High energy costs put northeastern U.S. economy at risk

High energy costs put northeastern U.S. economy at risk
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The winter of 2017-2018 has been one of the coldest in recent memory, especially in the Northeast. Not surprisingly, homeowners and businesses are literally screaming about heating and electric bills that have gone through the roof. Making matters worse, New England and New York are using imported liquefied natural gas (LNG), which is much more expensive than domestic gas, to satisfy nearly 20 percent of their heating and electric power needs. Some of this imported gas has come from Russia, despite current international sanctions.

The great irony is that America has been the world’s largest producer of natural gas since 2009 and is slated to become a net exporter this year.  We’re currently exporting 3.5 billion cubic of LNG per day, mainly from terminals in Louisiana, and this volume is projected to double by the end of 2018. So why does the Northeast import LNG to meet its energy needs when the country’s largest gas play, in the Marcellus shale formation, lies just next door in Pennsylvania and West Virginia?

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There are two villains in this drama. The first is the Jones Act, a little known piece of legislation that Congress passed in 1920 as part of the Merchant Marine Act. This law requires that any ship carrying goods or commodities in U.S. waters between U.S. ports must be built, registered, owned and crewed by American citizens or permanent residents. Originally intended to improve the nation’s maritime security, today the Jones Act is simply a form of protectionism for America’s shipping industry and seafaring unions.  

 

Barring foreign-flagged vessels with lower operating expenses from domestic commerce means it can be cheaper to ship a cargo of LNG from the Gulf Coast to China than to Boston. So, European LNG exporters typically cover supply shortfalls in the Northeast.

The second villain responsible for the Northeast boasting the highest natural gas prices in the continental U.S. is the coterie of politicians and environmentalists who fight new gas pipelines because of their opposition to fossil fuels. Though the controversies involving the Keystone and Dakota Access pipelines have gained the most media attention, battles are being waged over dozens of other proposed projects, especially in the Northeast.

For example, last year New York Gov. Andrew Cuomo vetoed the proposed Williams Constitution Pipeline that would have transported huge volumes of inexpensive natural gas from the Marcellus shale to consumers in New York and New England. (We Texans actually are buying gas from the Marcellus because it’s often cheaper than Texas gas.) In response to pushback from environmentalists and community activists, the energy giant Kinder Morgan has pulled the plug on a proposed natural gas pipeline through parts of Massachusetts and Southern New Hampshire in 2016, though the company is now soliciting contracts for new natural gas pipeline capacity in New York and New England. And Eversource and National Grid, the two biggest utilities in Massachusetts, are shelving a $3.2 billion natural gas pipeline project known as Access Northeast because of a lack of political support.

Clearly, a dose of reality is in order. As the Northeast closes more of its coal and nuclear power plants, the region will need growing volumes of natural gas for electricity generation as well as home and industrial heating. But relying on expensive, imported LNG will further escalate household and business energy costs.

To avoid this outcome, the region’s business and political leaders must start making the case for building the requisite infrastructure to deliver clean, inexpensive and reliable domestic natural gas that’s available within shouting distance. They should put pressure on Congress and the White House to get rid of the Jones Act, since the Northeast has the most to gain from its repeal.

Otherwise, New York and New England run the risk of losing even more people and industry to sections of the country where the cost of living and the cost of doing business are lower, thanks in large part to cheaper energy.

Bernard L. Weinstein is associate director of the Maguire Energy Institute and an adjunct professor of business economics in the Cox School of Business at Southern Methodist University in Dallas.