Winter and the Northeast’s Infrastructure Needs

Michael Tadeo
Posted October 28, 2016

Earlier this month the U.S. Energy Information Administration (EIA) issued its winter fuels outlook in which it said most U.S. households can expect higher heating costs this winter. In a conference call with reporters, API Chief Economist Erica Bowman discussed the approaching winter and underscored the need for increased natural pipeline capacity in the Northeast to help consumers there who historically have paid higher prices for energy than other parts of the country. Unfortunately, getting energy infrastructure of all kinds approved for construction has been difficult. Bowman:

“I think that those folks who may not be paying attention to energy as much and what’ s going on in their region, they may not be understanding how you could link that more infrastructure actually would lead to lower prices. I think that’s a problem especially in New England, when you look across the entire energy spectrum – whether it’s building pipeline infrastructure to building new electric transmission lines and building renewables – there’s a lot of pushback on all of that. It’s something that I think New England really needs to figure out: How do they solve that problem when they can’t get any energy infrastructure, let alone natural gas pipelines, built?”

Below, Bowman’s conference call remarks, as prepared for delivery:

This winter, American consumers are set to face colder temperatures as compared to last year. The U.S. Energy Information Administration estimates that temperatures in the Northeast, Midwest, and the South are expected to be up to 20 percent lower than last winter.

With temperatures set to drop outside, American consumers will continue to rely on natural gas as the most prominent energy source to heat their homes. Forty-eight percent of homes use natural gas while 37 percent use electricity and natural gas has become the leading fuel source for electricity generation this year. Ten percent of households use heating oil and propane combined.

But, drops in temperatures outside don’t have to translate into higher energy prices. Strong inventories of energy could reduce price volatility by ensuring a stable supply of energy if the upcoming winter season is worse than expected.

Natural gas and propane inventories are near or at record highs, while heating oil inventories are at multi-year highs, and EIA expects them to be higher at the end of October. Propane supplies are strong and heating oil supplies are well above five-year highs.

Given that natural gas and electricity are the dominant choices for home heating and that the electricity sector is continuing to use more natural gas as an affordable, reliable and environmentally-friendly fuel choice, natural gas supplies and infrastructure now matter more than ever to consumers.

Historically, the Northeast has been the poster child for high natural gas prices during the winter season, due to insufficient infrastructure needed to bring natural gas to market. According to the New York Mercantile Exchange or NYMEX, New York City is expected to have the highest natural gas prices in the nation this winter, due in part to the region’s lack of natural gas infrastructure.

It doesn’t have to be this way, and the new Algonquin Pipeline is proof.  With this new infrastructure project, NYMEX suggests that winter natural gas prices in New England will be 20 percent lower than last year.

But one new pipeline isn’t enough to fulfill the region’s needs for increased natural gas demand. NYMEX suggests that New England will be the second highest priced region in the country.

Higher regional natural gas prices also have contributed to higher electricity prices, so consumers in regions that lack adequate energy infrastructure have paid more for electricity.

In addition to its positive impact in utility prices, new and improved energy infrastructure will help our nation continue leading the world in the production of oil and natural gas and in the reduction of carbon emissions, which are near 20-year lows.

EIA’s winter energy outlook is a timely reminder that American consumers shouldn’t have to face high utility costs every time temperatures drop with the upcoming change of seasons.

Clean-burning natural gas is an affordable and reliable source of energy that, along with increased energy infrastructure, could protect consumers from energy price volatility, benefit American workers, and improve the environment with lower emissions.