September 2021, Vol. 236, No. 9

Guest Commentary

Court Rulings Underscore Challenges for Gas Pipeline Construction

By Marc GorewitzDirector, Opportune LLP 

Gorewitz
Gorewitz

Natural gas pipelines are part of the critical infrastructure that transport gas throughout the U.S. to commercial, industrial and residential consumers. Interstate gas pipelines that cross multiple states are approved and regulated by the Federal Energy Regulatory Commission (FERC).  

Recently, the construction of new and expanded gas pipelines has been scrutinized, especially as countries address climate change by expanding the use of renewable energy resources and reducing the use of fossil fuels.  

Most recently, the U.S. Supreme Court debated the rights of pipeline companies to construct new gas pipelines versus states’ rights to impose limits on their construction. 

The Supreme Court overturned a lower court’s ruling reaffirming the pipeline companies’ eminent domain rights under the Natural Gas Act (NGA). NGA states that the federal government regulates the transport and sale of natural gas “in interstate and foreign commerce.”  

If the Supreme Court had not overturned the lower court’s ruling, construction of the pipeline would have ceased, and states would have a new legal strategy to block construction of natural gas pipelines. Even with the Supreme Court’s latest ruling, the PennEast pipeline will have to contend with other environmental and legal challenges for construction.  

If the PennEast pipeline been placed into service prior to the 2017 and 2018 winters, eastern Pennsylvania and New Jersey gas and electric customers would have saved approximately $1.3 billion, according to an independent study by Concentric Energy Advisors. 

Other proposed pipelines, such as the $8 billion Atlantic Coast natural gas pipeline, have been canceled due to delays and cost overruns attributed to legal and regulatory disputes. The Williams Northeast supply enhancement pipeline project was recently granted a two-year extension by FERC. Construction had been delayed due to New York not issuing water permits for construction. 

The pipeline enhancement will deliver an additional 400 MMcf/d (11.3 MMcm/d) of gas to New York City (NYC) — a 14% increase in capacity. 

Meanwhile, the Mountain Valley Pipeline will deliver Marcellus- and Utica-sourced gas to West Virginia and Virginia. The EQM Midstream-operated pipeline is approximately 90% complete; however, startup has been delayed because of regulatory and permitting issues. The pipeline was originally scheduled for completion by the end of 2018 and the planned in-service date was pushed to summer of 2022, increasing the overall cost of the project. 

Congress has proposed legislation that would impose limits or impact eminent domain rights for pipelines. The Landowners Fairness Act (S. 641) requires FERC to consider certain factors in pipeline permitting, modify eminent domain requirements, and prohibit using the NGA eminent domain for pipelines built for exports.   

The CLEAN Future Act (H.R. 1512) prohibits pipeline companies from using NGA eminent domain authority until they have all necessary federal and state permits and comply with environmental permit conditions. The act also prohibits using eminent domain for gas pipelines built for import or export purposes.   

Other congressional legislative proposals would amend the NGA eminent domain rights or require FERC to consider other environmental factors before a gas pipeline certificate could be issued. It’s unlikely that most of these legislative proposals will be approved in a divided congress; however, it demonstrates the desire to place more hurdles for future gas pipeline construction. 

Northeast Gas Supply Constraints 

In the Northeast, there are natural gas supply constraints and higher prices for gas and electricity. Gas supply constraints have resulted in short-term moratoriums for new natural gas hookups at local distribution companies (LDCs). In 2019, Con Edison and National Grid placed limits on new natural gas hookups in the New York area due to these gas supply constraints.   

National Grid addressed these supply constraints, in part, by trucking in liquefied natural gas (LNG) and compressed natural gas (CNG). Both alternative gas supply options have higher transportation costs compared to pipeline transportation. 

In NYC, demand for natural gas has increased due to new construction and replacement of oil-based heating systems in existing buildings. In NYC and Long Island, it’s estimated that 8,000 consumers are switching from oil to gas every year. Since 2012, natural gas has added over 1 million new household customers in the Northeast.  

In April 2021, the Indian Point Center nuclear reactor ceased generating electricity when the last operating unit was shut down. Three natural gas plants built in the past three years now provide electricity to those areas of New York previously supplied by the reactors. 

Annual gas-fired generation is estimated to have increased by 31% in the Northeast between 2015 and 2019, according to the U.S. Energy Information Administration (EIA).  

Reduced Emissions 

In 2019, New York passed NYC’s Climate Mobilization Act (NYC Green New Deal) that mandates 40% emissions cuts for buildings by 2030 and 80% by 2050. An Urban Green Council study found that cutting emissions will cost building owners $16.6 billion to $24.3 billion over 10 years. 

Energy efficiencies and use of renewable energy sources will reduce emissions. The Local Law 97 – a part of the NYC Climate Act – applies to buildings that are 25,000 square feet (2,323 square meters) or larger and buildings with 35% or fewer rent-regulated units.  

Emissions reduction laws will help reduce the overall demand for natural gas in the long-term. In the short-term, new and expanded pipelines are needed to supply current demand and keep energy costs reasonable for consumers. 

Conclusion 

The Supreme Court’s recent ruling upheld a federally regulated pipeline’s eminent domain rights to seize state- and privately owned land, preventing states from using the 11th Amendment to claim state sovereignty to block pipeline construction. Despite the ruling, pipeline companies have faced other environmental and regulatory issues, causing delays in new and expanded pipelines or in-service timing. 

State and federal governments have either passed or proposed legislation and policies that promote replacing existing energy sources, such as natural gas, with renewable energy sources. In the U.S. there are over 2 million miles (3 million km) of natural gas distribution mains and pipelines and more than 300,000 miles (500,000 km) of gas transmission and gathering pipelines.  

Interstate Natural Gas Association of America (INGAA) projected over 30 Bcf/d (850 MMcm/d) of new pipeline capacity would be needed through 2025. Therefore, it’s unlikely these pipelines will be phased out anytime soon.    

Going forward, expect sustained efforts through environmental and legislative changes contesting expanded and new gas pipeline construction. Additional challenges in the courts and more pressure on FERC are expected to broaden rules for pipeline certification approval, resulting in further capital cost increases and longer overall pipeline approval and construction timelines.  

Author: Marc Gorewitz is a director in Opportune LLP’s Process & Technology practice based in Houston. He has over 25 years of consulting and software industry experience primarily in the energy industry.  

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