Lack of pipelines pushing up prices for natural gas
WASHINGTON — Limited capacity on pipelines is driving up natural gas prices for U.S. manufacturers, making it tougher to compete with low-cost manufactures abroad, the trade group Industrial Energy Consumers of America said in a letter to members of Congress Wednesday.
The group, which represents U.S. manufacturing and industrial firms, said pipeline companies were putting strict limits on gas flows to maintain system stability. They said increased demand from natural gas-fired power plants and liquefied natural gas export facilities, centered along the Texas and Louisiana Gulf Coast, had resulted in less available pipeline capacity for manufacturing.
“New pipeline capacity is not getting built,” said Paul Cicio, president of IECA. “Inadequate pipeline capacity impacts existing manufacturing facilities and is detrimental to new investments and job creation.”
In his letter, Cicio specifically cited the use of what are known as operational flow orders along the Transco pipeline, which runs along the Gulf and Atlantic coastlines between Houston and New York. He said gas prices where the pipeline runs through Virginia and North Carolina averaged $11.37 per million British thermal units in January — more than double the U.S. benchmark Henry Hub — and at one point exceeded $21.
“We’ve seen some cold weather over the last several weeks, from Boston all the way down to Atlanta, and demand has been really high,” said Scott Hallam, senior vice president at Williams Cos., which operates Transco. “We’re seeing differences in pricing regionally. Henry Hub is trading around $4, but you get to New York it’s $10 to $15. In Boston it’s $30. That’s the challenging consuming sectors like manufacturing face.”
Under an operational flow or
der, buyers and sellers must tell pipeline companies nearly exactly how much gas they are transporting. If they’re wrong, they must pay a steep financial penalty that can far exceed the cost of the gas they’re buying.
Such orders have become relatively common on gas pipelines along the East Coast in recent years, in particular during the winter when demand for gas for home heating is high, said Nikolay Filchev, associate director North American gas at the research firm IHS Markit.
“The Northeast and Southeast typically have a lot of issues during the heating season, so the pipelines have to be very strict with customers,” he said. “The pipelines cannot tolerate any swings (in gas volumes) because the system is so well utilized it cannot do more physically.”
So far, Transco has not issued any curtailment orders asking customers to stop using natural gas, Hallam said. But the concern among manufacturers is that without additional pipeline capacity, curtailment might not be far off.
Natural gas pipeline companies such as Houstonbased Kinder Morgan and Williams of Tulsa, Okla., have complained for years about the difficulty in building interstate pipelines, which must be approved by the Federal Energy Regulatory Commission, a process that is frequently extended by litigation from environmental groups.
That has been a particular problem for projects along the East Coast. In 2020 the energy utilities Dominion Energy and Duke Energy announced they were canceling the Atlantic Coast Pipeline project, which would have delivered gas to North Carolina from the Marcellus and Utica shales in Pennsylvania and Ohio.
Last year two pipeline companies cancelled projects on the East Coast, citing delays in FERC’s approval process.
“The project has been delayed well beyond (our) expectations,” a lawyer for New Jersey Resources wrote in October. “There is significant uncertainty regarding when an order will issue in this docket.”
Getting FERC approval for pipelines is unlikely to get any easier, as the commission weighs how to consider future greenhouse gas emissions associated with a gas project in deciding whether to approve it.
In the meantime, pipeline companies are shifting away from building new pipelines and are instead focusing on expanding their existing systems.
“It’s going to be very challenging for a new greenfield pipeline,” Hallam said. “We’re continuing to find ways to operate our pipelines more efficiently and unlock capacity through debottlenecking projects.”