Contagion

In the past decade, natural gas utilities have added 300,000 miles of distribution mains to serve 17 million more customers.” —American Gas Association

The above was the opening slide from a presentation I attended at Propane Days in Washington in June. Jeff Petrash, VP and general counsel of the National Propane Gas Association spoke on the expansion efforts of the natural gas utilities. At the moment, two-thirds of U.S. states have an active policy aimed at furthering natural gas expansion, or are considering policies that will, according to Petrash. Utilities want [read: need] to add new customers as they face a disappearing rate base and per-customer consumption that continues to decline. If you subscribe to the premise that nat gas is already in place where it is the easiest to deploy (the low hanging fruit has been long picked), then there’s no place to go but away from these already served and denser populations.

Shale Gas has indeed changed the landscape: Consider the estimated 100-150 year supply of natural gas, stable wholesale prices in $3-4 per MMBtu range, that shale gas is near market centers, the apparent conclusion by many that natural gas brings environmental and greenhouse gas benefits and the “domestic fuel” angle. Consider as well that building pipelines and related infrastructure necessary to nat gas today costs much more than in the past, and you don’t have to be Archimedes to understand that rates for new service will have to be significantly higher to be economic.

Of course, that’s less of a problem if someone else pays for it.

Pure Michigan

Mayhem Derek Dalling is the executive director for the Michigan Propane Gas Association. Weeks prior in Washington Derek spoke about the battle they are having in Michigan with the utilities. Michigan, in case you were wondering, is the largest residential propane marketing in the U.S.

The bad news is that the picture in Michigan in terms of the expansion efforts of the natural gas industry is bleak. The good news is that MPGA is fighting way above its weight and thus far is winning. MPGA, with help from NPGA, has managed to sideline subsidy efforts thus far. Movement of nat gas subsidies legislation last year was killed, and this year similar legislation is bottled up in committee at the moment because the nat gas legislation does not have the votes to be moved out of committee.

One legislator, a top official in the Michigan House who is reportedly not happy with his propane provider, wants natural gas run to his farm. All fine and good, one could say, but for the effort to place subsidies paid for by existing and future nat gas customers to pay for this line extension and thousands of other new customers for the utilities.

Those pushing such schemes in Michigan say this “socialized expansion of natural gas” is good for everyone. They also have no qualms about picking a winner (natural gas) and a loser (everyone else). Never mind that Michigan already has the highest percentage of nat gas users in the country with 80% of the state already served by natural gas lines; however, if certain lawmakers get their way the subsidies to natural gas in Michigan will add 60,000 and 50,000 customers, respectively, to Michigan’s two largest nat gas utilities. There are about 330,000 propane customers in Michigan today, says MPGA’s Dalling, so fully one-third of the propane market there could be at risk. “It’s a disease,” quipped a Propane Days attendee.

Thanks to Jeff Petrash of National Propane Gas Association and Derek Dalling of Michigan Propane Gas Association for their help with this month’s column.

Shane Sweet is an energy and management consultant with clients in the heating oil, propane and motor fuel sectors, a Partner with the firm of Lake Rudd & Company. As of Nov. 1, 2014, he is the new executive director and technical director for the New York Propane Gas Association. He served the industry as President & CEO of the New England Fuel Institute “NEFI” from 2007 to 2011, and as Executive VP/Director and Lobbyist for the Vermont Fuel Dealers Association “VFDA” from 1993 to 2007.