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Gas Storage in the Sacrifice Zone

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 residents of the Finger Lakes by helping control propane costs. More storage of butane, propane, and methane is supposed to provide protection from shortages and price hikes. For many in the rural counties of the Finger Lakes, the possibility of keeping heating costs down is attractive: average annual income in Ontario County is $29, 904; in neighboring Seneca County it is $23, 115. The problem with Crestwood’s claim is that it’s a lie.

Crestwood’s need for more storage grows out of its drive to find markets for fracked gases. It has nothing to do with keeping down propane prices in the Finger Lakes, New York state, or New England. The Finger Lakes is merely a repository 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.

Supporters of Crestwood’s LPG storage expansion plan claim offer last winter’s spike in propane prices 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 rural New Yorkers need it? Or is Seneca Lake being used as a dumping ground such that those who live around the lake bear the costs that accompany expansion of the fossil fuel industry at a time when more and more voices are saying that fossil fuels need to be kept 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 the 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, the Finger Lakes are the product, the Seneca Lake 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.

Residents of the Finger Lakes have been led to believe that increased storage would impact propane prices 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 or even New York state. No one expects Finger Lakes residents to be the customers. On the contrary, the Finger Lakes is the dumping ground, its water supply put at risk, the quality of its lake degraded, its 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. Commodities such as propane do not need to be sold in ways that benefit 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 commodities abroad, they do it. In fact, when domestic prices are low, oil and gas companies have an incentive to ship their products abroad.

Texas-based Crestwood Midstream wants to expand storage in the Finger Lakes for its own benefit. As far as it is concerned, the environment and people around Seneca Lake can be easily sacrificed in the interests of shareholder value. Apparently, even with New York’s recent ban on fracking, in makes sense to the company to continue to develop the fracking infrastructure. The sacrifice zone thus spreads far beyond the Finger Lakes.

Jodi Dean is Assistant Professor of Political Science at Hobart-William Smith Colleges. She is the keeper of the well-trafficked radical blog I Cite. Her most recent book is The Communist Horizon (Verso, 2012).

 

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