In support of its plans to expand gas storage in the salt caverns adjacent to Seneca Lake, the deepest lake in New York state and the longest of the Finger Lakes, Texas-based oil and gas company Crestwood-Midstream is circulating the claim that the increase in storage capacity will benefit Finger Lakers by helping control propane costs. More storage of butane, propane, and methane is supposed to protect us from shortages and price hikes. It's time to debunk this myth because the bottom line is that Crestwood's plan to expand storage is about their drive to find markets for fracked gases, not keeping prices low for Finger Lakers. The propane is not for us. We are just supposed to hold it -- and bear all the environmental consequences -- until Crestwood finds buyers willing to pay a high enough price. A Texas company makes the money, and New York's efforts to develop renewable energy is shoved onto back burners, propane burners.
The spike in propane prices last winter is offered as evidence of the urgent need for more storage -- even though the Crestwood plan goes back nearly five years (having been brought forward by Inergy, a company with which Crestwood merged). For example, the chair of the NY State Senate committee on energy sent Cuomo a letter in July 2014 urging that the DEC approve the planned expansion:
A severe propane shortage in the Northeast caused prices to spike more than 50 percent and cost more than $100 million. The Finger Lakes storage facility would create a major new hub for propane storage in the Northeast. Maziarz said those most affected by the dramatic spikes were largely rural residents and businesses who could least afford it.
But what really caused prices to spike? Was the problem lack of storage? In other words, is the "major new hub" actually because people in the Finger Lakes need it? Or is Seneca lake being used as a dumping ground such that we bear the costs that accompany expansion of the fossil fuel industry at a time when more and more voices are telling us to keep fossil fuels in the ground?
If the price hike last year was related to a lack of storage, then one explanation for the current drop in propane prices this year could be because storage has increased. But it hasn't. Crestwood's development plans have been on hold pending more thorough inquiry into hazards associated with storing LPGs next to the drinking water of 100,000 people. The price drop in propane has nothing to do with storage. It's about markets. There is a glut of propane and butane, and the oil and gas companies are looking for customers to buy it.
The drive for more storage is based on supply -- not demand. In the shale fracking boom, companies over-expanded:
“Things look pretty ugly overall,” said Francisco Blanch, commodities and derivatives strategist at Bank of America Merrill Lynch. “It really is an amazing amount of supply, and it’s very difficult to place fast. That’s created consistent selling pressure.”
According to a 2013 industry analysis,"the propane market has been grappling with an over supply situation since Spring 2012." Propane inventories were pushed into "the stratosphere" and increased even further the following year.
That the push for storage comes from over-supply and not demand is clear even in industry reports that emphasize storage. LPGs are being produced for export. According to the National Propane Gas Association, 5% of US propane was exported in 2008. By 2013, it was 20%. The excessive expansion in production, and need for storage, is happening because oil and gas companies want to sell their product overseas. According to "the propane industry's premier information source," LPGAS,
This should be a golden era for propane considering the amount of gas available domestically from various shale plays, but inadequate storage in key U.S. regions – plus the economics that have propane leaving U.S. borders at record rates – has the industry on edge as preparations are being made for the winter of 2014-15.
Leaving US borders at record rate means exports. The so-called storage problem isn't simply about domestic need. And it's not about Finger Lakers' need at all. In a way, we are the product, our lake the storage facility that Texans are trying to sell to their multinational customers. Underlying the emphasis on storage is the dynamic of moving propane and butane in the market. Andy Ronald, a Crestwood VP, is quoted in the LPGas article cited above as lamenting the "travesty" of "this tremendous growth and supply" but no storage. Translation: supply is driving Crestwood's storage expansion, not demand in the Finger Lakes.
Ronald is explicit on this point in a presentation that highlights growing supply and limited infrastructure. Propane production is increasing, exceeding existing pipeline and storage capacity. In order to take advantage of "favorable global price differentials," Crestwood needs more storage.
The growth of propane exports is in fact one of the reasons for last year's "shortages" in the northeast and midwest. There was propane, but not for domestic use. Exports continued even after several states declared emergencies.
Even Maine, ostensibly one of the areas of the country that needs more propane, is awash in the stuff. There is a glut and dealers are doing their best to build more export facilities. The surge in supply is driving this expansion.
Finger Lakers have been led to believe that increased storage would impact propane prices for us in the winter months. Crestwood's own materials make it clear that this is not true. Ronald's presentation says that winter propane delivery would go out the Teppco pipeline to the Selkirk gateway to the New England market. The propane isn't for the Finger Lakes. We aren't the customers. We are the dumping ground, our water supply put at risk, the quality of our lake degraded, our communities threatened, so that Crestwood can push its over supply of LPGs and diminish incentives for the development of renewable energy.
Having more storage, like having more LPGs, is not a boon to local consumers. The expansion in storage is not planned to meet need in the Finger Lakes. Instead, it is planned to take advantage of price differentials in markets.
One reason companies proceeded with exports and pipeline changes that left propane consumers vulnerable this winter is that producers of many critical commodities—including oil, natural gas, propane, gasoline, diesel, jet fuel and heating oil—are not obliged to distribute those fuels in a way that benefits U.S. consumers. If it's more profitable for companies to sell those products overseas or reconfigure pipelines, then whenever possible, they will do so.
Oil and gas companies can ship or pipe their products however they want. Their goal is to make money for their investors. When they can get a better price shipping their commodites abroad, they do it. In fact, when domestic prices are low, oil and gas companies have an incentive to ship their products abroad.
Crestwood wants to expand storage in the Finger Lakes for its benefit, not ours. But we and our lake bear the real costs of the environmental harm that comes with LPG storage. Added to the damage is the build up of the infrastructure of the very industry that is destroying the planet. Energy should should be placed on renewables, not wasted on deadly fossil fuels.