Don’t Take One For the Team
My Turn: Don’t take one for the team
Originally appeared in the Greenfield, MA Reporter on December 21, 2015
By GREG SNEDEKER
Monday, December 21, 2015
(Published in print: Tuesday, December 22, 2015)
In light of FERC’s acceptance of Tennessee Gas Pipeline’s application to construct the Northeast Energy Direct (NED) pipeline, it might be useful to bring the recent news of Kinder Morgan’s finances into focus.
The sudden collapse of Kinder Morgan’s stock price and subsequent dividend cuts should not be a surprise. Shale gas companies have been overproducing gas for some time. The “gold rush” of gas well drilling in the Marcellus field began some eight to ten years ago, and in the past two to three years, the natural gas industry has been forced to cut rig counts precipitously to try and limit the supply of natural gas to shore up prices.
Earlier this year, well-head prices for gas dropped below $1.50 and the gas industry was calling for even more cuts in rig counts. The problem that the shale gas well companies face is that most of the financing for this market is risky due to the nature of the well drilling itself (not all wells produce abundantly, or at all) and therefore such financing often carries junk- or just above junk-bond status.
Kinder Morgan is not immune from these market risks just because it focuses on transmission, and that is exactly what we are seeing play out in the recent headlines. But despite the desire to cut rig counts, limit supply, and raise the price of natural gas, shale gas well drillers are financially caught because their investors are focused heavily on production. If production falls, stock values fall, and if those values fall below the thresholds set in their loan agreements, it can potentially call in their loan covenants. This means that many of these companies are forced to keep drilling to maintain their production levels, or otherwise face bankruptcy.
Why should this matter? As we have seen in past financing debacles such as the savings and loan crisis and the mortgage backed securities crisis, taxpayers are often left paying the price of cleaning up the financial mess. Will Kinder Morgan and its brethren be deemed “too important to fail?” Will we be asked to bail them out, too?
The entire shale gas industry is bleeding in debt due to low energy prices and has been for some time. In 2014, on average shale gas companies earned only 68 cents for every dollar they spent and added another 10 billion dollars of debt to the already existing 83 billion.
We are being told in New England that we need a new gas pipeline because of a shortfall in supply. We are being told that our electric bills will be reduced, but the shale gas industry has acknowledged that the low gas prices are a result of the fact that regional demand is already at near saturation and there is limited take-away capacity. Limited take-away capacity! Kinder Morgan has already admitted that they would not have control over where the gas for the NED pipeline would ultimately end up. Furthermore, we have a national energy policy that is projecting that the U.S. will be a net exporter by the 2020s. Exporting seems a more likely prospect for this pipeline as it can be connected to the existing Maritime/NE pipeline and the gas piped to Nova Scotia, converted to liquid natural gas (LNG) and then exported around the world.
Those in our community who are pipeline proponents and think our electric bills will be lower with the building of the NED pipeline might take a closer look at Australia’s natural gas market. Australia increased pipeline capacity, which eventually boosted their exports, and finally, yes, you guessed it, boosted the domestic price of electricity, leaving ratepayers scratching their heads wondering what happened to their lower utility bills.
Shale gas companies in the Marcellus shale play desperately need to export the glut of supply they are creating, and we here in New England are being asked to take one for the “global” team. Instead of rushing to build another pipeline so that we can ship gas overseas, let’s have a conversation on the national level about developing an energy policy that is driven less by risky lending, capturing market share, flipping land leases, and reaping profits, and driven more by making a responsible transition to clean energy.
Greg Snedeker is a Gill resident and the Selectboard chairman.
Amanda N wrote:
Thank you for this explanation. There are many other abhorrent aspects to this proposed pipeline, but one that seems particularly relevant to your point is the fact that the use of eminent domain to take private or public land requires that the project be for the public good; as you’ve shown, the majority of the fuel flowing through this proposed pipeline will be for sale overseas, thus is intended for profit, not for the public good. And as you do point out but bears repeating, this will drive up prices and there (along with infrastructure costs) go the lower fuel prices that the project proponents keep demanding
This is also an enormous national security threat. Cyberattacks on U.S. grids are increasing, and thanks to the proliferation of remote internet control, and hackers, foreign and domestic, our grid is vulnerable. So why in God’s name would there be ANY sense in locating that much unconventional gas, loaded with radiation and fracking chemicals, in the presence of live voltage in enormous quantities?: for significant stretches of the MA proposed route there are not one but two full sets of heavy live voltage cables. And Kinder Morgan certainly seems to be deliberately locating their atrocity in the most densely populated rural areas and through drinking water supplies for entire communities. This will also be highly visible from the air: the same route the 9/11 attackers followed. One incident will shut down electricity, communications across several states as well as destabilizing consecutive areas of this monster . . . FERC is basically a captured agency: funded by the oil and gas industry: and as we’ve seen in their long history the world over, they are very good at destabilizing whole nations in order to extract assets to fuel obscene personal wealth