Kinder Morgan’s Northeast Energy Direct pipeline’s $5.2 billion construction cost should be funded b
Kinder Morgan’s Northeast Energy Direct pipeline’s $5.2 billion construction cost should be funded by private investors, not the public.
Two years ago, the Governors of the six New England states called on the operators of the New England regional power grid to impose a new tariff on electricity generators and transmission companies which would be passed along to consumers on their electric bills to pay for natural gas pipeline construction.
In deciding to guarantee funding, the Governors eliminated the scrutiny which accompanies private construction projects. They have almost certainly guaranteed the Northeast Energy Direct pipeline’s construction, even if it results in a giant example of overbuild.
Unlike pipelines whose capacity is contracted in advance - a relatively easy and low cost loan to finance - the Northeast Energy Direct pipeline has, by their own admission, commitments for only about 50% of capacity. In New Hampshire its only customer, Liberty Utilities, which has an existing business relationship with Kinder Morgan, has entered into a twenty year contract described by the state’s Consumer Advocate as “buying a Cadillac when a Honda would do.” These numbers do nothing to dispel the widespread speculation that the Northeast Energy Direct pipeline was always envisioned as an export pipeline.
While the current overseas price for natural gas is much higher than it is in the United States, that condition may not last. The largest fields in the world, the South Pars Gas Fields, are located in Iran. With the recent lifting of sanctions on Iran these fields are no longer beyond reach. In addition, two recent large discoveries - one off the coast of Egypt and the other off the coast of Israel - promise to further increase supply.
Taking into account Moody’s December 1, 2015 decision to change its outlook on $44 billion dollars of existing Kinder Morgan debt to negative from stable, there may not be a private sector appetite for extending an additional $5.2 billion dollar long term financing to Kinder Morgan. It should be noted that, after the ensuing decline in Kinder Morgan’s stock, 75% reduction in its dividends/distributions and scaling back its capital spending budget, Moody’s reinstated Kinder Morgan’s stable outlook.
Under these circumstances, it should be clear that an Oil and Gas Department in a major financial institution is the proper venue to determine the viability of the Northeast Energy Direct pipeline and the terms and soundness of any loan for its construction.
Should New England’s electric rate payers finance the Northeast Energy Direct pipeline, any exports will likely increase ratepayers’ costs even further, as a higher liquified natural gas overseas price and shipments will tend to increase the domestic price. Natural gas currently produces more than half of the New England grid’s electricity.
As if to illustrate the point, the Industrial Energy Consumers of America, fearing exports on the scale anticipated and the resulting erosion of their competitive advantage, sought to block the export permits on which it has been widely assumed the Northeast Energy Direct pipeline’s viability would depend. Their filing, almost a year ago, February 9, 2015, with the Department of Energy http://energy.gov/sites/prod/files/2015/02/f19/IECA_MOI02_09_15.pdf names Pieridae Energy (USA) Ltd at the Maine - Canada border as the company seeking the export permit. Pieridae Energy has declined to reveal from whom it is contracting to buy its feedstock natural gas.
The Department of Energy issued the export permits on May 22, 2015.
Even beyond the significant environmental degradation and risk, this project is arguably a lose - lose financially and will not result in lower electricity bills. Taking all of this into account, it should be clear that New England’s electrical ratepayers should not be required to extend a low cost lifeline to a private company.
HB 1101 prohibits charges to New Hampshire residents for the construction of high pressure gas pipelines.
Representative James W. McConnell
Richmond & Swanzey