New England senators, witness question pipeline financing practices

Two US Senate Energy and Natural Resources Committee members from New England joined a witness from the Environmental Defense Fund in questioning how major natural gas pipeline projects are financed. Markets and priorities have changed to a point that relying on purchasers’ capacity commitments to raise construction capital may no longer be appropriate, they said at a June 14 hearing examining pipeline economics and other issues.

Large gas pipelines traditionally are financed by utilities and other large customers that determine they will save substantially with lower rates, Sen. Elizabeth Warren (D-Mass.) observed. “But does it make sense to make home heating customers and small businesses bear the risk when the state lets utilities pass the costs through? Giant pipeline companies should not be allowed to force consumers to pay for these huge uneconomic projects,” she said.

Sen. Angus King (I-Me.) said, “It seems to me we build infrastructure for either the hottest or coldest days of the year. That’s like building a church for only Christmas and Easter, and not the other days when there aren’t as many people. There’s a proposal in New England to make the utilities, and not the customers, pay for the risk of constructing these pipelines. It’s not an easy question. We clearly need the infrastructure.”

But N. Jonathan Peress, who is EDF’s gas air-policy director, said the magnitude of new gas pipeline projects under developed combined with what’s been built in the last 10 years could lead to a capacity bubble. “It could impose unnecessary costs on energy customers for expensive yet unneeded pipeline capacity, and ultimately constrain deployment of lower cost energy sources like wind and solar in the future,” he warned.

Where new pipeline capacity is financed by market participants who choose to risk their capital to capture benefits, prospects of overbuilding are not particularly troublesome, Peress said. “However, a pipeline capacity build-out induced by policies designed to spread the costs of new infrastructure on captive retail gas or electric ratepayers will almost surely become uneconomic, undermine market drivers for more efficient solutions, and impose unacceptable long term environmental and economic costs,” he said.

Other witnesses and committee members called for more oil and gas pipeline construction. “I’m increasingly concerned about the politicization of routine infrastructure projects,” said Sen. Mike Lee (R-Utah). “Many of these groups do not represent responsible environmental organizations, let alone most of the nation’s population. But these antidevelopment activists are preventing construction of the necessary pipelines to accommodate the demand growth.”

Future capacity is uncertain

While it looks as if producers will be able to meet manufacturers’ gas needs, it’s still not certain whether there will be enough pipelines and capacity to get it from the wellhead, said Ross Eisenberg, vice-president for energy resources and policy at the National Association of Manufacturers. “By improving technology and increasing productivity, supply growth continues at a strong pace despite falling prices for both gas and oil and significantly lower rig activity…[but] the rapid growth of low-cost production out of the Marcellus and Utica plays has created a bottleneck, as producers are unable to find pipeline capacity.”

Association of Oil Pipe Lines Pres. Andrew J. Black testified: “American workers rely upon pipelines to deliver the raw material feedstocks needed for good-paying manufacturing jobs in plastics, chemicals, fabrics, and pharmaceuticals. Plentiful, low-priced ethane production has fueled an industrial renaissance in America with billions of dollars in investment building new petrochemical plants and creating new jobs.” Case in point, he said, would be Shell Chemical’s announcement last week of plans to build a multibillion dollar petrochemical plant in Pennsylvania northwest of Pittsburgh (OGJ Online, June 7, 2016).

North American Building Trades Unions’ Pres. Sean McGarvey said that any pipeline project has three significant participants: industry, labor, and government. “Industry wants to grow, labor wants to create jobs, and the government wants safety and environmental concerns adequately addressed. But the third leg of this stool is proving to be an adversary, instead of an advocate of the first two,” he said.

“Comments out of this administration such as ‘eliminating the dash for gas’ are only superseded by the lack of support for gas to back up intermittent renewables, a less than ambitious support system for carbon capture and sequestration at power plants and industrial facilities, a virtual vendetta against hydraulic fracturing and enhanced oil recovery, and of course, the denial of the Keystone XL cross-border permit application,” McGarvey said.

Paul W. Parfomak, energy and infrastructure policy specialist at the Congressional Research Service, noted, “From an energy-market perspective, continued expansion of US pipelines has the potential to improve the efficiency of gas, oil, and refined products transportation—linking new producing regions with traditional consuming markets more directly, with greater capacity and reliability. However, the future operation and expansion of the pipeline network also faces significant challenges related to public safety, environmental risk, and energy market economics.”

Contact Nick Snow at

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