High oil and gas prices may have shocked, shocked Joe Sixpack and his compatriots, but when it comes to building new refineries and other plants a solution for increasing supplies of natural gas, well, let’s not go overboard.
The NIMBY factor, in sum, is alive and well in the new new age of energy crisis. NIMBY, of course, is short for not in my backyard. Its governing philosophy is essentially: solutions are all well and good, just as long as they’re nowhere near me. In theory, it seems reasonable. Oil and gas refineries are big, ugly, dirty and carry a threat of trouble if there’s an explosion. Of course, such eye sores exist primarily for the convenience and comfort for the same people who oppose them. Regardless, building such facilities far, far away from population centers has immediate and wide appeal. Never mind that building a liquified natural gas facility in remote areas would insure higher costs since the fuel would have to be shipped back to demand centers. In which case, cries of price gouging might arise in no short order.
But there seems to be no risk of that particular form of abuse for the simple reason that efforts to build new refineries, near or far, are stopped before they get off the drawing board. Incentives to maintain that status quo are likely to be enhanced with crude oil and refined gasoline prices in relative retreat (for the moment).
Might there be a different verdict when it comes to natural gas, whose price continues to remain high relative to crude and gasoline? A clue might come soon via the outcome of a suit brought by Delaware in an effort to block plans by a unit of BP for building a liquified natural gas plant on the New Jersey shore of the Delaware River. The case is scheduled for a hearing today at the United States Supreme Court.
John Hughes, Delaware’s environmental secretary, reasons that his state’s in the right because Delaware’s laws bar “heavy industry and certain manufacturing procedures inside our coastal zone,” he told AP last week via Newsday.com.
The core of the dispute is that the new facility requires building a peer which extends out into the Delaware River, a project that will entail dredging a portion of the riverbed that Delaware says is under its jurisdiction. On that basis, Delaware has so far put the kibosh on giving BP a permit to proceed, arguing that the work would risk environmental damage.
But there’s a legal glitch for Delaware in the form of 100-year old agreement between the state and New Jersey that gives the latter the right to ok development for the BP project. As a reporter for law firm Goldstein & Howe’s blog observed last week of the inter-state dispute now awaiting resolution at the Supreme Court: “New Jersey argues that the compact gives it control over riverbank areas of the Delaware on its side, and thus contends that Delaware may not stop it from authorizing development of those areas.”
Legal issues aside, New Jersey residents living near the proposed LNG facility are concerned with safety, which is to say, NIMBY rules. “If, God forbid, anything happened, there would be a domino effect up and down the river,” Bob Grant, a retired truck, said in a New York Times story yesterday about the potential for trouble with BP’s project.
Opposing LNG-facility developments is nothing new, of course. Back in March, CS wrote of the high-level battles in Washington as efforts to thwart plans for developing various LNG projects proceeds apace. Indeed, the NIMBY effect has been no trivial reason for the lack of new oil refineries in the U.S. over the past generation.
With that in mind, the market may be watching the outcome of today’s Supreme Court skirmish over LNG as sign of things to come. But while the lawyers chatter and the Justices listen, natural gas prices continue to hover near all-time highs. In fact, the January 2006 natural gas futures contract reverted to form in the last week or so, rising 23% as we write, relative to November 28’s close.
So, while the Supreme Court weighs the pros and cons of the Delaware/Jersey dispute, Mr. Market seems to have already filed his verdict. NIMBY, in sum, has an effect on the trading mentality, but in manner that digs ever deeper into Joe Sixpack’s disposable income.