Trump-Backed Gas Pipeline to New York Struggles for Customers

Williams CEO Chad Zamarin at a groundbreaking ceremony for the Northeast Supply Enhancement Pipeline in Brooklyn. Photo by Victor J. Blue /Photographer: Victor J. Blue/Blo

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(Bloomberg) — When US President Donald Trump revived a long-stalled pipeline project to bring more natural gas to the Northeast, he vowed to use the force of the federal government to make it happen. 

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More than a year later, construction has yet to begin. New York State is battling the project in court, but the hurdles extend beyond the legal fight.

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More fundamentally, the US energy landscape has changed dramatically since Williams Cos. first proposed the Constitution pipeline more than a decade ago. Not a single utility has announced an agreement to buy gas from the project, and moreover, drillers are no longer pushing to ship their fuel on it.

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The result is that the economic case for Constitution has weakened even as the pipeline has taken on outsized political significance. It remains a key test of Trump’s effort to revive stalled fossil-fuel projects, though analysts say the project has become more symbolic than commercially important.

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“The project’s strategic rationale has deteriorated,” said Amber McCullagh, a US gas analyst. “Most gas industry executives today would quietly acknowledge that, at this point, when they talk about Constitution, it’s to emphasize the need for a streamlined and straightforward permitting process, rather than as a pipeline that is itself strategically important to build.”  

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The biggest change for Constitution’s economic case comes from a shift in drilling needs. 

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When the project was announced in 2012, two gas drillers with operations in Pennsylvania — Southwestern Energy Co. and Cabot Oil & Gas Corp. — soon agreed to ship fuel on the pipeline, providing Williams with long-term partners. Yet both have since merged with other companies and are no longer involved with the project. 

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At the same time, the region’s shale fields have become less appealing after gas producers tapped much of the lowest-cost production. Now, drillers are balking at signing up to back the pipeline. 

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So Williams instead turned to utilities in the Northeast to buy gas from the project and help it get established. 

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Toby Rice, chief executive officer of Pittsburgh-based gas giant EQT Corp., said at this point, support for Constitution needs to come from utilities. If drillers were eager to ship their fuel on the pipeline, they would have signed up already, Rice said.

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“The challenge is that the demand is very seasonal, and the market is fragmented,” Rice said. 

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While northeast power companies are eager for more pipelines, Constitution wouldn’t actually take gas to the population centers where they need it, according to gas-market and pipeline analysts. 

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Instead of delivering gas directly to near New York City or in New England, the 125-mile (200 kilometer) pipeline would bring gas from northeast Pennsylvania to a compressor station about 25 miles west of Albany in rural Schoharie County.