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Natural Gas 4 Us: “On the Brink” of a New Year

By the time this article is read the latest Polar Vortex will be moderating. Christmas 2022 will be, let us hope a joy filled memory. The New Year rapidly approaching caused this optimist to pause and ponder. We live in a dynamic world where events thousands of miles away and seeming beyond our control impact our sense of well being. Who imagined the Ukraine Russian War would be prolonged and force gasoline prices to increase; that Liquid Natural Gas LNG from the US would become the fossil fuel life line of Europe, and many stable economic assumptions are “on the brink”. (On the verge of doing something or having some imminent event happen, especially that which is bad or disastrous.) Coupled with “on the brink” is the popular political tool of what is called brinksmanship (the art or practice of pushing a dangerous situation or confrontation to the limit of safety especially to force a desired outcome. In conflict diplomacy it is the maneuver of pushing a situation with the opponent to the brink to successfully force the opponent to back down and make concessions rather than risk engaging in a conflict that would no longer be beneficial to either side).

The US Congress right before Christmas collectively took the country “to the brink” before passing the 1.66 trillion spending bill. Our government is now funded through September 30, 2023. Senator Patrick Leahy democrat from Vermont praised the bipartisan support for the measure following months of negotiations. Republican Senator Richard Shelby is quoted regarding the 4,155 page bill, “It’s got a lot of stuff in it. A lot of good stuff”. Both Senators are “on the brink” retiring. Between this spending bill and Biden’s Inflation Reduction Act should we be concerned how we pay for all this good stuff and are we “on the brink”?

Globally Mr. Putin and the European Union with US support practiced brinkmanship regarding the war in Ukraine, and energy scarcity at home in Europe. Here in the US heating and electric bills “on the brink” of torpedoing household budgets already strained by the high price of gasoline and lingering inflation. The Federal Reserve Bank and highly regarded economists are concerned the US economy is “on the brink” of a major recession.

The increase world demand for natural gas, the reliable and plentiful cleanest fossil fuel, should be welcomed news here in the Appalachian Marcellus and Utica basin. But rather than seen increased production in our region, Biden’s administration pipeline obstruction policy continue to hamstringing increased development. The needed natural gas to meet LNG commitments will come from elsewhere in the US. According to Hart Energy News “Infrastructure constraints in the Marcellus and Utica shale plays are not just keeping the natural gas in, they are keeping capital out, Kevin Little, senior vice president for natural gas at Macquarie Energy, said at Hart Energy’s recent America’s Natural Gas conference.

“The regulatory burdens are creating a dislocation in the markets,” Little said. “Whereas, the Marcellus and Utica led in the terms of growth through 2019, now, we’re expecting this to shift down to Texas-Louisiana. “You’re just seeing a shift in capital away from Marcellus and Utica down to the Gulf Coast.”

U.S. LNG export capacity is primed to ramp up and the largest, most economic natural gas basin is left out of the action, unable to increase production to meet the higher demand. The result will be higher prices both domestically and internationally, adding to the pressure on struggling European economies.

The problem, he said, is the shift in production growth. The Haynesville is showing strong production growth, as is the Permian Basin. Eagle Ford and in the Barnett. There are expectations of growth in the Midcontinent, too. Just not in the Marcellus and Utica.

Mr. Little continued his remarks, “The culprit is the old pipeline constraints bugaboo. More production can’t come online until more takeaway comes online and more takeaway won’t come online because states in the Northeast simply won’t allow it. “

As Hart Energy reported, pushback against midstream infrastructure took the form of states like New York and New Jersey used Section 401 of the Clean Water Act to delay or deny certification of projects like the Constitution pipeline and Northeast Supply Enhancement project. CPV Valley Energy’s ultimately successful effort to build an eight-mile lateral pipe took years in court and massive cost overruns.

Even wins at the Supreme Court became Pyrrhic victories when the Atlantic Coast and Penn East pipelines were canceled. “If you have to get an act of Congress to get your permits to build a pipeline, if you’ve got to go to the Supreme Court and you still can’t build a pipeline, this is not a great environment to build midstream infrastructure,” Little said. “And so, you’ve not seeing a whole lot of new pipelines proposed.”

Even if the Mountain Valley Pipeline manages to find its way through the permitting maze, it won’t be able to change the equation much. The process to gain approval from the Federal Energy Regulatory Commission (FERC) takes four to six years, so major pipeline construction that would result in sustained growth in the Marcellus and Utica won’t happen anytime soon.

Paradoxically resistance to pipeline construction has made Northeastern states reliant on LNG imports to balance their markets in winter. With global demand rising, the price of those imports could soar as high as $100/MMBtu.

“It’s a very significant impact that will result in significantly higher prices for consumers in New England,” Little said. “In spite of being, geographically, very, very closely located to one of the cheapest gas basins in the world.”

2023 does not look like a boom year for our region in supplying more natural gas to the national and global market. It is “on the brink” of being passed by at a critical time. Simultaneously the Biden unrealistic Green Plan could have catastrophic results as it rushes the country headlong into the “brink”. Be assured “Brinkmanship” will be a key word in 2023, even if it is not politically correct.

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