by James A. Bacon
The proposed Atlantic Coast Pipeline (ACP) and Mountain Valley Pipeline (MVP), designed to bring low-price natural gas in the Marcellus and Utica shale fields to Virginia and North Carolina, pose significant risks to electric utility rate payers and landowners along their routes, argues a new study, “Risks Associated with Natural Gas Pipeline Expansion in Appalachia.”
“Pipelines out of the Marcellus and Utica region are being overbuilt,” states the report, written by the Institute for Energy Economics and Financial Analysis, whose stated mission is to accelerate the transition from fossil fuels to renewable energy sources. “Overbuilding puts ratepayers at risk of paying for excess capacity, landowners at risk of sacrificing property to unnecessary projects, and investors at risk of loss if shipping contracts are not renewed and pipelines are underused.”
A major justification for both pipelines is to provide Dominion Virginia Power and other electric utilities access to natural gas from West Virginia and Ohio, which for several years has been selling at a discount to Gulf of Mexico gas. But once a slew of proposed pipelines is built, the report contends, that price advantage likely will disappear, raising the possibility that the $9 billion cost of building the two pipelines will exceed the savings from lower gas prices.
“Shale drillers cannot continue to produce below cost indefinitely,” states the report. “In the longer term (10-15 years), it is likely that Marcellus and Utica gas prices will stabilize at a somewhat higher level. These longer-term prices will have a significant impact on the long-term economics of the Atlantic Coast Pipeline, which is designed as a 40-year project.”
Aaron Ruby, a spokesman for Dominion Transmission, managing partner of the ACP, disputed the conclusions of the report, saying, “There is no question about the urgent public need for the Atlantic Coast Pipeline. This project was developed in response to the real and demonstrated need of public utilities in Virginia and North Carolina. … Demand for natural gas in the region will increase nearly 165 percent from 2010 to 2013. Yet there is not enough infrastructure or supply … to meet this growing demand.”
Increased demand will come from electric utilities switching from coal to natural gas and from population growth, Ruby said. In Hampton Roads natural gas is in such short supply that service has been curtailed during extreme weather events for industrial customers, and attracting new customers burning natural gas is all but impossible.
Last month 33 area legislators signed a letter saying, “The need for this project is urgent; to put it bluntly, our region’s natural gas transportation system has reached a tipping point. The pipelines serving Hampton Roads are fully subscribed. Without new infrastructure, there is no way to meet our region’s rising demand for natural gas … crippling out prospects for economic growth.”
Mountain Valley Pipeline said that it had retained Wood Mackenzie Inc. to provide an independent analysis of long-term natural gas supply and demand in the Southeast. The resulting report, says MVP spokesperson Natalie Cox, “makes clear that the Southeast market alone has more than enough natural gas demand to support the MVP’s current capacity of 2.00 [decatherms] per day, and it’s important to remember that [the] Southeast is only one of MVP’s target markets.”
The Marcellus gas boom
The pipeline-building boom has been driven by soaring natural gas production in the Marcellus and Utica shale fields, in which production has outpaced the ability of pipeline companies serving the region to transport the gas to customers. A persistent price disparity has opened up between the “Henry Hub” price for Gulf gas and the “Dominion South” hub for shale gas, as seen in the graph above. Backers of both the ACP and MVP projects have argued that their pipelines will allow electric utilities to access the lower-priced Marcellus gas, saving $377 million a year for ACP’s Virginia and North Carolina customers alone.
The low gas prices are driving a race among natural gas companies to build new pipeline capacity to reach higher-priced markets, states the IEEFA report. “Pipeline companies [are] competing to see who can build out the best networks the quickest.” Continue reading