Permitting: FERC stuck in the middle

Caroline Gentry's picture
Caroline Gentry, Senior Energy Analyst, dmg events
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The US natural gas industry has made a remarkable comeback after years of shale-suppressed prices. It is positioning itself as a new supply champion, ready to swoop in to save Europe from over-reliance on Russian supplies. But in the domestic market, a storm is brewing that could have a dampening effect on infrastructure development. There is plenty of gas for sure, but it is becoming increasingly difficult to build new pipelines, despite an industry-friendly administration.

FERC, the regulatory body that approves interstate pipelines, is stuck between a rock and a hard place – a fitting metaphor for shale. Several pipeline construction projects have been dogged by lawsuits from environmental groups and now the agency is reviewing its certification policy to take account of their concerns. Possibly the thorniest issue is a new requirement to analyse downstream greenhouse gas emissions and the social cost of carbon, an issue that caused setbacks for Sabal Trail extension in Florida. FERC will now have to consider the impact of emissions from power plants burning the delivered gas when it issues pipeline permits. Easy if the alternative is coal, but will renewables have to be considered?

Natural gas is given a bad rap because although cleaner than coal and oil, it is a fossil fuel, and the public is wary of fracking. But the industry should do more to tout its environmental benefits. Natural gas has been responsible for 61% of the CO2 reductions from electric generation in the US since 2005, according to a recent Energy Information Administration report (see figure).

But carbon is by no means the only hurdle being raised: Mountain Valley Pipeline and Atlantic Coast Pipeline have also suffered delays after environmental groups challenged their route through national parks, among other issues. Both projects are continuing, but the stoppages have proved costly. And after the fatal gas explosion in Boston in September, and an upcoming vote in Colorado on whether to allow fracking after several earthquakes, regulators will be under increasing pressure to pay attention to public concerns.

Both sides of the debate weighed in with extensive but predictable comments to FERC’s request for feedback on its permitting process known as a Notice of Inquiry (NOI) in June, with the industry broadly saying the current system works well but could be more efficient, and environmental groups making no bones about their aim to just keep the gas in the ground. [Certification of New Interstate Natural Gas Pipeline Facilities, Notice of Inquiry, 163 FERC ¶ 61,042 (2018) DOCKET NO. PL18-1-000]

Meanwhile, some are concerned FERC may be feeling pressured to streamline decision-making. FERC is liaising with other agencies to implement the Trump administration’s Executive Order from last year urging it to speed up permitting, and last month it took steps to accelerate the environmental review process for 12 pending LNG export terminal applications. FERC issued three approvals recently, for the Williams Atlantic Sunrise pipeline, Columbia Gas Transmission’s WB Xpress pipeline and Kinder Morgan’s Sierrita gas pipeline.

Control for power within FERC is in stalemate with two Democrat and two Republican commissioners until a replacement is found for Republican Commissioner Robert Powelson, who stepped down from his post early. Trump has nominated Bernard McNamee, a US Department of Energy official behind a controversial plan to support coal and nuclear power plants, which will be debated at a hearing on 15th November. The two Democrat commissioners have previously blocked pipeline approval projects but it remains to be seen how or if this will affect the broader certification review.

Alongside FERC’s NOI on certification, guidelines for separate environmental reviews required by the National Environmental Policy Act were also out for comment this summer, suggesting potential rollbacks to the Obama administration’s stricter recommendations.

Perhaps it’s high time FERC reviews its certificate policy statement, which was last issued in 1999. The US gas industry has gone through major changes since then, and federal courts have ruled that greenhouse gas emissions should be regulated as a pollutant. There is no deadline for FERC to respond to the NOI comments, nor to take action. Some observers remain sanguine about the intentions behind the process.

‘It is a remarkably passive stance for this agency as compared to its usual approach in an NOI. That FERC punts on taking any position or making concrete proposals for public comment signals that it is unlikely to make wholesale changes to its existing policies. This is not surprising in the current acrimonious political climate,’ writes Barbara Jost, a partner at US law firm Davis Wright Tremaine LLP.

Pipeline applications are proceeding so rapidly that a complete review of the impact on natural resources and local stakeholders is not possible, says Spencer Phillips, Economist and Principal at Key-Log Economics, an ecological-economics consultancy. ‘FERC is only giving a one-sided picture and not doing a thorough cost-benefit analysis,’ he adds. ‘The concern is it’s happening at a pace and scale that’s not well considered.’

This uncertainty in permitting comes at a bad time for pipeline companies, many of which are already reeling from a looming tax reform of Master Limited Partnerships to revoke their recovery of income tax, to which they need to respond by choosing one of four options which may require them to lower their rates. [FERC Docket Nos. RM18-11-000  and PL17-1-001]. Many major pipeline companies such as Enterprise, TransCanada, Energy Transfer, Williams, Boardwalk are full or partial MLPs, which had until recently been the darling of investors after many years of steady growth but have somewhat fallen out of favour after low gas prices slowed project development.  

‘Historically it was one of those safe bets, but the pipeline industry is kind of radioactive right now,’ said one analyst.

On top of local resistance to new pipeline projects, further complications to the permitting process at the federal level will not be welcomed by combined-cycle plant operators. New England is already in the extraordinary predicament of facing see-sawing spot natural gas prices and potential rolling blackouts this winter despite being almost on top of one of the most prolific shale basins in North America, the Marcellus. “New England’s limited fuel infrastructure will eventually cause severe reliability issues if fuel security is not addressed,” said Gordon van Welie, president and CEO of ISO New England, testifying before the Senate Committee on Energy and Natural Resources earlier this year.

Unfortunately for pipeline companies, until FERC can give greater clarity on how the permitting procedure can be streamlined and expanded to address environmental concerns at an early stage, the courts may continue to ‘legislate from the bench’ as environmental groups seek to redress what they see as an imbalance in regulatory oversight.

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