Thread by @JohnArnoldFndtn

Government has invoked the Defense Production Act at least 6 times since 2020 when a shortage has occurred for a strategic product. Natural gas today fits this description. Rather than responding with helpful policies, gov’t helped create the shortage & is making things worse. 1/

NG prices are up 3x in past year, reaching record highs in the shale gas era. Previously, the market has responded with a flood of new supplies. But the regulatory state has effectively capped growth in the largest and most prolific gas region in the US. 2/

graph via @sheetalrbn

Appalachia (Marcellus + Utica) represents 1/3 of US gas production & huge reserves, but gas is only useful if it can be piped. Takeaway capacity is effectively maxed-out today. The region needs new pipelines, but environmental regs have killed or delayed all 4 recent projects. 3/

Mountain Valley Pipeline is a 2 bcf/d project taking Marcellus gas to Virginia. It received federal permits in 2017, began construction in 2018, and was expected to come into service in 2019. Despite being 92% complete, numerous court challenges have halted construction. 4/

Now $3 bln over budget, the pipe will now come on in late 2023 at earliest. But analysts fear it may never be completed and it’s become a financial disaster for the developers. Without new pipe, a region that grew production from 0 to 34 bcf/d in 14 years cannot grow further. 5/

The experience of MV Pipeline is sending the signal to others not to even try. With little faith that future projects won’t get caught up in the same court battles, the other three pipelines under development in the region have all been cancelled in the past two years. 6/

Compounding matters, 4 days ago Biden made it even harder to acquire permits by restoring state and tribal rights to veto energy infrastructure. Without the ability to build, demand destruction is the only way to balance the market. 7/ nytimes.com/2022/06/02/cli…

If Appalachian supplies have permanently plateaued, we’re looking at structurally higher gas prices. Not only does this affect utility bills, it raises the costs of most domestic manufacturing, especially intermediate goods like steel, glass, chemicals, fertilizer, & refining. 8/

Further, European countries are seeking American LNG to help transition away from Russian supplies. With new Appalachian production, we can both supply our allies and keep domestic gas prices low. If the most prolific gas field is essentially off-limits for growth, we cannot. 9/

New infrastructure is required to transition to clean, affordable, reliable energy. Yet permitting all new energy projects (solar, wind, hydrogen pipelines, gas, transmission) is getting materially harder. We see the results now with $5 gasoline, $9 nat gas, $100+ kWh power. 10/

The inability to build infrastructure is not due to lack of capital; it’s due to a reg state that makes development very hard. Solving that requires national prioritization. But we’re doing the opposite. Unless something changes soon, this is a train wreck in slow motion. 11/11