20150629-5252 FERC PDF (Unofficial) 6/29/2015 4:13:13 PM

June 29, 2015

Ms. Kimberly Bose
Federal Energy Regulatory Commission
Office of the Secretary
888 1st Street, NE
Washington, DC 20428

Re: Docket No. PF15-1-000: Comments Regarding PennEast Pipeline Project, Scoping Period

Dear Ms. Bose,

Attached please find an expert analysis which, among other things, concludes:

Based on these documents and an independent investigation of natural gas supply and demand in New Jersey
and Pennsylvania, natural gas and electricity costs in New Jersey, and heating oil use and costs in New Jersey, I
conclude that there is inadequate justification for approval of the PennEast project.

I furthermore find that the Request for Approval is misleading and disingenuous. It is clear that PennEast
Pipeline Company, LLCs true intent is not to provide gas principally to markets in Pennsylvania or in New Jersey
but, rather, to deliver gas to interconnecting pipelines or shippers1 that will deliver gas to other downstream
markets2 that do not include Pennsylvania or New Jersey.

The proposed PennEast volume of 1 Bcf/d would create a 53% supply surplus above the current level of
consumption.

, it is doubtful that the true intent of the PennEast Pipeline is, in fact, to supply gas to New Jersey but, rather, to
deliver it to interconnecting pipelines bound for other downstream markets.

Sincerely,

Maya K. van Rossum

the Delaware Riverkeeper


DELAWARE RIVERKEEPER NETWORK
925 Canal Street, Suite 3701
Bristol, PA 19007
Office: (215) 369-1188
fax: (215)369-1181
drn@delawareriverkeeper.org
www.delawareriverkeeper.org

20150629-5252 FERC PDF (Unofficial) 6/29/2015 4:13:13 PM

Labyrinth Consulting
Services, Inc.

-PSOH
-BOF
t

4VHBS
-BOE
59




June 18, 2015

Professional Opinion on the Proposed PennEast Pipeline Project Updated June 18, 2015

I have reviewed all relevant documents pertaining to the proposed PennEast Pipeline project including
Request for Approval of Pre-Filing Review dated October 17, 2014 (Request for Approval).

Based on these documents and an independent investigation of natural gas supply and demand in New
Jersey and Pennsylvania, natural gas and electricity costs in New Jersey, and heating oil use and costs in
New Jersey, I conclude that there is inadequate justification for approval of the PennEast project.

I furthermore find that the Request for Approval is misleading and disingenuous. It is clear that PennEast
Pipeline Company, LLCs true intent is not to provide gas principally to markets in Pennsylvania or in New
1
Jersey but, rather, to deliver gas to interconnecting pipelines or shippers that will deliver gas to other
2
downstream markets that do not include Pennsylvania or New Jersey.

Insufficient Need for Natural Gas in New Jersey and Pennsylvania

Based on current natural gas supply and demand in New Jersey and Pennsylvania, there is no apparent
need for the gas that would be transported via the proposed PennEast pipeline. The proposal is vague
about what portion of the approximately 1 billion cubic feet per day (Bcf/d) would be delivered to
consumers in southeastern Pennsylvania versus New Jersey. It is equally unclear as to what proportion of
proposed PennEast gas volumes would be used to supply gas to markets beyond Pennsylvania and New
Jersey.

In The Request for Approval, the stated purpose of the PennEast Pipeline is to deliver natural gas to
growing natural gas markets in eastern Pennsylvania, southeastern Pennsylvania, New Jersey and other
3
downstream markets.

Pennsylvania natural gas demand has grown since the boom in Marcellus Shale production (Figure 1).

Request for Approval of Pre-Filing Review, PennEast Pipeline Company, LLC, p.2, October 7, 2014.
Request for Approval of Pre-Filing Review, PennEast Pipeline Company, LLC, p.1, October 7, 2014.
3
Request for Approval of Pre-Filing Review, PennEast Pipeline Company, LLC, p.1, October 7, 2014.
2

20150629-5252 FERC PDF (Unofficial) 6/29/2015 4:13:13 PM

Pennsylvania'Natural'Gas'Consump:on'
3.5"

Billions'of'Cubic'Feet'of'Gas'Per'Day''

3"

2.5"

2"

1.5"

1"

0.5"

0"

1997" 1998" 1999" 2000" 2001" 2002" 2003" 2004" 2005" 2006" 2007" 2008" 2009" 2010" 2011" 2012" 2013"

Figure 1. Pennsylvania annual natural gas consumption. Source: EIA.

Pennsylvania is a net exporter of natural gas to other states so it has no unfilled demand for natural gas
(Table 1).

Net3Natural3Gas3Pipeline3Deliveries
Bcf/d
2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997
New3Jersey
1.8
1.8
1.7
1.7
1.3
1.3
1.2
1.4
1.2
1.1
1.1
1.1
1.1
1.1
1.0
1.0
1.1
1.1
Pennsylvania
?2.8
?2.5
?1.6
?1.2 ?0.2
0.0
0.0 ?0.7 ?0.3
0.0
0.0
0.0
0.0 ?0.4
0.3
0.3
0.4
0.6

Table 1. New Jersey and Pennsylvania net natural gas deliveries by interstate pipeline. Source: EIA.

Pennsylvania exported 2.5 Bcf/d in 2013 and 2.8 Bcf/d in 2014. It must, therefore, be assumed that most,
if not all, of the gas for the proposed PennEast Pipeline would go to New Jersey. Since Pennsylvania is a
net exporter of natural gas, I limit the remainder of my analysis to an assessment of potential natural gas
needs of New Jersey beyond present usage.

Existing interstate pipelines supply all of New Jerseys natural gas demand and New Jerseys natural gas
market is not growing.

Natural gas consumption for New Jersey has been relatively flat for the past four years at average rate of
1.8 billion cubic feet of gas per day (Bcf/d), somewhat below the higher levels of the late 1990s (Figure 2).

20150629-5252 FERC PDF (Unofficial) 6/29/2015 4:13:13 PM

New'Jersey'Natural'Gas'Consump;on'
2.50#

Billions'of'Cubic'Feet'of'Natural'Gas'Per'Day'

2.00#

1.50#

1.00#

0.50#

0.00#

1997# 1998# 1999# 2000# 2001# 2002# 2003# 2004# 2005# 2006# 2007# 2008# 2009# 2010# 2011# 2012# 2013#

Figure 2. New Jersey annual natural gas consumption. Source: EIA.

Although consumption increased slightly in 2013 compared to the three previous years, New Jersey
cannot be called a growth market as the Request for Approval states. For the entire year 2013, the
amount of daily increase over 20120.099 Bcf/dwas less than one-tenth of what the proposed
PennEast Pipeline would deliver (1.00 Bcf/d).

New Jersey gas supply is shown above in Table 1. The small difference between supply and consumption
is accounted for by processing and transportation loss, and compression needs. The proposed PennEast
volume of 1 Bcf/d would create a 53% supply surplus above the current level of consumption.

Marcellus Shale Over-Supply

Marcellus Shale production today can only be described as an epidemic of over-production. When the
play began in earnest in 2005, the northeastern United States relied on pipeline gas deliveries from the
Gulf Coast. At that time there was a positive differential price in the Northeast relative to Henry Hub Gulf
Coast pricing. As production has increased, the northeastern gas market is now near saturation and spot
prices are presently at a negative differential of at least -$1/ million cubic feet compared with the Henry
Hub.

The over-supply from the Marcellus Shale is expected to increase as more wells are drilled. Our forecast
calls for production to increase from approximately 12 Bcf/d in 2015 to almost 17 Bcf/d by 2020 (Figure
4
3).

4
The U.S. Department of Energy EIA Drilling Productivity Report cites Marcellus gas volumes of 16.5

Bcf/d. That volume refers to what the EIA calls the Marcellus Region that includes all gas productionnot
just Marcellus gas53 counties in West Virginia, 9 counties in New York, 2 counties in Maryland in
addition to 41 counties in Pennsylvania. Our forecast is based on the latest production data from the
Pennsylvania Department of Environmental Protection.

20150629-5252 FERC PDF (Unofficial) 6/29/2015 4:13:13 PM

Total,Marcellus,(Pennsylvania),Gas,Production,Estimate
Based,on,Type,Wells,&,Well,Schedule
18

Total,Gas,,Production, Rate,,Bcfd

14

12
10

Assumes,drilling,stops,
once,160,acre,spacing,is,
reached
(flatter plateau,expected,
than,modeled)

Type,Well,
2012.25U2013.25
6.4,Bcf/well
5.75,MMscfd,IP
b,=,1.25
Di,=1.85

16

Type,Well,
Before 2012.25
4.1,Bcf/well
3.75,MMscfd,IP
b,=,1.25
Di,=1.85

Forecast,Assumes,
97,Wells Added,
Per,Month
(current,avg)

Type,Well,
2013.5,Onward
8.1,Bcf/well
7.3,MMscfd,IP
b,=,1.25
Di,=1.85

8
6

4
Actual,Data

2
0
2008

2010

2012

2014

2016
Date

2018

2020

2022

2024

Figure 3. Total Marcellus (Pennsylvania gas production estimate. Source: Labyrinth Consulting Services,
Inc.

The only relief for producers is to export gas outside of Pennsylvania via new pipelines and by reversing
flow in existing pipelines. The plan to export gas through the proposed PennEast Pipeline benefits
producers who have consciously destroyed value in Pennsylvania by providing them with additional
markets for their gas. It is unclear if there is any benefit to the public. Based on the analysis in the
sections above, it is doubtful that the true intent of the PennEast Pipeline is, in fact, to supply gas to New
Jersey but, rather, to deliver it to interconnecting pipelines bound for other downstream markets.
Although it is certainly the right of mineral owners to over-produce natural gas at a loss if they choose to
and can justify it to shareholders, it is unclear why FERC should grant them the means to remedy the
unfavorable price environment that they have deliberately brought upon themselves.

Assessment of Fuel Oil Use in New Jersey

Because of the lack of need for additional supply of natural gas in New Jersey based on the current
supply-demand balance discussed above, I investigated the potential need for additional supplies of
5
natural gas to replace fuel oil as a source of residential heating need.

New Jersey has already made considerable progress in converting heating use from fuel oil to natural gas.
Today, only 10% of New Jerseys residential heating use comes from fuel oil (Figure 4). Neighboring
Pennsylvania and New York, by comparison, rely more on fuel oil for 21% their residential heating needs.
At 10% fuel oil use for heating, New Jersey is near the national average of 6%.

5
Fuel oil is also called heating oil or No. 2 heating oil. These terms all refer to the same petroleum
product widely used for heating in the northeastern United States and elsewhere.

20150629-5252 FERC PDF (Unofficial) 6/29/2015 4:13:13 PM

Hea$ng'Fuel'Use'Comparison'
100%$

90%$

4%$

5%$

5%$

4%$

6%$
21%$

80%$

70%$

1%$
2%$
10%$

12%$

37%$
16%$

60%$

Other$
LPG$

50%$

Fuel$Oil$
Electricity$

40%$

74%$

Natural$Gas$

30%$
48%$

54%$

20%$

10%$

0%$

Figure 4. Comparison of heating fuel use in New Jersey, Mid-Atlantic states (Pennsylvania and New York)
and the U.S. average. Source: EIA.

Also shown in Figure 4, 74% of New Jerseys heating needs are already met by natural gas. This is far
above the national average of 48% and above the 54% usage for neighboring mid-Atlantic states.

Furthermore, use of heating oil in New Jersey is declining rapidly. Figure 5 shows that heating oil use has
declined by almost half (46%) since 2008 and has declined by 59% since 2000.

US$Average$

Mid8Atlan<c$States$

New$Jersey$

New)Jersey))Sales)of)Hea/ng)Oil)to)Residen/al)Customers)
500,000"

450,000"

Thousands)of)Gallons)of)Hea/ng)Oil)

400,000"

350,000"

300,000"

250,000"

200,000"

150,000"

100,000"

50,000"

0"

2000"
2001"
2002"
2003"
2004"
2005"
2006"
2007"
2008"
2009"
2010"
2011"
2012"
2013"

Figure 5. New Jersey sales of heating (fuel) oil to residential customers. Source: EIA.

Fuel oil price is indexed to crude oil price and, since crude oil prices collapsed beginning in June 2014, fuel
oil prices have dropped (Figure 6). The EIA forecasts that crude oil prices will not reach 2014 levels again
6
until 2028 so heating oil prices should be reasonable compared with natural gas prices for at least the
next decade.

6
EIA Annual Energy Outlook 2015.

20150629-5252 FERC PDF (Unofficial) 6/29/2015 4:13:13 PM

New'Jersey'Residen3al'No.'2'Hea3ng'Oil'Prices'2010<2015'
Hea:ng$Oil$Price$

Poly.$(Hea:ng$Oil$Price)$

$5.00$
$4.50$
$4.00$

Dollars'Per'Gallon'

$3.50$
$3.00$
$2.50$
$2.00$
$1.50$
$1.00$

Jan$04,$2015$

Mar$04,$2015$

Nov$04,$2014$

Jul$04,$2014$

Sep$04,$2014$

May$04,$2014$

Jan$04,$2014$

Mar$04,$2014$

Nov$04,$2013$

Jul$04,$2013$

Sep$04,$2013$

May$04,$2013$

Jan$04,$2013$

Mar$04,$2013$

Nov$04,$2012$

Jul$04,$2012$

Sep$04,$2012$

May$04,$2012$

Jan$04,$2012$

Mar$04,$2012$

Nov$04,$2011$

Jul$04,$2011$

Sep$04,$2011$

May$04,$2011$

Jan$04,$2011$

Mar$04,$2011$

Nov$04,$2010$

Jul$04,$2010$

Sep$04,$2010$

May$04,$2010$

Jan$04,$2010$

$0.00$

Mar$04,$2010$

$0.50$

Figure 6. New Jersey fuel oil prices, 2011-2015. Source: EIA.

Based on this data, it is difficult to make a case that New Jersey needs more natural gas to replace heating
oil used for residential heating above its current supply that amply meets existing demand. In no case can
it be argued that New Jersey needs, much less is capable of absorbing, the volumes of gas from the
proposed PennEast Pipeline project.

Assessment of Natural Gas and Electric Power Cost in New Jersey

Because:

New Jerseys natural gas market is not growing as stated in The Request For Approval, and
New Jersey already uses far more natural gas for heating than the U.S. national average and than
in adjacent states, and
New Jersey does not need to reduce reliance on fuel oil beyond present low and decreasing
levels,

the cost of natural gas and electric power are the only other avenues of investigation necessary to
understand why New Jersey may need additional natural gas supply from PennEast or from any other
source. The argument here is that New Jersey customers might reduce their cost for natural gas or for
electricity if natural gas prices were lower because of more supply or because natural gas might replace
currently more expensive sources of electric power generation.

First, New Jersey natural gas prices are currently only slightly above the national average as shown in
Figure 7.

20150629-5252 FERC PDF (Unofficial) 6/29/2015 4:13:13 PM

Residen2al'Natural'Gas'Prices'
$20.00$
$18.00$
$16.00$

Dollars'Per'MMBTU'

$14.00$
$12.00$
$10.00$
$8.00$
$6.00$
$4.00$

$0.00$

Florida$
Vermont$
Alabama$
Maine$
Georgia$
Rhode$Island$
Arizona$
New$Hampshire$
MassachuseFs$
ConnecHcut$
Delaware$
South$Carolina$
Dist.$of$Col.$
New$York$
North$Carolina$
Virginia$
Maryland$
Pennsylvania$
Washington$
Oregon$
Missouri$
Louisiana$
New$Jersey$
Arkansas$
Texas$
United$States$
Kansas$
California$
Kentucky$
Oklahoma$
West$Virginia$
Tennessee$
Ohio$
Nevada$
Michigan$
Mississippi$
Alaska$
Iowa$
New$Mexico$
Wisconsin$
Indiana$
Utah$
Nebraska$
Illinois$
Minnesota$
South$Dakota$
Wyoming$
Idaho$
Montana$
Colorado$
North$Dakota$

$2.00$

Figure 7. Comparison of natural gas prices among all states. Source: EIA.

Furthermore, New Jersey gas prices are slightly less than Louisiana and only slightly more than Texas, the
two largest gas-producing states in the U.S. Considering that New Jersey produces no natural gas of its
own, it is somewhat remarkable that its gas costs are comparable to the two largest producing states. By
analogy to Texas and Louisiana, it is unlikely, therefore, that more supply would result in lower gas prices
to consumers.

Second, New Jersey electric power costs are currently below the national average (Figure 6).

Residen'al*Electric*Power*Costs*
10"
9"
8"
7"
6"
5"
4"
3"
2"

0"

New"Hampshire"
Wyoming"
Connec>cut"
Maine"
MassachuseBs"
Kentucky"
Rhode"Island"
Vermont"
North"Dakota"
Montana"
New"York"
Florida"
North"Carolina"
Nebraska"
Illinois"
Alaska"
Colorado"
Minnesota"
Iowa"
South"Carolina"
Arizona"
Washington"
Kansas"
Michigan"
Missouri"
United"States"
California"
Wisconsin"
Idaho"
Georgia"
Nevada"
New"Mexico"
Arkansas"
South"Dakota"
New"Jersey"
Virginia"
West"Virginia"
Alabama"
Delaware"
Indiana"
Maryland"
Pennsylvania"
Oklahoma"
Utah"
Mississippi"
Louisiana"
Texas"
Ohio"
Oregon"
Tennessee"

1"

Figure 6. Comparison of U.S. residential electric power costs. Source: EIA.

The only reason costs are higher than in Texas or Louisiana is that a very large percentage of electric
power in New Jersey comes from nuclear power plants (Figure 7).

20150629-5252 FERC PDF (Unofficial) 6/29/2015 4:13:13 PM

New$Jersey$Sources$of$Electric$Power$
100%$

90%$

2%$
11%$

2%$
8%$

2%$
4%$

80%$

70%$

32%$

33%$

38%$
Geothermal$
Hydroelectric$Power$

60%$

Total$Petroleum$
Solar/PV$

50%$

Biomass$
Coal$

40%$

Natural$Gas$
30%$

54%$

57%$

56%$

Nuclear$Electric$Power$

20%$

10%$

0%$

2010$
2011$
2012$

Figure 7. New Jersey sources of electric power. Source: EIA.

Nuclear power is essentially a fixed percentage of use because of long-term capital expenditures that
were passed on to New Jersey ratepayers by the plant operators. Electric power from nuclear sources is
not subject to significant modification because of additional natural gas supply. As things stand now,
natural gas used for electric power generation is increasing at the expense of coal, as shown in Figure 7.

Summary and Conclusion

The stated purpose of the proposed PennEast Pipeline is:

To deliver natural gas to growing natural gas markets in eastern Pennsylvania, southeastern
7
Pennsylvania, New Jersey and other downstream markets.
It is designed to bring lower cost natural gas produced in the Marcellus Shale region in eastern
8
Pennsylvania to homes and businesses in Pennsylvania and New Jersey.

The Request for Approval reveals that this stated purpose is, at best, misleading and, at worst, false as far
as Pennsylvania and New Jersey are concerned.

I have shown in preceding sections that there is no justification based on need or cost to bring additional
natural gas to New Jersey via PennEast or any other source. I have further shown that New Jersey is not a
growing natural gas market and that it already uses far more natural gas as a percentage of its residential
heating use than the national average or in adjacent Pennsylvania and New York. I have also shown that
there is no compelling case that additional volumes of natural gas are needed to displace fuel oil or to
lower the cost of natural gas or electricity.

It is, therefore, reasonable to assume that the true objective of the project is neither Pennsylvania or New
Jersey as stated in The Request for Approval but to deliver gas to other downstream markets outside of
Pennsylvania and New Jersey.

7
Request for Approval of Pre-Filing Review, PennEast Pipeline Company, LLC, p.1, October 7, 2014.
8

Request for Approval of Pre-Filing Review, PennEast Pipeline Company, LLC, p.2, October 7, 2014.

20150629-5252 FERC PDF (Unofficial) 6/29/2015 4:13:13 PM

Despite mention of local stakeholders that are listed in Exhibit D of The Request for Approval, it is
apparent that the primary stakeholders of the project are:

Marcellus and Utica Shale natural gas producers seeking outlet markets for an over-supply of
natural gas at better pricing, and
Interconnecting pipelines or shippers that will deliver gas to other downstream markets that
do not include Pennsylvania or New Jersey.

I quote from The Request For Approval:

10
The Project is designed to meet the needs of shippers seeking:

(i) additional supply flexibility, diversity and reliability;
(ii) liquid points for trading in locally produced gas, including Marcellus Shale and Utica Shale gas;
(iii) direct access to premium markets in the northeast and mid-Atlantic regions;
(iv) the ability to capture pricing differentials between the various interconnected market
pipelines; and
11
(v) firm access to long-lived dry gas reserves.

Principal interconnecting pipelines that PennEast would supply include:

Columbia Gas Transmission, LLC,
Texas Eastern Transmission, LP,
Algonquin Gas Transmission, LLC, and
Transco.

These pipelines currently deliver gas to the Boston and New York markets and may eventually be reversed
to carry Marcellus gas to southeastern markets.

Although there may be legitimate reasons for the PennEast Pipeline project based on supply needs in the
northeast and elsewhere in the U.S. and for potential export, the proposal is disingenuous in its claim to
provide gas for Pennsylvania and New Jersey. It should, therefore, be rejected in its present form and sent
back to PennEast for revision prior to further consideration.



Arthur E. Berman
Petroleum Geologist

Request for Approval of Pre-Filing Review, PennEast Pipeline Company, LLC, p.53-86, October 7, 2014.
My italics for emphasis.
11
Request for Approval of Pre-Filing Review, PennEast Pipeline Company, LLC, p.2, October 7, 2014. I
added bulleted format for clarity.
10

20150629-5252 FERC PDF (Unofficial) 6/29/2015 4:13:13 PM

REFERENCES


[1] Fifty Years of Paper Making A Brief History of the Origin, Development and Present Status of
the Warren Mfg. Company 1873-1923; Published by the Warren Mfg. Co., Boston, 1923

Story of Papermaking, Edwin Sutermeister, 1954; Published by S.D. Warren Co.

Chemistry of Pulp and Paper Making, Edwin Sutermeister ISBN 10: 1230859330/ISBN 13:
9781230859330

Digital Sanborn Maps, 1867-1970; Sanborn fire insurance maps contain not only detailed
information on urban structures and property boundaries, but detailed process drawings/piping
layouts process chemicals employed for many mfg. facilities/mills

[2] Agency for Toxic Substances and Disease Registry (ATSDR)
--Chlorinated Dibenzo-p-dioxons (CDDs) (extensive information and references to other related
publications). As noted in Summary, They (mainly 2, 3, 7, 8 TCDD) may be formed during the
bleaching process at pulp and paper mills.
--Toxicological profiles: National Technical Information Service
--ATSDR, Public Health Statement for Mercury
--Numerous US EPA Publications including Dec. 1997. Mercury Study, Report to Congress and
subsequent amendments/revisions
--Scientific/Engineering publications cited in the Engineering Index, 1880-present

[3] PennEast Pipeline Company, LLC
Pipeline Project, Proposed and Revised Location Map; online

[4] News release, August, 2014; US EPAs proposed plan to remove and replace soil in residential
yards which contained more than 250 ppt of dioxins; Cleanup of floodplains down river of Dow
Chemicals Midland, Mich. Facility

[5] Records on file with the Hunterdon County Historical Society

[6] A History of PSE&G, the Energy People, by James C. G. Conniff and Richard Conniff; published
by Public Service Electric and Gas Company, 1978 ISBN: 0-9602014-1-6

Page 2 of 2

20150629-5252 FERC PDF (Unofficial) 6/29/2015 4:13:13 PM

Document Content(s)
DRN Supp PennEast Expert Analysis 6.29.15.PDF.........................1-11