The Northeast has reached the “Distribution Phase” of the US Shale Revolution

Now in its third year, on Monday New York Energy Week kicked off with a ‘Natural Gas Breakfast’ entitled “An Exploration into the Rise of Natural Gas” that was hosted by the CME Group. Since 2013, the NYEW series has brought more than 5,000 energy stakeholders to its events in New York City – an apt forum where thought leaders from all corners of the industry convene to discuss opportunities within the energy landscape that will drive our energy systems forward. EnerKnol specifically created this annual event series to fuel collaboration and investment in what was perceived as a traditionally fragmented and siloed energy industry.

We live in extraordinary times in terms of US energy supply. The major development with respect to the North American gas market over the last couple of years is the rapid growth of US shale gas production. Gas supplies are now abundant and that abundance has exerted downward pressure on prices. As a result, Gregory Shuttlesworth of PIRA Energy Group described the gas market as a “relatively perpetually long market” – a market that – in his words – went from a “supply push” to a “demand pull” resulting in a new energy transportation dilemma.

This again is a stark reminder of the necessity of adequate access to markets for whatever resource a country may possess. Dwelling on the fact that the US is sitting on trillions of cubic feet of technically recoverable shale gas resources is a useless exercise in itself if the existing infrastructure – originally built without having the current glut in mind – lacks adequate capacity to handle the increased shale gas output as well as rising demand from urban centers.

Case in point here is the US Northeast. The largest sources of shale gas in the Northeast with relative proximity to New York City are the Marcellus and Utica Shale formations across the Appalachian Basin.

Major Suppliers of Natural Gas to NYC – Northeast Area Pipelines and Shale Resources

Source: ICF International (April 2012) via NYC.gov

Currently, about 50 percent of New York City’s natural gas demand comes from shale. In New York City, between 1.0 to 1.5 billion cubic feet of natural gas is distributed to customers daily by Con Edison and National Grid, the two large local distribution companies (LDCs), according to Kathy Boden of Con Edison.

Service Territories of LDCs and Pipelines in and around NYC

Source: ICF International (April 2012) and Ventyx via NYC.gov

Boden further pointed out that this demands a lot from the New York City natural gas pipeline system, which is almost 200 years old. Nevertheless, Con Edison continues to replace the old pipes with larger ones at a pace of 70 miles a year, which would take – according to Boden – about 34 years to complete the job.

Meanwhile, Con Edison is increasing the pressure in the pipe to put more natural gas through. It is noteworthy, however, that with the increased conversion to ‘Combined Heat and Power’ (CHP) – i.e. the “simultaneous production of electricity and heat from a single fuel source” (cogeneration) – demand for cheap natural gas will only rise further thereby exhausting existing capacity more quickly. Therefore, there is no way around the fact that distribution systems will need to be build out.

It is in this context that perhaps the most salient point was made by Mary Usovicz of TRC Companies, who stressed the need for better public information campaigns to build out critical infrastructure in order to prevent the creation of “artifical problems” or “roadblocks” by public participation in the permit process. Here, she reminded the audience of the Constitution Pipeline – necessary to bring natural gas especially to Upstate New York – and its problem of ‘siting’ saying that this is “the only pipeline with FERC approval but no shovel in the ground.” Note, uncertainty in the market only creates higher costs for the end user. Therefore, public information campaigns on why it makes sense to take advantage of the economic blessing that is the Shale Revolution need to precede any build-out of critical energy infrastructure.

The following two graphics show the proposed route of the Constitution Pipeline from Pennsylvania to Upstate New York and the excessive number of alternatives proposed for consideration as a result of public participation without a prior proper campaign to inform local communities.

Source: Constitution Pipeline