labrynth consulting analysis of penneast 20150629-5252(30679481)

DELAWARE RIVERKEEPER NETWORK925 Canal Street, Suite 3701Bristol, PA 19007

Office: (215) 369-1188fax: (215)[email protected]

June 29, 2015 Ms. Kimberly Bose Federal Energy Regulatory Commission Office of the Secretary 888 1st Street, NE Washington, DC 20428 Re: Docket No. PF15-1-000: Comments Regarding PennEast Pipeline Project, Scoping Period Dear Ms. Bose, Attached please find an expert analysis which, among other things, concludes: Based on these documents and an independent investigation of natural gas supply and demand in New Jersey and Pennsylvania, natural gas and electricity costs in New Jersey, and heating oil use and costs in New Jersey, I conclude that there is inadequate justification for approval of the PennEast project. I furthermore find that the Request for Approval is misleading and disingenuous. It is clear that PennEast Pipeline Company, LLCs true intent is not to provide gas principally to markets in Pennsylvania or in New Jersey but, rather, to deliver gas to interconnecting pipelines or shippers1 that will deliver gas to other downstream markets2 that do not include Pennsylvania or New Jersey. The proposed PennEast volume of 1 Bcf/d would create a 53% supply surplus above the current level of consumption.

, it is doubtful that the true intent of the PennEast Pipeline is, in fact, to supply gas to New Jersey but, rather, to deliver it to interconnecting pipelines bound for other downstream markets.

Sincerely, Maya K. van Rossum the Delaware Riverkeeper

20150629-5252 FERC PDF (Unofficial) 6/29/2015 4:13:13 PM

1

June 18, 2015 Professional Opinion on the Proposed PennEast Pipeline Project Updated June 18, 2015 I have reviewed all relevant documents pertaining to the proposed PennEast Pipeline project including Request for Approval of Pre-Filing Review dated October 17, 2014 (Request for Approval). Based on these documents and an independent investigation of natural gas supply and demand in New Jersey and Pennsylvania, natural gas and electricity costs in New Jersey, and heating oil use and costs in New Jersey, I conclude that there is inadequate justification for approval of the PennEast project. I furthermore find that the Request for Approval is misleading and disingenuous. It is clear that PennEast Pipeline Company, LLCs true intent is not to provide gas principally to markets in Pennsylvania or in New Jersey but, rather, to deliver gas to interconnecting pipelines or shippers1 that will deliver gas to other downstream markets2 that do not include Pennsylvania or New Jersey. Insufficient Need for Natural Gas in New Jersey and Pennsylvania Based on current natural gas supply and demand in New Jersey and Pennsylvania, there is no apparent need for the gas that would be transported via the proposed PennEast pipeline. The proposal is vague about what portion of the approximately 1 billion cubic feet per day (Bcf/d) would be delivered to consumers in southeastern Pennsylvania versus New Jersey. It is equally unclear as to what proportion of proposed PennEast gas volumes would be used to supply gas to markets beyond Pennsylvania and New Jersey. In The Request for Approval, the stated purpose of the PennEast Pipeline is to deliver natural gas to growing natural gas markets in eastern Pennsylvania, southeastern Pennsylvania, New Jersey and other downstream markets.3 Pennsylvania natural gas demand has grown since the boom in Marcellus Shale production (Figure 1).

1 Request for Approval of Pre-Filing Review, PennEast Pipeline Company, LLC, p.2, October 7, 2014. 2 Request for Approval of Pre-Filing Review, PennEast Pipeline Company, LLC, p.1, October 7, 2014. 3Request for Approval of Pre-Filing Review, PennEast Pipeline Company, LLC, p.1, October 7, 2014.

-PSOH-BOFt4VHBS-BOE59

Labyrinth Consulting Services, Inc.


2

Figure 1. Pennsylvania annual natural gas consumption. Source: EIA. Pennsylvania is a net exporter of natural gas to other states so it has no unfilled demand for natural gas (Table 1).

Table 1. New Jersey and Pennsylvania net natural gas deliveries by interstate pipeline. Source: EIA. Pennsylvania exported 2.5 Bcf/d in 2013 and 2.8 Bcf/d in 2014. It must, therefore, be assumed that most, if not all, of the gas for the proposed PennEast Pipeline would go to New Jersey. Since Pennsylvania is a net exporter of natural gas, I limit the remainder of my analysis to an assessment of potential natural gas needs of New Jersey beyond present usage. Existing interstate pipelines supply all of New Jerseys natural gas demand and New Jerseys natural gas market is not growing. Natural gas consumption for New Jersey has been relatively flat for the past four years at average rate of 1.8 billion cubic feet of gas per day (Bcf/d), somewhat below the higher levels of the late 1990s (Figure 2).

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Net3Natural3Gas3Pipeline3Deliveries


3

Figure 2. New Jersey annual natural gas consumption. Source: EIA. Although consumption increased slightly in 2013 compared to the three previous years, New Jersey cannot be called a growth market as the Request for Approval states. For the entire year 2013, the amount of daily increase over 20120.099 Bcf/dwas less than one-tenth of what the proposed PennEast Pipeline would deliver (1.00 Bcf/d). New Jersey gas supply is shown above in Table 1. The small difference between supply and consumption is accounted for by processing and transportation loss, and compression needs. The proposed PennEast volume of 1 Bcf/d would create a 53% supply surplus above the current level of consumption. Marcellus Shale Over-Supply Marcellus Shale production today can only be described as an epidemic of over-production. When the play began in earnest in 2005, the northeastern United States relied on pipeline gas deliveries from the Gulf Coast. At that time there was a positive differential price in the Northeast relative to Henry Hub Gulf Coast pricing. As production has increased, the northeastern gas market is now near saturation and spot prices are presently at a negative differential of at least -$1/ million cubic feet compared with the Henry Hub. The over-supply from the Marcellus Shale is expected to increase as more wells are drilled. Our forecast calls for production to increase from approximately 12 Bcf/d in 2015 to almost 17 Bcf/d by 2020 (Figure 3).4

4 The U.S. Department of Energy EIA Drilling Productivity Report cites Marcellus gas volumes of 16.5 Bcf/d. That volume refers to what the EIA calls the Marcellus Region that includes all gas productionnot just Marcellus gas53 counties in West Virginia, 9 counties in New York, 2 counties in Maryland in addition to 41 counties in Pennsylvania. Our forecast is based on the latest production data from the Pennsylvania Department of Environmental Protection.

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1997# 1998# 1999# 2000# 2001# 2002# 2003# 2004# 2005# 2006# 2007# 2008# 2009# 2010# 2011# 2012# 2013#

Billion

s'of'C

ubic'Fee

t'of'N

atural'Gas'Per'Day'

New'Jersey'Natural'Gas'Consump;on'


4

Figure 3. Total Marcellus (Pennsylvania gas production estimate. Source: Labyrinth Consulting Services, Inc. The only relief for producers is to export gas outside of Pennsylvania via new pipelines and by reversing flow in existing pipelines. The plan to export gas through the proposed PennEast Pipeline benefits producers who have consciously destroyed value in Pennsylvania by providing them with additional markets for their gas. It is unclear if there is any benefit to the public. Based on the analysis in the sections above, it is doubtful that the true intent of the PennEast Pipeline is, in fact, to supply gas to New Jersey but, rather, to deliver it to interconnecting pipelines bound for other downstream markets. Although it is certainly the right of mineral owners to over-produce natural gas at a loss if they choose to and can justify it to shareholders, it is unclear why FERC should grant them the means to remedy the unfavorable price environment that they have deliberately brought upon themselves. Assessment of Fuel Oil Use in New Jersey Because of the lack of need for additional supply of natural gas in New Jersey based on the current supply-demand balance discussed above, I investigated the potential need for additional supplies of natural gas to replace fuel oil5 as a source of residential heating need. New Jersey has already made considerable progress in converting heating use from fuel oil to natural gas. Today, only 10% of New Jerseys residential heating use comes from fuel oil (Figure 4). Neighboring Pennsylvania and New York, by comparison, rely more on fuel oil for 21% their residential heating needs. At 10% fuel oil use for heating, New Jersey is near the national average of 6%.

5 Fuel oil is also called heating oil or No. 2 heating oil. These terms all refer to the same petroleum product widely used for heating in the northeastern United States and elsewhere.

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Type,Well,2012.25U2013.25

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Actual,Data

Assumes,drilling,stops,once,160,acre,spacing,is,

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5

Figure 4. Comparison of heating fuel use in New Jersey, Mid-Atlantic states (Pennsylvania and New York) and the U.S. average. Source: EIA. Also shown in Figure 4, 74% of New Jerseys heating needs are already met by natural gas. This is far above the national average of 48% and above the 54% usage for neighboring mid-Atlantic states. Furthermore, use of heating oil in New Jersey is declining rapidly. Figure 5 shows that heating oil use has declined by almost half (46%) since 2008 and has declined by 59% since 2000.

Figure 5. New Jersey sales of heating (fuel) oil to residential customers. Source: EIA. Fuel oil price is indexed to crude oil price and, since crude oil prices collapsed beginning in June 2014, fuel oil prices have dropped (Figure 6). The EIA forecasts that crude oil prices will not reach 2014 levels again until 20286 so heating oil prices should be reasonable compared with natural gas prices for at least the next decade.

6 EIA Annual Energy Outlook 2015.

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Figure 6. New Jersey fuel oil prices, 2011-2015. Source: EIA. Based on this data, it is difficult to make a case that New Jersey needs more natural gas to replace heating oil used for residential heating above its current supply that amply meets existing demand. In no case can it be argued that New Jersey needs, much less is capable of absorbing, the volumes of gas from the proposed PennEast Pipeline project. Assessment of Natural Gas and Electric Power Cost in New Jersey Because:

New Jerseys natural gas market is not growing as stated in The Request For Approval, and New Jersey already uses far more natural gas for heating than the U.S. national average and than

in adjacent states, and New Jersey does not need to reduce reliance on fuel oil beyond present low and decreasing

levels,

the cost of natural gas and electric power are the only other avenues of investigation necessary to understand why New Jersey may need additional natural gas supply from PennEast or from any other source. The argument here is that New Jersey customers might reduce their cost for natural gas or for electricity if natural gas prices were lower because of more supply or because natural gas might replace currently more expensive sources of electric power generation. First, New Jersey natural gas prices are currently only slightly above the national average as shown in Figure 7.

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Figure 7. Comparison of natural gas prices among all states. Source: EIA. Furthermore, New Jersey gas prices are slightly less than Louisiana and only slightly more than Texas, the two largest gas-producing states in the U.S. Considering that New Jersey produces no natural gas of its own, it is somewhat remarkable that its gas costs are comparable to the two largest producing states. By analogy to Texas and Louisiana, it is unlikely, therefore, that more supply would result in lower gas prices to consumers. Second, New Jersey electric power costs are currently below the national average (Figure 6).

Figure 6. Comparison of U.S. residential electric power costs. Source: EIA. The only reason costs are higher than in Texas or Louisiana is that a very large percentage of electric power in New Jersey comes from nuclear power plants (Figure 7).

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Figure 7. New Jersey sources of electric power. Source: EIA. Nuclear power is essentially a fixed percentage of use because of long-term capital expenditures that were passed on to New Jersey ratepayers by the plant operators. Electric power from nuclear sources is not subject to significant modification because of additional natural gas supply. As things stand now, natural gas used for electric power generation is increasing at the expense of coal, as shown in Figure 7. Summary and Conclusion The stated purpose of the proposed PennEast Pipeline is:

To deliver natural gas to growing natural gas markets in eastern Pennsylvania, southeastern Pennsylvania, New Jersey and other downstream markets.7

It is designed to bring lower cost natural gas produced in the Marcellus Shale region in eastern Pennsylvania to homes and businesses in Pennsylvania and New Jersey.8

The Request for Approval reveals that this stated purpose is, at best, misleading and, at worst, false as far as Pennsylvania and New Jersey are concerned. I have shown in preceding sections that there is no justification based on need or cost to bring additional natural gas to New Jersey via PennEast or any other source. I have further shown that New Jersey is not a growing natural gas market and that it already uses far more natural gas as a percentage of its residential heating use than the national average or in adjacent Pennsylvania and New York. I have also shown that there is no compelling case that additional volumes of natural gas are needed to displace fuel oil or to lower the cost of natural gas or electricity. It is, therefore, reasonable to assume that the true objective of the project is neither Pennsylvania or New Jersey as stated in The Request for Approval but to deliver gas to other downstream markets outside of Pennsylvania and New Jersey.

7 Request for Approval of Pre-Filing Review, PennEast Pipeline Company, LLC, p.1, October 7, 2014. 8 Request for Approval of Pre-Filing Review, PennEast Pipeline Company, LLC, p.2, October 7, 2014.

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9

Despite mention of local stakeholders that are listed in Exhibit D9 of The Request for Approval, it is apparent that the primary stakeholders of the project are:

Marcellus and Utica Shale natural gas producers seeking outlet markets for an over-supply of natural gas at better pricing, and

Interconnecting pipelines or shippers that will deliver gas to other downstream markets that do not include Pennsylvania or New Jersey.

I quote from The Request For Approval: The Project is designed to meet the needs of shippers10 seeking:

(i) additional supply flexibility, diversity and reliability; (ii) liquid points for trading in locally produced gas, including Marcellus Shale and Utica Shale gas; (iii) direct access to premium markets in the northeast and mid-Atlantic regions; (iv) the ability to capture pricing differentials between the various interconnected market

pipelines; and (v) firm access to long-lived dry gas reserves.11

Principal interconnecting pipelines that PennEast would supply include: Columbia Gas Transmission, LLC, Texas Eastern Transmission, LP, Algonquin Gas Transmission, LLC, and Transco. These pipelines currently deliver gas to the Boston and New York markets and may eventually be reversed to carry Marcellus gas to southeastern markets. Although there may be legitimate reasons for the PennEast Pipeline project based on supply needs in the northeast and elsewhere in the U.S. and for potential export, the proposal is disingenuous in its claim to provide gas for Pennsylvania and New Jersey. It should, therefore, be rejected in its present form and sent back to PennEast for revision prior to further consideration.

Arthur E. Berman Petroleum Geologist

9 Request for Approval of Pre-Filing Review, PennEast Pipeline Company, LLC, p.53-86, October 7, 2014. 10 My italics for emphasis. 11 Request for Approval of Pre-Filing Review, PennEast Pipeline Company, LLC, p.2, October 7, 2014. I added bulleted format for clarity.


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REFERENCES [1] Fifty Years of Paper Making A Brief History of the Origin, Development and Present Status of the Warren Mfg. Company 1873-1923; Published by the Warren Mfg. Co., Boston, 1923 Story of Papermaking, Edwin Sutermeister, 1954; Published by S.D. Warren Co. Chemistry of Pulp and Paper Making, Edwin Sutermeister ISBN 10: 1230859330/ISBN 13: 9781230859330 Digital Sanborn Maps, 1867-1970; Sanborn fire insurance maps contain not only detailed information on urban structures and property boundaries, but detailed process drawings/piping layouts process chemicals employed for many mfg. facilities/mills [2] Agency for Toxic Substances and Disease Registry (ATSDR) --Chlorinated Dibenzo-p-dioxons (CDDs) (extensive information and references to other related publications). As noted in Summary, They (mainly 2, 3, 7, 8 TCDD) may be formed during the bleaching process at pulp and paper mills. --Toxicological profiles: National Technical Information Service --ATSDR, Public Health Statement for Mercury --Numerous US EPA Publications including Dec. 1997. Mercury Study, Report to Congress and subsequent amendments/revisions --Scientific/Engineering publications cited in the Engineering Index, 1880-present [3] PennEast Pipeline Company, LLC Pipeline Project, Proposed and Revised Location Map; online [4] News release, August, 2014; US EPAs proposed plan to remove and replace soil in residential yards which contained more than 250 ppt of dioxins; Cleanup of floodplains down river of Dow Chemicals Midland, Mich. Facility [5] Records on file with the Hunterdon County Historical Society [6] A History of PSE&G, the Energy People, by James C. G. Conniff and Richard Conniff; published by Public Service Electric and Gas Company, 1978 ISBN: 0-9602014-1-6


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labrynth consulting analysis of penneast 20150629-5252(30679481)

Documents

new jersey

penneast project

current natural gas

penneast pipeline company

proposed penneast volume

southeastern pennsylvania

supply surplus

electricity costs