Get Your Pipeline Out of My Yard
Thanks to the shale drilling revolution, the U.S. has gone in less than a decade from being woefully short of natural gas to having almost a century’s worth of supplies. But the pipelines that were going to transform American energy use are getting harder to build. To take full advantage of the windfall, the country must fundamentally change the way natural gas flows through the U.S. Yet what used to be seen as a rubber-stamp approval process has turned into a slow-motion headache for pipeline companies, brought on by ecological concerns and the changing economics of natural gas.
Take the case of the Hollerans. The first time they heard about the Constitution pipeline was in 2012, when men started showing up on their land to do survey work. Their 23-acre homestead in northeastern Pennsylvania was in the path of the $875 million pipeline, which would stretch 124 miles from the Marcellus Shale fields of Pennsylvania into New York state, where it would connect with existing pipelines to deliver cheap natural gas to cities in the Northeast.
As other landowners around them made deals with the pipeline’s owner, Tulsa-based Williams Cos., the Hollerans held out. For two years they tried to get Williams to make alterations to the route, which initially ran through the middle of their house. Williams diverted the pipeline away from the house, but not from the grove of mature maple trees that supply the family’s burgeoning syrup business. Williams offered compensation, but nothing that approached what the Hollerans considered to be the value of their land. So they refused to sign.
In December 2014, Williams secured federal approval for Constitution, which gave it the right to enforce eminent domain on the Hollerans and seize their property in the name of the public good. Over three days in early March 2016, chain saw crews cleared 3.5 acres of the Hollerans’ land, including hundreds of trees and 90 percent of their maples. State police blocked off nearby roads. U.S. marshals with bulletproof vests and assault rifles stood guard.
Then, seven weeks later, on Earth Day, New York state denied Constitution water quality permits, claiming that Williams hadn’t provided adequate details on its plans to bury the pipe beneath some 250 streams. Williams disputes this and is suing the New York State Department of Environmental Conservation. Technically, the pipeline isn’t dead, but it’s effectively on life support. To Megan Holleran, the victory is bittersweet. “Those trees will never grow back in my lifetime,” she says. “We’ll never be able to produce syrup on that land again.”
That same week in April, Texas energy giant Kinder Morgan canceled its $3 billion Northeast Energy Direct project, a 420-mile natural gas pipeline planned to run roughly parallel with Constitution. Together, the two pipelines were going to form a sort of energy superhighway, delivering a combined 2.8 billion cubic feet of gas a day from Pennsylvania, enough to serve 14 million homes. But unlike Constitution, Kinder’s pipeline wasn’t killed by politics or local opposition or even a denied permit; it was doomed by basic economics. The company couldn’t persuade power plants and factories in the Northeast to sign long-term contracts to buy the gas it would deliver.
As the industry presses for even more capacity, it’s time to consider whether there is both a need for more pipelines and enough political and popular will to go on building them.
Since 2009 federal authorities have approved some 5,000 miles of natural gas pipelines. Companies are seeking approval for an additional 3,500 miles, representing an investment of about $35 billion. But environmental and property-rights activists have formed a considerable front against the industry. Emboldened by their win against the Keystone XL crude pipeline, activists have mounted environmental challenges that have slowed or led to the withdrawal of 8 out of 14 major pipelines proposed to take gas out of the Marcellus Shale region. The average time for a pipeline to get approved and built has grown from three years to four, according to the Interstate Natural Gas Association of America (INGAA). For an industry sitting on $35 billion in investments, those delays add up to billions in lost profits.
Gas pipelines have also become a focal point in the bigger public debate over climate change and fracking, which recently has turned against the industry. A March Gallup poll showed 51 percent of Americans oppose fracking—the technique for releasing oil and gas from rock that’s made the U.S. what even President Obama describes as the “Saudi Arabia of natural gas.” That’s up from 40 percent opposition in 2015. The biggest loss of support came among Republicans, 55 percent of whom say they favor fracking, down from 66 percent in 2015.
More worrying for the pipeline industry, and the natural gas producers they serve, is that the economics of pipelines are becoming less favorable. Building a pipeline requires customers to sign long-term contracts that lock them into buying gas sometimes for as long as 20 years. With wind and solar getting cheaper by the day, those commitments no longer make as much sense as they once did. Natural gas pipeline companies, in testimony to federal electricity regulators, have acknowledged as much and that the trend toward renewable energy limits the economic viability of their pipelines. “Renewables are certainly competition,” says Donald Santa, president of INGAA.
This year, for the first time, natural gas is expected to pass coal as the top source of electricity generation in the U.S. That’s mainly because natural gas is so cheap—but low prices are a double-edged sword for pipeline companies. As drillers struggle to make money, some are looking to break long-term contracts they’ve signed with pipeline companies.
Once seen as a hot investment, and a way to get in on the U.S. shale revolution, the pipeline business has turned sour for some major players. Williams and Kinder Morgan have lost billions in stock market value. Share prices for both companies have fallen more than 50 percent in the past year. Williams is in talks to merge with rival Energy Transfer Equity, whose stock price has also fallen by half since last summer. With both companies struggling, that deal is now in question.
While the industry still claims the U.S. is desperately short of natural gas pipelines and needs hundreds of billions of dollars in new projects, there’s a growing case to be made that we may be on the verge of building too many in some regions. In a June 7 report, energy analyst Rusty Braziel suggests that by next year there will be enough new capacity to meet growing gas production in the Marcellus and Utica shale regions of Pennsylvania, West Virginia, and Ohio. If all 24 pipeline projects that are proposed for those regions get built, Braziel’s analysis suggests, by 2019 new pipeline capacity will be three times greater than new gas production. “I’m not saying that’s definitely going to happen, but it’s a distinct possibility that no one seems to be thinking about,” he says. Even the Department of Energy says the country’s existing 1.5 million miles of natural gas pipelines can be more efficiently used.
One of the strongest arguments for more pipelines is that the lack of infrastructure is keeping energy prices high in some regions. That was certainly true during the polar vortex of January 2014, which brought record cold temperatures to much of the U.S. and record natural gas prices to New England. The region relies on natural gas for about 47 percent of its electricity generation, up from 28 percent in 2001. In January 2014, New England’s governors called for an electricity tariff to pay for added natural gas pipelines.
In line with that request, last October, the public utility commission of Massachusetts gave the state’s utilities the ability to sign long-term contracts with pipeline companies and pass on the costs to their rate payers, in effect shifting the cost burden of a new pipeline away from utilities and pipeline companies and onto the backs of consumers. A few weeks later, the state’s attorney general, Maura Healey, issued a detailed report suggesting New England is unlikely to face reliability issues in its power sector over the next 15 years and that building pipelines would be among the most costly approaches to the region’s energy needs. The industry argues it has to build to accommodate periods of peak demand, even if that’s only a few days a year.
On June 14, the U.S. Senate Committee on Energy and Natural Resources held a hearing on the difficulty of building pipelines. Alaska’s Republican senator and chair of the energy committee, Lisa Murkowski, essentially asked the most important question: “If the benefits are so apparent … why is there this disconnect? What are we not doing right in conveying to the American public, the consumer, that there is a clear benefit here?”
She might want to ask Megan Holleran. “I’m not against natural gas, and I’m not anti-pipelines,” says Holleran. “I’m a capitalist. But when you try and steamroll and bully people, and refuse to share the benefits of what you’re doing, then of course people are going to line up against you.”
—With Dave Merrill