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Empire State of Mind: Inside New York's Tenuous Relationship with Natural Gas

June 7, 2017 | By Annalisa Kraft

New York State seems to have a love-hate relationship with natural gas and natural gas infrastructure. In this edition of Get The Point, we discuss how reliant the Empire State is on natural gas and how surrounding states are affected by its policy decisions around the fuel source and its movement through the state.  

New York has ambitious emissions reduction goals, and in 2015 New York City’s Mayor Bill de Blasio said the city’s goal was to cut emissions by 80% by 2050, mainly by phasing out No. 4 fuel oil before 2030. Another goal is to attract business to the state. There is a growing chorus of labor, business interests and politicians encouraging the use of natural gas and supporting the necessary transportation infrastructure to take advantage of the abundant and nearby resource in the greater Marcellus and Utica producing areas.

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Yet, not only has the New York State Department of Environmental Conservation (NYSDEC) rejected critical Section 401 water permits for two major pipeline projects, but Gov. Andrew Cuomo (D) banned fracking outright in 2014.

Both the Constitution Pipeline Project and the Northern Access 2016 Project have been halted while the operators pursue their options at the Federal Energy Regulatory Commission (FERC) and in court. And Millennium Pipeline’s projects, while not halted, have seen delays and significant cost increases due to NYSDEC. 

Some in the energy industry believe the NYSDEC’s water permit rejections and foot-dragging are motivated by the governor’s agenda. Certainly, National Fuel Gas CEO Ron Tanski was brutally frank in his assessment of the state’s agency’s denial of his company’s Northern Access 2016 pipeline water permit. He said he couldn’t even get a meeting with the governor about it despite being the CEO of a state-headquartered business. “[NYSDEC] attempts to set a new standard that cannot possibly be met by any infrastructure project in the state that crosses streams or wetlands, whether it is a road, bridge, water, or an energy infrastructure project," Tanski said.

Heather C. Briccetti, CEO of The Business Council of New York State, Inc., echoed Tanski’s sentiment in an opinion piece in Crain's. “In New York, critical development projects are being stalled. The regulatory process is arduous, and even projects that have been approved by federal regulators and determined to be environmentally safe through extensive review can be scuttled by the state for political reasons," she wrote.

American Petroleum Institute (API) spokesperson Reid Porter summed up the New York predicament for PointLogic in an email. “The New York governor’s own energy plan assumes significant growth in natural gas use – but blocks efforts to produce it and transport it here," Porter wrote.

However, NYSDEC responded to PointLogic that its review process is politically neutral. “New York State is consistent and deliberate in its comprehensive review and decision-making on all project proposals. Each project is assessed on its individual merit and unique circumstances to ensure that it meets the state’s strict environmental, health, and safety standards," wrote Erica Ringewald, NYSDEC spokesperson.

“In the case of interstate gas pipelines, this review occurs while the developer is simultaneously seeking permission to site the pipeline project in a proceeding before the Federal Energy Regulatory Commission," she added.

Ringewald also said the agency could not respond to Tanski’s comments with a case pending litigation.  

The State's Supply and Demand Situation

According to a May 22 report from NYISO, New York’s grid operator, "power demand is expecting to decrease at an annual average rate of -0.23% from 2017 through 2027, due to ongoing energy efficiency projects and distributed energy investments by consumers (solar power). The energy requirement for load without those impacts is growing at an annual average rate of 0.7% over the same period,” said NYISO.

NYISO summed up the situation in New York, “New York’s capability to produce power from natural gas and wind has grown, as the generating capacity from coal and oil-fired plants has declined. The portion of New York’s generating capability from natural gas and dual-fuel facilities grew from 47% in 2000 to 57% in 2017. Generating capability from power plants fueled solely by oil dropped from 11% in 2000 to 6% in 2017.”

A Tale of Two Grids

The more interesting and important element, however, might be what NYISO calls "a tale of two grids."

“In 2016, 85% of electricity generated upstate came from nuclear, hydro and wind resources with no carbon emissions. By contrast, nearly 75% of the electricity produced in the downstate region was generated by fossil fuel resources. Downstate New York (Long Island, New York City, and the Hudson Valley) annually uses 66% of the state’s electric energy. Yet, that region’s power plants generate only 53% of the state’s electricity," NYISO said.

“…in New York, the tale of two grids includes a supply mix that is less diverse within the various regions of the state. For example, the combination of more stringent air quality regulations, limitations to the ability to flow energy across the transmission system, and reliability standards that establish local generation requirements in the downstate region have resulted in the power demands of New York City and Long Island being served with generation primarily fueled by natural gas."

 

Upstate New York capacity versus downstate

Source: NYISO

 

"In addition to looking at capacity, the maximum potential output of the various types of power plants, it is important to consider the actual energy generated by those power plants. For example, power plants that run on fossil fuels (natural gas, oil and coal) account for 66% of New York’s generating capacity. However, generation powered by fossil fuels amounted to only 45% of the total electric energy produced in New York during 2016," NYISO said.

The North American Electric Reliability Corporation (NERC) says in its Summer Reliability Assessment released in late May that gas’ share of the fuel mix in New York is now 41% and the state may not have a summer reliability problem, after all, with anticipated reserve margin coming in at 28.54%.

PointLogic Energy data shows that the state’s problem lies, however, not in the summer but in the winter, as seen in this PointLogic chart below.

New York demand

Source: PointLogic

Skyscraper-high Prices

From the perspective of the oil and gas industry, the current situation represents a lost opportunity. “It’s ironic New York’s energy-related carbon emissions dropped 24.5 percent between 2005 and 2013, and New York City has achieved its cleanest air quality levels in 50 years, largely due to increased use of natural gas. Natural gas that the governor's policies could make more costly and difficult to obtain," wrote API New York Executive Director Karen Moreau in an email to PointLogic. 

As if it weren’t pricey enough, Moreau explains, “While electricity and heating costs have dropped in most states, New York’s electricity prices are some of the highest in the nation – nearly 50 percent more than the national average – due in large part to self-imposed infrastructure constraints."

More than half the state's residents heat with natural gas, she said, and API has found that the state in 2014 was the nation's fourth-largest natural gas consumer as well as the fourth-largest net generated electricity user of natural gas.

Yet despite a three-decade decline in carbon emissions from power generation (mainly due to electricity generation moving to natural gas), Moreau said, "... here in New York, the governor has made politically motivated, short-sighted decisions to support those who believe it advances their climate agenda. You can’t grow the use of renewables without natural gas as base load and the governor’s own energy plan assumes significant growth in natural gas use, but we can neither produce it nor transport it here."

If anything, Gov. Cuomo's interests in future power seem to lie elsewhere, as he announced on June 5 an ambitious billion-dollar renewables plan for the state and confirmed its commitment to the Paris climate accords. As of publication, the governor's office had not replied to repeated PointLogic requests for comment about his natural gas policies.

Surprisingly, New York residents pay close to what its neighbors pay (even gas-abundant Pennsylvania) for gas but that is much lower than the rest of the antion, ex-Northeast, as shown in the following chart based on EIA pricing data.

 

Price of natural gas delivered to residential consumers $/Mcf

Source: PointLogic, EIA

Interestingly, in 2016 the state's electric power consumers paid less for gas/Mcf than the U.S. average but more than Pennsylvania. In general, the state's electric power consumers paid more in the years preceding 2016.

 

Natural gas price sold to electric power consumers and electric power price ($/Mcf)

Source: PointLogic, EIA

Independent Power Producers of New York CEO Gavin Donohue said in May, “Natural gas use contributes to the fuel diversity and low emissions that are a hallmark of New York’s incredibly reliable and efficient electric system. We need that diversity and efficiency to keep costs low for consumers.” 

But not every New York pol agrees with the governor. Congressman Tom Reed (R) told PointLogic via email, “I care about creating an ‘all of the above’ energy policy and I believe New York has the potential become a leader in energy production. Unfortunately, the Governor does not always have the same view toward natural gas and pipeline projects. It is not fair to the people of our region to limit cost-efficient energy sources or prevent good paying jobs in that industry from hiring individuals here." 

State Senator Joseph A. Griffo, (R) chair of the Senate Energy & Telecommunications Committee, sees a range of benefits from more access to gas. “Natural gas plays a critical role in job growth and economic development. Investing in our aging energy infrastructure will allow more New Yorkers to benefit from access to affordable, reliable energy," he said in a May 1 press release announcing the formation of New Yorkers for Affordable Energy, a coalition of labor, industry and business groups advocating natural gas.

Republican State Senator Tom O’Mara (R) is also supportive and seems to long for the gas abundance of neighboring Pennsylvania, “Natural gas has become a forgotten natural resource within our borders while it’s having an enormously positive impact across the nation for consumers and in terms of energy independence, job creation and the revitalization of manufacturing.”

Still, New Yorkers can expect at least eighteen more months of a Cuomo second term and strong hints indicate a possible run at a three-term governorship.

Business implications

Certainly, Marcellus producers aren’t happy with the NYSDEC and the fracking ban. Shippers like Cabot Oil and Gas (which is also a partner on Constitution Pipeline) have commented frequently on earnings calls about the opportunities the projects would provide. In February Cabot CEO Dan Dinges said on the Q4 earnings call he expected continual improvements in differentials through 2018 and 2019, “[but] if Constitution is placed in service in 2018 or early 2019, that will have an even further positive impact on pricing, as those volumes will reach favorable markets in the northeast.”

There are a total of 12 pipeline projects planned to go through New York for a total of 4.5 Bcf/d in capacity by the end of 2019 (see PointLogic chart below). At least three of the projects are stalled, including the aforementioned Constitution and Northern Access 2016 projects, and Access Northeast is pending due to issues with other Northeast states, not New York.

Northeast pipeline projects

(Source: PointLogic)

But it’s not just shippers that would benefit. “We consider NYSDEC’s actions in denying Section 401 water quality certifications to Constitution and Northern Access to be short-sighted and detrimental to New York’s businesses and citizens," said Dena Wiggins, president and CEO of the Natural Gas Supply Association, in an email to PointLogic.

Wiggins also noted the ripple effect of New York policy. "By denying the permits, they’ve also thrown a roadblock in the ability of other states to access the natural gas they need for clean electricity, winter heating and industrial manufacturing. While states have a role in pipeline permitting, Congress did not intend for one state to be able to unilaterally veto a federally approved project," she said.

PointLogic energy analyst Warren Waite points out that the New England states are at the highest risk of being impacted by New York’s policies. “The efforts to block or delay new infrastructure investment in New York restricts access to a cheap source of natural gas, particularly as demand grows in other areas of the country like the southeast. With more pipeline construction aimed at power and industruial demand and growing export capacity on the Gulf Coast, scarcity of supply for the Northeast becomes a real concern,” concluded Waite.

As a major partner on Constitution Pipeline, Williams has had a lot to say about doing business in New York. New York and New England desperately need new pipeline capacity. New England gets about half of its electricity from natural gas, but because of infrastructure constraints, its electric prices are nearly 60 percent higher than the national average. That could change by accessing the most economically-priced gas supply basin in the country via the Constitution Pipeline," Williams spokesperson Keith Isbell told PointLogic.

Isbell’s next remark points up the hypocrisy of the state’s political leadership regarding energy: “In New York, Constitution Pipeline was specifically called out in the New York State 2015 Energy Plan as critical gas transmission infrastructure necessary to meet New York’s expanding energy needs.

“The Plan called for a steady increase in natural gas usage between 2015 and 2030, with natural gas providing the largest share of any single fuel source by 2030 (38%). Limited access to additional gas supply could jeopardize billions in infrastructure investments and contribute to future gas and power price spikes in the region,” Isbell continued.

Isbell's point echoes one made by Bricetti of the Business Council of New York in the Crain's opinion article: “Community and business leaders from across New York understand the important role natural gas plays as a catalyst for job growth. New York’s aging infrastructure is straining to meet current needs and we haven’t added enough pipeline capacity to meet the growing demand.

"Every $100 million of investment in new infrastructure creates, on average, 70 jobs and adds roughly $139 million in value to the economy,“ Briccetti stated.

Labor supports infrastructure projects, noted New York State Building & Construction Trades Council President James Cahill. “New York is at a crossroads in terms of energy policy. Demand for energy is increasing at a time when the state’s aging infrastructure is already straining to meet the needs of consumers and businesses. Increasing access to affordable energy will help create jobs and lower energy costs for New Yorkers," he said.

But it’s possible that New York State Economic Development Council Executive Director Brian McMahon summed up the lost opportunities best. “Total natural gas demand nationally is expected to increase by 40 percent over the next decade, according to the National Association of Manufacturers. Much of this demand will be driven by manufacturers, which account for 80 percent of private sector industrial consumption. Unfortunately, many areas of New York State are not served – or are underserved – by natural gas infrastructure. To grow high-value, high-paying manufacturing and construction jobs, New York State must insure access to reliable natural gas supplies," he said.

Even New York’s own Public Service Commission weighed in a year ago on June 15, writing the state’s policy may drive away business. “Natural gas can also act as a catalyst for economic growth by attracting businesses to New York. Individuals or corporations considering locating or expanding business in New York will contemplate the availability of gas infrastructure. If infrastructure is not available, those businesses, and the jobs associated with them, may not choose New York,” it said.

PointLogic takeaway on N.Y. takeaway

So where does New York stand on its capacity to import, use or perhaps some day produce more natural gas?

As PointLogic's Waite observed, New York natural gas consumption has averaged 3.6 Bcf/d on an annual basis since 2014, an increase of roughly 0.3 Bcf/d compared to the prior 5-year average, according to EIA data.

New York supply

Source: PointLogic

Pennsylvania shows how much more can be achieved, Waite said. “The contrast of production growth or lack thereof in New York with its Pennsylvania neighbor is quite dramatic," Waite said. "In three short years, New York gas production decreased 0.02 Bcf/d to average 0.04 Bcf/d in 2016. Meanwhile, Pennsylvania dry gas production skyrocketed, growing 5.3 Bcf/d to average 14.2 Bcf/d in 2016 compared to 2013. And a lot more is coming, but hardly any of that growth will benefit New York or New England. 

“New York has ridden on the coattails of the Marcellus and Utica Shale boom in terms of the influx of cheap gas that passes through the Empire State. In terms of pipeline gas flows, nearly 1 Bcf/d of incremental inflows from Pennsylvania entered New York while net imports from Canada have declined by roughly 0.9 Bcf/d when comparing the first five months of 2017 against the same period in 2013.”

But the system is stretched until some of these projects passing through the state are approved and built, he said. “Without new takeaway projects from the Marcellus that deliver clean-burning and low-cost natural gas into New York and beyond, future production growth, specifically in Northeast Pennsylvania, is limited," Waite concluded.

PointLogic will continue to update readers with the very latest in Northeast, and New York, natural gas and infrastructure news.

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