Marcellus Shale Update – 3.27.2018

The eternal state of confusion surrounding natural gas development in America continues unabated.  As events play out domestically and internationally, the absurdities manifest themselves.

Despite enormous obstacles and the inexplicable missteps of the gas industry, the pipeline buildout continues.  One measure of this is that the discount at which gas is sold at Henry Hub in Louisiana has dropped to its lowest level in five years when compared to the price at the Dominion South hub in Western Pennsylvania.  So far in 2018 it has averaged 49 cents.  For 2017 the differential was 85 cents and in 2016 approximately $1.

Gas sells at a premium in Pennsylvania because of the difficulty in getting the gas from the ground to market.  With more pipelines being built, more gas can flow in Pennsylvania and the price differential decreases.  The premium is larger for gas coming out of Northeastern Pennsylvania, which actually is where the best wells are located and which is closest to gas-starved New England, because the pipeline system from the Northeast is even more spotty.  Hopefully, as Atlantic Sunrise gets completed that differential also will lessen.  Thanks to the pipeline buildout, in April the industry produced 27 bcfd of gas from the Marcellus/Utica region, representing a third of entire national output.

The price differential will continue to drop as Mariner East 2 comes on line, but before that happens the natural gas industry has to get out of its own way.  Sunoco Logistics, which is constructing the pipeline, has antagonized practically everyone with its operations, including Pennsylvania state regulators and legislators.  At an extraordinary hearing last Thursday at the Pennsylvania State Senate, Senators from both parties took shots at Sunoco Logistics.  After a spokesman for the Marcellus Shale Coalition stated that pipelines are the safest way to move energy,  Democrat State Senator from Andy Dinniman of Chester County responded:

“I don’t disagree that pipelines are the safest way, but if you want it to be a reality, your companies need to tell Sunoco ‘you’re screwing it up for the rest of us.  And you’re hurting the people of Pennsylvania.’  And that’s what any trade group needs to do to protect its own interests and in the process also protect the interests of the citizens.”

It sounds like everything I’ve been saying in this column over the last year.

Pipeline advocates don’t need to look far for enemies.  On Friday the new Murphy Administration in New Jersey filed in Federal Court to prevent the taking by eminent domain of 149 parcels of land needed to complete the Penn East pipeline from Northeastern Pennsylvania to Central New Jersey.   New Jersey’s Attorney General asked the Court to deny the eminent domain request, and a spokesman for the Eastern Environmental Law Center said that the public entities that own these lands “have spent significant funds preserving these lands for their critical environmental values, not to create a green path for a dirty pipeline.”

That’s lovely sentiment, but Governor Murphy, who originally is from Massachusetts, might want to do a reality check first.  Governor Murphy might ask how the reliance on “renewable energy” sources is working in the Bay State?  Has he heard that due to its failure to provide a reliable energy supply New England now is importing gas from Russia?  Has he heard that Massachusetts Attorney General Maura Healey has gone on record as saying that importing gas from Russia during cold snaps is preferable to building pipelines from the Marcellus to New England?  That buying Russian gas drilled in the Arctic eco-system is better for the environment than taking it from the Marcellus?  Does Governor Murphy agree with her?

Thanks to New England (and now possibly New Jersey), Vladimir Putin is in a stronger position as he faces the hostile reaction of the West following the assassination attempt in England of former Russian spy Sergei Skripal.  The UK has responded very harshly, expelling 23 Russian diplomats, and President Trump just expelled 60 Russians and closed the Russian consulate in Seattle.

Of course, there is a limit to the pressure the West can put on Russia, and Putin knows it.  Western Europe remains remarkably dependent on Russian gas.  That gives Putin more incentive for his international adventurism and increases the chances that soldiers from places like Fort Dix, New Jersey will be sent overseas to counter further Russian aggression.  Should that happen, I am skeptical that either Attorney General Healey or Governor Murphy will take “credit” for their deployment.

Questions? Let Dan know.

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