President Obama has been accused of kicking the can down the road when it comes to Keystone XL, and it appears Governor Andrew Cuomo of New York is doing the same with fracking.
Despite the fact that New York is sitting on the natural gas goldmine that is the Marcellus shale, fracking remains banned throughout the state, even though the state has largely benefited from natural gas imports from fracking states.
And with heating bills ramping up due to cold weather, New Yorkers could certainly use some relief. But the problem is that New York voters still hold a negative view of fracking. In recent polls, negative views have held up to a 14 percent advantage over support of fracking. It seems there is a gap between heating bills and the help that fracking can do in alleviating high prices.
There is even more bad news for New York producers. Even if the state government allows fracking, local governments are likely to maintain fracking bans. We have already seen this happen in Dryden, New York.
But while producers in other East Coast states are waiting for new markets, one could be sitting right before them in New York. Natural gas prices in New York hit a seven month high in recognition of the winter season and a supply shortage, Bloomberg reports. January futures rose to $4.33 per million BTU on the New York Mercantile exchange, which is ten cents higher than the national average.
The problem is, natural gas pipeline makers are hesitant to build pipeline routes to the East Coast because of the financial burden in only satisfying seasonal demand. New Yorkers will have to do something to invigorate its energy sector on its own.
Growing Frustration
Some producers like Norse Energy (OTC: NSEEY), a Norwegian firm that invested 130,000 acres in New York, are threatening to take legal action if the state does not come to announce a completion date for a fracking review within two weeks. However, this is unlikely to happen.
For its part, Norse Energy had so much invested in the project that it is going through bankruptcy proceedings, losing out on $30 million. The company is looking for heads to roll.
A number of energy projects from other companies are also on hold because of Cuomo’s indecision. New York is in the same predicament as California – importing high priced oil from other parts of the country, while shale plays are ripe for the picking.
In New York’s case, it is paying for imports from states like Pennsylvania of a commodity it could be developing on its own. Bureaucracy is what stands in the way.
It was under the Supplemental Generic Environmental Impact Statement that fracking was supposed to be regulated in New York, but a health review study ordered by the health commissioner has yet to be completed for the past 10 months. Norse is demanding that this review be completed in order for the fracking approval process to move forward.
Without a review, Cuomo has an excuse to sit on fracking-based projects by hiding behind red tape. But the public perception is also against fracking, and a combination of the two will force New York to remain in limbo on shale projects.
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Shale Freeze in New York
Companies specializing in natural gas like Chevron (NYSE: CVX), Exxon Mobil (NYSE: XOM), and Royal Dutch Shell (NYSE: RDS-A) could turn New York into a shale gas haven. In many parts of the country, natural gas is not profitable, but prices in the state are higher than the national average, and consumers could use relief.
The good news is that the governor is at least considering fracking. After seeing successes in neighboring states, it is very likely that New York will one day join the fracking boom.
What needs to occur is public education on fracking and how it can lower energy bills. There also needs to be less red tape in allowing companies to usher in domestic production.
Just think of the benefits fracking would bring to households on tight budgets and heating assistance. There is a market to be served in New York, and state and local governments need to create the atmosphere to bring in revenue while helping residents with their gas bills.
For investors, Pennsylvania and Eastern Ohio are ideal places to get in on the Marcellus boom. Until the issue of red tape is solved, don’t count on any shale success in New York contributing positively to your portfolio.
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