, they said they couldn’t guarantee they’d be able to deliver gas to additional furnaces. Never mind that the country’s most prolific gas field, the Marcellus Shale, is only a three-hour drive away.
Meanwhile, in West Texas, drillers have so much excess natural gas they are simply burning it off, roughly enough each day to fuel every home in the state.
U.S. gas production rose to a record of more than 37 trillion cubic feet last year, up 44% from a decade earlier. Yet the infrastructure needed to move gas around the country hasn’t kept up. Pipelines aren’t in the right places, and when they are, they’re usually decades old and often too small.
The result, despite natural-gas prices that look low on commodities exchanges, is energy feast and famine.
This spring, the price of natural gas at a trading hub near Midland, Texas, dropped as low as negative $9 per million British thermal units—meaning that producers were paying people to take it off their hands. (A million British thermal units is enough to dry about 50 loads of laundry.)
Elsewhere, prices soared due to bouts of cold weather coupled with supply disruptions, including an explosion along a British Columbian pipeline and a leaky underground storage facility near Los Angeles. At a trading hub in Sumas, Wash., natural gas rose to $200 per million British thermal units in March, the highest ever recorded in the U.S. In Southern California, prices went as high as $23; the average over the winter was a record $7.23.
The national benchmark, which is set at a knot of pipelines in Louisiana, recently hit a three-year low of $2.19 and has hovered below $3 for much of the year.
“I don’t recall a situation when we’ve had the highs and lows happen in such extremes and in such relatively close proximity,” says Rusty Braziel, a former gas trader who now advises energy producers, industrial gas buyers and pipeline investors.
With U.S. homes, power plants and factories using more natural gas than ever, the uneven distribution of the shale boom’s bounty means that consumers can end up paying more or even become starved for fuel, while companies that can’t get it to market lose out on profits. Around New York City, the dearth of gas has cast uncertainty over new developments and raised fears of stifling economic growth.
One reason for the problem is that pipelines have become political. Proponents of reducing the use of fossil fuels have had little luck limiting drilling in energy-rich regions. Instead, they’ve turned to fighting pipeline projects on environmental grounds in regions like New York and the Pacific Northwest, where they have a more sympathetic ear.
Even in Texas, the heart of the oil-and-gas industry, new pipelines have started to meet more local resistance. In April, landowners, Hays County and Kyle, a booming city on the outskirts of Austin, sued to block construction of a 430-mile pipeline that would move gas from the West Texas drilling fields, where it is being burned up, to buyers near Houston. The case was dismissed by a Texas judge in June.
Natural gas, which is often found alongside oil and coal, was once a nuisance to drillers and miners alike. It would send crude shooting up out of wells like flammable geysers and was at risk of exploding in mineshafts. Before the advent of arc-welded pipelines that could be laid over long distances, gas had little value unless it happened to be very close to early industrial cities, like Pittsburgh or Cleveland.
After World War II, energy producers repurposed oil pipelines to ship gas to fuel the hungry furnaces and factories of the Northeast. By the beginning of the 21st century, many thought the U.S. was running out of gas. The national price averaged about $6 over most of that decade and at times rose to more than $12. Pipelines were built to move imported gas from the country’s borders, particularly along the Gulf Coast, into the interior.
Then the fracking revolution arrived, flooding domestic gas markets and rendering a lot of supply routes irrelevant. Within a generation, the U.S. has gone from importing gas to becoming a leading exporter.
These days, it’s a hassle getting gas from drilling fields like the Marcellus and Utica shales in Appalachia, and the Permian Basin in West Texas, to customers in northern cities. Many pipelines now run the other way: to move gas toward the Gulf Coast, where exporters can usually buy it for less than $3 per million British thermal units, and ship it overseas as liquefied natural gas, or LNG, for higher prices.
A 99-year-old law prevents foreign tankers from shipping gas within the U.S. There are no domestic LNG tankers, mostly because the hundred-million-dollar-plus ships are much less expensive to build in Asia. So consumers in New England relied on importing liquefied natural gas from Trinidad and Tobago and even Russia to keep prices in check this past winter.
In New York, commercial real-estate broker John Barrett said he was completing the sale of a development that would become a 66-unit apartment building, when Consolidated Edison Inc. announced it would no longer take on new gas customers after March 15 in the southern part of Westchester County. The developer canceled the deal signing and backed out of the purchase two weeks later.
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