Winter heating: US energy is booming. But can it heat your home?

An energy boom is only as useful as its ability to transport the energy to the homes, businesses, and industries that need it for heating and other purposes. Will pipeline constraints and crowded US rails make for another winter heating season of too much cold, not enough fuel?

The US is awash in new oil and gas, and most are forecasting a milder winter than last year’s. That means Americans are likely to need less fuel for winter heating, and there’s no shortage of it coming out of wells in Pennsylvania, North Dakota, Texas, and elsewhere.

Why, then, is there concern about heating fuel shortages and high prices as temperatures drop?

Last year’s record-breaking winter exposed some tough realities for Americans when the country's vast energy supplies were unable to prevent a fuel crisis in the Midwest that left residents struggling to keep warm. And despite recent forecasts that this coming winter may not be as harsh, fuel stocks are still uncomfortably low for some in the industry. The record winter last year put such a strain on fuel supplies that the country is still feeling its effects, according to various analysts, and transportation issues have hampered efforts to re-supply power plants over the summer.

Nowhere is this more acute than in New England. Even though overall expenditure on home heating is expected to decline this winter as people use less overall fuel, some are concerned about constraints and price spikes that will eventually take a toll on home energy bills. A limited pipeline infrastructure and short supplies of natural gas have prompted some electricity companies in the region to announce that they will soon stop signing up new residential and commercial customers, according to the Boston Globe. 

"We've just hit our capacity. That's it," Chris Farrell, spokesman for Berkshire Gas Co., which has 38,000 customers in Western Massachusetts, told the Globe. "This has become a real challenge for us."

Other companies are also planning moratoriums on signing up new customers either next year or in 2016, due to pipeline capacity concerns, according to the Globe.

Supply and demand (and distribution)

It’s a reminder that an energy boom is only as useful as its ability to transport the energy to the homes, businesses, and industries that need it. The US was the largest producer of oil and natural gas in 2013, according to the US Energy Information Administration – and the agency says production is only expected to increase in the near future. But the production of fuel hasn't been the problem in the US in recent years. Distribution of fuel was a main contributor to last winter's crisis, and could impact fuel supply and electricity prices in some regions this winter and beyond.

Oil and gas bottlenecks have had a domino effect on the transportation of coal as well. Because of pipeline constraints, oil firms are increasingly turning to US rail to move petroleum across the country. That, in turn, has edged out coal shipments, which are generally less profitable for the rail companies. US coal stocks in July were down 21.4 percent from the same time last year, according to the EIA, due to rail issues and depleted reserves from the bitter winter.

“Coal piles around the country have gotten to levels that don’t make us 100 percent comfortable,” David Crane, chief executive of NRG Energy, a New Jersey-based power producer, told Bloomberg Businessweek.

 

Last year’s crisis centered on a shortage of propane, a refined petroleum gas that is used to dry grain during the winter, fuel equipment and vehicles, and heat more than six million homes. The shortage was a result of both extreme weather conditions and companies reconfiguring pipelines for export. While a month-long winter freeze created a surge in demand for propane to heat US homes and dry a record corn crop drenched by late rainfall, much of the fuel was being sent abroad where it could fetch a higher price. Exports surged to 410,000 barrels a day last November, according to the EIA. That was the highest export rate since the agency began collecting data four decades ago.

Wisconsin, Ohio, Alabama, and other states across the country declared emergencies, loosening trucking regulations to boost propane deliveries, and delivering heating-assistance money to consumers so they could afford to buy more fuel.

A warmer outlook?

The EIA does not expect gas and propane inventories to be drawn down as dramatically as they were last year, even though another record corn corp is expected. The agency also noted in its Winter Fuels Outlook that the distribution of propane to the Midwest will be improved this winter.

However, the agency has reported "capacity constraints" on the TEPPCO propane pipeline running from Texas through the Midwest and an "increased reliance on existing pipeline" running north from Conway, Kansas. Pipeline constraints in New England may also lead to higher wholesale electricity prices, according to the agency analysis.

"Higher propane production from gas plants in the Midwest and new and expanded rail terminals should help to supply propane to the region this winter," the EIA said. 

More pipelines are in the works in Pennsylvania's Marcellus Shale, the heart of the US shale gas boom. The first wave are expected to come online in November and December, according to the Pittsburgh Post-Gazette.

Two pipeline projects have been proposed for the New England area – Spectra Energy's Access Northeast project, and Kinder Morgan's Northeast Energy Direct project – but both projects are scheduled to be completed in 2018.

"But even if they go forward, they alone are not enough to meet forecasted capacity needed in New England," Mihoko Manabe, senior vice president for Moody's Investor Service, told the Post-Gazette. "And they also are going to take a few years to build."

Federal legislation is also pending to improve the government's response to future emergency fuel shortages. The Propane Supply and Security Act – a bipartisan bill introduced by US Sens. Al Franken (D) of Minnesota, Rob Portman (R) of Ohio, and Tammy Baldwin (D) of Wisconsin – aims to help prevent future propane shortages by improving supply and price information, coordinating responses to supply shortages, and giving farmers loans to buy larger propane storage tanks.

In particular, the bill would prioritize propane shipments in the event of an emergency, and would establish the Secretary of Energy as the coordinator of federal and state emergency response efforts. While it seems likely that Senate leadership could change hands in next month's midterm elections, the bill's bipartisan backing means it would have a good chance of passing through the upper chamber even if there's a change in leadership.

The broader question of the market dynamics behind last winter's crisis may go unanswered a while longer. Some are calling for reforms on US propane export policy, which allows for unlimited overseas trade even in the face of domestic shortages.

In a congressional hearing in March, the president of the National Propane Gas Association urged lawmakers to conduct a "rigorous and formal review" of propane export policies. Further study of the impacts of export policy on last year's crisis are likely before any legislative action.