The People of America's Oil and Natural Gas Indusry

Chilly Winter Underscores U.S. Energy Infrastructure Needs

Mark Green

Mark Green
Posted February 11, 2014

U.S. Energy Secretary Ernest Moniz, addressing a propane shortage currently affecting millions of consumers in the Northeast and Midwest at the National Association of State Energy Officials annual policy outlook conference last week:

“There’s a lot of day-to-day issues to be concerned about but we also want to keep this in a broader context. What we’re seeing played out is just one example of where our energy infrastructure isn’t quite ready for the task we have today.”

At the same conference, Roy Willis, president and CEO of the Propane Education Research Council, called propane the “canary in the coalmine” for the nation’s energy infrastructure needs. That canary certainly is singing out.

A group of Midwestern governors wrote to the White House last week asking for help with propane deliveries, prompting the Federal Energy Regulatory Commission (FERC) to take the unprecedented step of ordering a pipeline company to prioritize propane shipments from Texas to the Midwest and Northeast. The Wall Street Journal reports:

Mollie O'Dell, a spokeswoman for the National Propane Gas Association, said the decision should help, but she expects supplies to remain tight through the end of the winter because the infrastructure to deliver propane to high-demand areas is insufficient. "At the end of the day, this is really a transportation and distribution issue," Ms. O'Dell said, adding that the problem isn't a lack of propane, but "getting that supply to those who need it the most."

The problem certainly is ironic, given the United States’ surging production of domestic oil and natural gas, from which propane is derived. The propane situation and those involving natural gas distribution underscore the need for our country to commit to developing a modern system of transmission lines, pipelines and energy infrastructure.

The propane association (NPGA) cites heavy demand from farmers last fall and infrastructure realignments as factors in the current situation:

Abundant grain crops were being harvested throughout the Upper Midwest almost simultaneously this fall. … This was a large, wet crop which required massive amounts of propane in order to be dried prior to storage. That demand reduced propane inventories throughout the area. At the same time, infrastructure realignments inhibited the transportation of propane. The Cochin pipeline, which provided 40% of the product used by Minnesota suppliers, was shut down for repairs. This triggered a chain reaction causing suppliers to go further out to load their supply. Canadian imports to the Northeast were also impaired by rail re-routing. This forced Minnesota and Wisconsin retailers to get their propane at the pipelines in Iowa, increasing demand in that state.

In California the issue is natural gas distribution, with state residents being urged last week to voluntarily reduce electricity use after cold weather across the U.S. and Canada led to a natural gas shortage in Southern California power plants, the Associated Press reported. AP:

Bentek analyst Luke Jackson said gas supplies entering Southern California pipelines have been considerably lower the past two days because of high gas prices and strong demand in Texas, the Pacific Northwest and the Rocky Mountain states, which has crimped gas supplies for Southern California.

Bottom line: Infrastructure improvements are needed. API Chief Economist John Felmy talked about it during a conference call with reporters last month. He cited an IHS study showing industry capital spending on oil and natural gas infrastructure increased 60 percent between 2010 and 2013 to a total of $89.6 billion. Felmy:

“Reliable, affordable energy requires a 21st-century system of transmission lines, pipelines and energy infrastructure. The recent cold snap provided a chilling reminder of what happens when demand approaches the limit of our current ability to bring abundant U.S. supplies to the regions that need it most. … With the right policy choices, these investments will accelerate, providing a major boost to the economy, creating jobs, and strengthening the supply chain to consumers.”

With IHS projecting up to $1.15 trillion in oil and gas infrastructure investments over the next 12 years – adding as much as $120.5 billion to U.S. GDP, supporting up to 1.15 million jobs and providing an additional $27.4 billion in government revenues on average annually between 2014 and 2025 – building infrastructure will help address delivery-related supply issues while spurring economic growth.

Critical will be public support for constructing the pipelines and other infrastructure projects – which means fair and sensible regulatory processes at all levels to allow projects to proceed safely, responsibly and in a timely way that encourages private energy infrastructure investment.

ABOUT THE AUTHOR

Mark Green joined API after a career in newspaper journalism, including 16 years as national editorial writer for The Oklahoman in the paper’s Washington bureau. Mark also was a reporter, copy editor and sports editor. He earned his journalism degree from the University of Oklahoma and master’s in journalism and public affairs from American University. He and his wife Pamela live in Occoquan, Va., where they enjoy their four grandchildren.