Friday, July 08, 2011

Turn The Beat Around

Many politicians and pundits plaintively plead for the need for the government to develop a long-term national energy plan to direct the country to transition away from fossil fuel and realize the oft-touted, but rarely defined goal of "energy independence" for the United States. A nugget from yesterday's WSJ shows just how absurd this notion is given the current dynamics at play in the energy industry. One Gas Price Eyed With Pipeline Reversal (sub req):

HOUSTON—Kinder Morgan Energy Partners LP billed its Rockies Express pipeline as the solution to the East Coast's natural-gas needs back when it started carrying gas from Colorado in 2009. Two years and one shale-gas boom later, it turns out that Kinder Morgan may have had it backward.

The East Coast is now awash in gas, thanks to the discovery of shale gas, in particular the Marcellus shale in Pennsylvania. And Kinder Morgan now "stands ready" to reverse its pipeline to pump gas from the East Coast as far west as California, said Mark Kissel, president of Kinder's western region.

If the company moves ahead with its reversal plan, an east-to-west pipeline would help smooth out a mismatch in supply and demand throughout trading hubs in San Francisco, Chicago, New York and elsewhere. That mismatch has created a disparity in pricing throughout the country, with utilities on the coasts often paying far more for fuel in volatile regional gas markets. A reversed Rockies Express could go a long way toward creating one gas price throughout the U.S. by removing those local gluts and shortages, said Cathy Landry, spokeswoman for the Interstate Natural Gas Association of America, a pipeline trade group.

"We'll have more of a national price of natural gas," she said.

Rockies Express was supposed to solve the Northeast's power needs back when Colorado was a big driver of the U.S. gas-production boom. But Northeastern states like Pennsylvania are now major producers in their own right, thanks to new technologies that have unlocked massive reserves from shale-rock formations. The Marcellus shale alone is expected to produce as much as four billion cubic feet a day in the next few years, nearly twice Pennsylvania's 2010 demand.

Got that? Two years ago, this pipeline was going to bring natural gas from the West to the East. Now, due to massive changes on the supply side, it's going to be used to move natural gas in the opposite direction. There are similar stories about LNG terminals at US ports that were designed only a few years based on plans to import liquefied natural gas now being retrofitted so that they can export LNG from the United States. Does anyone think a government planning agency would be flexible enough to respond to such a fluid situation? Okay, you can stop laughing now.

Of course they wouldn’t. They’d already have a created a Department of West to East Pipeline Planning and staffed it up. Because of union rules, the planners working in this department wouldn’t be able to work on a East to West pipeline and so another department would have to be created to manage this transition. The West to East Pipeline Planning department would still exist of course as politicians in whatever state it was located would resist any efforts to eliminate it or even reduce its budget.

The idea that more government planning is the answer to America’s long-term energy needs is one that long ago should have been relegated due the dustbin of history. The fact that it’s still regularly invoked demonstrates how immune many “thinkers” are to the realities on (and under) the ground.