I was reviewing some of the oil and gas industry reports this week (a pastime that’s probably still more enjoyable than watching season 3 of Stranger Things) and came across a link to a report that was just published at the Wall Street Journal. This is one of those “good news, bad news” situations in terms of America’s domestic energy situation. As you probably already know, the United States has now officially become the largest energy producer on the planet and that includes the production of natural gas. You’d think that would lead to much lower energy bills and plentiful supplies, right? Well… it has, but only in some places. In others the costs are through the roof, assuming you can even get any. But it has nothing to do with how much of it we’re able to drag out of the ground. (Subscription required)
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.
The incident in New York City mentioned in that excerpt may already be familiar to some of you since we discussed it here previously. Utilities in that region refused to accept new customers for a neighborhood that was being developed because they had already maxed out the amount of natural gas they could pump through the lines. Ironically, a new pipeline to solve the problem was already in the works, but protests and mandates from the state’s Governor had ground the project to a halt.
But that’s only one side of the coin. As mentioned above, there are places where drillers don’t have the capacity to ship as much natural gas as is being produced so they’re just burning some of it off. But the story gets stranger than that. At one natural gas processing hub near Midland, Texas, the price of the product a couple of months ago fell to negative nine dollars per million BTUs. Yes, that means just what you think it does. The company was literally paying people to take natural gas off their hands.
But at almost the same moment, at a different hub in Washington state, the price shot up briefly to $200 per million BTUs in March. The national average across the country currently varies between seven and twenty dollars, depending on where you are.
This situation is nothing short of insane. The problem, as the study’s authors describe it, is that “pipelines aren’t in the right places, and when they are, they’re usually decades old and often too small.” Building natural gas pipelines isn’t all that difficult, nor is it unreasonably expensive given the profits available in the industry. But while demand for natural gas grows, applications to either build new ones or replace/expand existing ones are tied up in court, shut down by protests or simply banned, as the Governor of New York has done.
So we’re left with both feast and famine in terms of energy. New construction in parts of New York City can’t be put into use because they can’t get natural gas to heat the buildings. And those buildings sit literally less than a three-hour drive from one of the largest natural gas formations in the world. This problem can be fixed, but it’s going to require elected officials who are able to swallow a healthy dose of reality before it happens.