June 07, 2011 12:14 AM UTC

Drill Here, Drill Now, Pay More

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• by: ClubTwitty

( – promoted by Colorado Pols)

The Ruby pipeline–which will bring gas from Wyoming and Colorado to the West Coast–is set to come online soon, the Sentinel is reporting:

The Ruby Pipeline, scheduled to go online in March, is set to begin carrying natural gas from the Rocky Mountains west to Oregon in July, officials said.

No date has been set for the opening of the 675-mile, 42-inch, natural-gas-transmission pipeline, which is to carry as many as 1.5 billion cubic feet of natural gas per day.

At least a portion of that will come from the Piceance Basin as Bill Barrett Corp. has a contract to supply 50,000 cubic feet per day, said David Ludlam of the West Slope Colorado Oil and Gas Association.

While this will increase the marketability of Colorado’s natural gas, there is some question about how well it will work to achieve American energy independence or lower consumer prices.  Instead it is more likely to increase our dependence (on global markets) and make us pay more.  

Given the current glut The Ruby Pipeline Project is likely an attempt to open new markets in Asia, turning natgas into a fungible commodity like oil and hurting American consumers.

Currently natgas is a regional, rather than global, commodity.  Priced around $4 mcf, Colorado’s gas is less economical to drill than Pennsylvania’s, about 1/6th the cost according to my napkin math.  But making it a global commodity would ‘stabilize the price differential’–meaning Americans would likely pay more for our home-produced energy.  

Unlike crude oil, which is traded globally via tankers and pipelines, natural gas trading remain primarily isolated within the producing regions and lacks the infrastructure to be a true global commodity.

So the recent spike in crude prices has also accentuated the international LNG price differentials to the U.S. Henry Hub….of up to 300%.

While Henry Hub gas in the U.S. is sitting at less than $5 per mmbtu, NBP gas in the UK costs more than $9, and the benchmark for east Asia which is liked to JCC, ‘Japanese Customs Clearing Price’, or ‘Japanese crude cocktail,’ is more than $13 per mmbtu, according FT.com based on Platts data.

With an estimated 100 years of domestic shale gas supply at current rates of demand, and a farily flat domestic demand outlook, it is understandable the excitement of market players from the prospect of gas exports to higher priced markets in Asia and Europe.

Once priced on international, rather than national, markets producers will seek the larger return, driving up local prices as well.  

Of course, that’s not how it is being sold:

Project Summary

To address our nation’s growing demand for natural gas and associated transportation infrastructure, Ruby Pipeline, L.L.C. (Ruby) filed an application with the Federal Energy Regulatory Commission (FERC) on January 27, 2009, for a certificate of public convenience and necessity authorizing the construction and operation of the Ruby Pipeline Project.

Rather it is being touted as addressing our nation’s energy needs–similar to the broader meme that drilling more in the U.S. will move us toward ‘energy independence’ in any significant way.

In Coos Bay, Oregon a fight is underway regarding a Liquid Natural Gas (LNG) hub, and the possibility that it is being built for export rather than import, as first announced.

Many assumed that the ongoing construction of the Ruby Pipeline would signal the end of proposed US West Coast LNG import terminals and pipelines because, as Jordon Cove admitted in the FEIS, Ruby would supply the West Coast with ample domestic natural gas.  The Ruby Pipeline has begun construction, but instead of admitting defeat, Jordon Cove is fighting harder than ever, even suing the State of Oregon for going too slow. This shows that Jordon’s Cove hidden agenda is to export domestic gas, not import LNG. Exporting would be from Ruby, through Pacific Connector, right to the terminal location on the Oregon coast.

And this:

Several LNG terminal owners have filed applications with the U.S. Department of Energy for authorization to export natural gas produced in the United States from their facilities, many of which were built last decade with the intent of importing – not exporting – LNG to meet what was perceived at the time as a growing demand for natural gas in the U.S.

Perhaps building new markets is wise–for our energy producers, the jobs they support, and for the revenue that activity generates in state and federal coffers.  But it is not moving us closer to energy independence.  Rather it is locking American consumers into a new global energy market that will quickly devour surplus and ‘stabilize’ the price differential–meaning that you and I and everyone else in the U.S. is likely to pay more, not less, for natural gas.  

‘Drill here, drill now’ resulted in a massive glut of natural gas and no market–and now American consumers are likely to ‘pay more.’