NESE Rejected

At 8:30 p.m. yesterday, the State of New York Department of Environmental Conservation rejected Williams Corporation’s proposal for the Northeast Supply Enhancement (NESE) natural gas pipeline. Citing potential water contamination from the project, which mostly would run into New York Bay, the DEC refused to issue the required Section 401 Clean Streams Certification.

The decision was made “without prejudice,” meaning Williams can resubmit its application. The company said it planned to do so.

In reaction to the DEC decision, the two power companies that serve New York City and Long Island, National Grid and Consolidated Edison, are expected to follow through on their moratoria against any new gas hookups in practically the entire New York City metropolitan area within New York State. Among other things, that means that a planned new arena for the New York Islanders ice hockey team to be located in Elmont, New York likely is dead.

A more interesting question will be how this move affects New York City’s bond rating as a whole. Without available new natural gas service, will the rating agencies feel as confident about Downstate New York’s future growth potential?

All of this, and many other questions, remain to be answered.

Questions? Let me know.

Daniel Markind of Flaster Greenberg

Daniel Markind is a shareholder at Flaster Greenberg PC with over 35 years of experience as a real estate and corporate transactional attorney. He has represented individuals and companies in the energy industry for over 20 years. Dan is a frequent lecturer on Marcellus Shale and other mineral extraction issues and is regularly asked to speak at conferences, in the media and at other venues regarding energy issues and their legal and political implications.

Shale Gas News Podcast – Pipelines, Fracking & More

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I had a great time on the Shale Gas News Podcast over the weekend discussing New York Governor Andrew Cuomo’s dilemma regarding approval of the NESE pipeline, the decision by Oregon to deny a Section 401 Clean Streams Certification for the Jordan Cove Pipeline, the banning by Washington Governor Jay Inslee of fracking in his state, and the battle near Death Valley over lithium mining, which is needed to make renewable energy sources viable.

Check it out here in case you missed it. (My interview appears at 18:55).

Questions? Let me know.

Daniel Markind of Flaster Greenberg

Daniel Markind is a shareholder at Flaster Greenberg PC with over 35 years of experience as a real estate and corporate transactional attorney. He has represented individuals and companies in the energy industry for over 20 years. Dan is a frequent lecturer on Marcellus Shale and other mineral extraction issues and is regularly asked to speak at conferences, in the media and at other venues regarding energy issues and their legal and political implications.

 

 

NESE: Governor Cuomo Will Decide – And NYC Will Face The Consequences

Huge metal gas pipeline transporting gas

While little noticed outside of the energy industry, New York Governor Andrew Cuomo is about to make one of the seminal decisions of his tenure. Before May 16, 2019, Governor Cuomo must decide whether to allow the New York State Department of Environmental Conservation (DEC) to issue a Section 401 Clean Streams Certification to the Northeast Supply Enhancement Project, which is proposed to bring natural gas from the Marcellus Shale gas fields of Northeastern Pennsylvania to New York City.

NESE, as the Project is known, would utilize portions of the existing 10,000 mile long Transco Pipeline, that currently connects natural gas fields in South Texas with New York City, to add about 10 miles of new pipe in Lancaster County, Pennsylvania, about 3 miles of new pipe in Middlesex County, New Jersey, and about 23 miles of offshore pipe mainly in New York Bay, plus a new compressor station in Somerset County, New Jersey. The additional pipe would allow the existing pipeline to convey increased gas volume originating in the Marcellus region to New York City.

The decision now before Governor Cuomo has profound implications for people as varied as all New York City residents (but especially lower income residents), real estate developers, business owners, and even Vladimir Putin.

NESE received final approval from the Federal Energy Regulatory Commission on January 25, 2019. Cuomo could try to kill the project by refusing to allow his DEC to grant the Section 401 Certification based on the fact that about 23 miles of the pipe will be underwater starting in New Jersey’s Raritan Bay and extending into the lower New York Bay in New York State. The Governor has done this before, of course, with the Constitution Pipeline and other Upstate projects.

Because of his prior maneuvering, Cuomo has no good option. Given his history of withholding the Section 401 Certification for the Constitution Pipeline, the Governor’s environmental supporters expect nothing less here. Indeed, the amount of water the NESE pipe will cross dwarfs anything seen before in the Section 401 controversy (except, ironically, a portion of the existing Transco Pipeline that is already installed offshore in the same general region in Raritan Bay and lower New York Bay).

On the other hand, refusing to grant the 401 Certification means risking power shortages in New York City. Already Consolidated Edison, which services portions of New York City and recently issued a moratorium on new gas hookups in Westchester County, New York, because of concern for future demand, is promising the same for Manhattan should projects like NESE be stopped. Likewise, National Grid, which services other parts of the City, is also threatening a moratorium if NESE is not built. However, of the two utilities, only the latter would actually be the pipeline’s customer.

No new supply means a marked contraction of economic activity in the City and its immediate suburbs in New York State. Along with that economic decline would come higher energy prices, which disproportionately affect the economically disadvantaged, and an increased reliance on imported gas. Little would make Vladimir Putin happier than to have his foot placed squarely on New York City’s economic lifeline.

Until now, Downstate New Yorkers have suffered little from the effects of their environmental activism. They got to feel righteous while the Upstate residents in Binghamton and Elmira paid the price from the moratorium on fracking. Now that economic price will be extracted in the biggest city in the country as well. How will the New York City business community deal with looming power shortages? What will the advocates for the economically disadvantaged say when their gas bills soar? What will the real estate community tell Governor Cuomo if they cannot offer gas service to new customers?

A major influence in Governor Cuomo’s initial decisions first to declare a moratorium on fracking in New York State and then to stop all pipelines through the Section 401 process was his former brother-in-law, environmental activist Robert F. Kennedy Jr.

However, Kennedy’s star has faded recently as he has been one of the leaders of the anti-vaccine movement that resulted in the resurgence of diseases like measles. More have come to question his judgment from that fiasco than arguably was the case a decade ago, when he was the chief attorney and board chair for the environmental activist organization, Hudson Riverkeeper. Will that loss of prestige be enough for Cuomo to approve NESE? If he does, how can he continue to block the Constitution Pipeline as well? If he does not approve NESE, what will happen if there are price spikes and brownouts in New York City, as quite likely will occur? What impact will it have on the 2020 Presidential race if during the next winter Russian gas tankers need to bail out New York City?

Whatever Governor Cuomo decides, this time it will be his Downstate base that feels the result.

Questions? Let Dan know.

Daniel Markind of Flaster Greenberg

Daniel Markind is a shareholder at Flaster Greenberg PC with over 35 years of experience as a real estate and corporate transactional attorney. He has represented individuals and companies in the energy industry for over 20 years. Dan is a frequent lecturer on Marcellus Shale and other mineral extraction issues and is regularly asked to speak at conferences, in the media and at other venues regarding energy issues and their legal and political implications.

Trump v. Cuomo – The Battle of the Pipelines

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President Trump joined the pipeline battle last week by issuing two Executive Orders aiming at limiting the power of state officials to determine federal policy. One Order calls on the Environmental Protection Agency to streamline its process for awarding oil and gas permits and to expand the ability of the nation’s railroads to transport liquid natural gas. The other Order limits to the President personally the right to “issue, deny or amend” permits for infrastructure projects that cross international boundaries of the United States. Not surprisingly, the environmental community is appalled, and certain governors have blasted the Executive Orders as being a usurpation of state power by the federal government.

As discussed innumerable times on this blog, the permitting issue in the first Order revolves around something known as a Section 401 State Certification of Water Quality. This is a certification under the Federal Clean Water Act from a state confirming that any interstate pipeline that may result into a “discharge” into “navigable waters” within its boundaries will comply with the Clean Water Act.

Initially after enactment of this legislation, many states did not pay close attention to Section 401. They either did not act on requests for certification for more than a year, in which case the state’s authority to act was deemed waived, or trusted the applicable federal agency. This includes pipeline projects for which FERC, the Federal Energy Regulatory Commission, retains primary jurisdiction.

Enter New York Governor Andrew Cuomo. Cuomo was terrified of the power and influence of the New York State environmental community. Without really raising any specific good faith environmental objections, in 2016 Governor Cuomo ordered his New York Department of Environmental Conservation to deny the issuing of the Section 401 Certification for the Constitution Pipeline. This pipeline is a proposed 165 mile link running from the Marcellus Shale gas fields in Northeastern Pennsylvania to the Southern Tier of New York State. There, the Constitution would connect into another larger pipeline called the Tennessee Pipeline which led into New England.

Without this link, natural gas from the most prolific gas fields in the world now has no way of being transported to New England. Just five hours away from the Marcellus, Boston instead relies on natural gas imported over the ocean from Trinidad and Tobago, and at times from Russia. In effect what Governor Cuomo did was dictate energy policy not just for his own state but for all of New England as well.

Since Cuomo’s action, other governors have emulated his refusal, turning energy policy into a hodge podge of conflicting local policies and chaos. Using Section 401, Massachusetts, Vermont, Michigan and others have blocked the permitting of interstate pipelines coming within their borders, insisting against all evidence that the energy shortfall from denial of pipeline access can be made up with so-called “renewables”. Those on the ground who have to deal with the real world implications of this situation understand its ramifications. Consolidated Edison, the franchise power company in Westchester County New York, already was recently forced to declare a moratorium on new gas hookups as there is no available supply.  The needed gas is just two hours away in Northeast Pennsylvania, but Governor Cuomo won’t let it arrive.

While there are bound to be judicial challenges, President Trump’s Executive Order is the first step in the federal pushback against what actually can be seen as a state usurpation of an inherent federal power. Pipelines cross state boundaries.  Thus, they are classic examples of Interstate Commerce. Constitutionally, that should be a matter of federal and not local concern or jurisdiction.

From a purely legal standpoint, however, the President’s Executive Order may not work. It clearly raises innumerable legal issues about federalism, executive authority, environmental enforcement and numerous other legal concepts – many still untested in the courts. Also, it gives no real explanation for how a mere Order from the Executive Branch can override a federal statute, which clearly refers to the “licensing or permitting agency… from the State.”

Despite all of these uncertainties, however, the Order really had to happen – if for no other reason than to highlight the debate and the substantial energy dilemma that now exists in the Northeast as a result of the absence of rational and cohesive energy laws and policies throughout the nation. Within all of our laws there is an implied element of good faith. Nowhere does the Clean Water Act assume or provide that a state can purposely refuse to issue these types of permits for any reason based on that state’s unilateral policy decision. In reality, without ultimate federal control, the entire system could and likely will collapse. That certainly was never the intent of Congress in enacting Section 401.

While advocates of a “green revolution” intend to fight the President tooth and nail, their objections in the end will defeat their own cause unless they realize that we all are in this together. The Green New Deal talks about eliminating fossil fuels by 2030. However, even if this were scientifically possible (which it really isn’t without massive use of nuclear power that many reject for other reasons), Alexandria Ocasio-Cortez, Ed Markey and their supporters offer no way of constructing the infrastructure needed to move, and especially store, renewable energy given the current system, available technology and the current level of state environmental rejection.

Although it almost doesn’t seem possible, the noise level over national environmental and energy policy will be ramped up following President Trump’s Executive Order. Each side will raise the specter of the apocalypse should the other side prevail. What really matters though, is what kind of system can be restored that retains federal control over interstate energy transmission, respects local concerns about environmental protection, pays due regard to the need to combat climate change, and guards against grandstanding politicians who will use whatever means they can to leverage local platforms as a way to assert control over all of our lives.

Questions? Let Dan know.

Daniel Markind of Flaster Greenberg

Daniel Markind is a shareholder at Flaster Greenberg PC with over 35 years of experience as a real estate and corporate transactional attorney. He has represented individuals and companies in the energy industry for over 20 years. Dan is a frequent lecturer on Marcellus Shale and other mineral extraction issues and is regularly asked to speak at conferences, in the media and at other venues regarding energy issues and their legal and political implications.

Is West Virginia Prioritizing The Past Over The Future?

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West Virginia Governor Jim Justice made one of the most curious gubernatorial moves in recent years recently, when he vetoed a bill that would have directed money to plug the Mountain State’s approximately 4,000 abandoned gas wells.

The bill, which had strong bipartisan support, would have decreased the State’s severance tax on low producing wells and directed other monies to a fund for the plugging of the abandoned ones.

To show how strong support was for the legislation, the House passed the bill 89-11 and the Senate 33-1. At a time when different political camps have difficulty agreeing on anything, the bill was supported by the oil and gas industry, landowners, the West Virginia Farm Bureau, and the environmental community. That kind of agreement from notoriously warring factions is almost unheard of.

Given that level and breadth of support, why did Governor Justice veto the bill? In his veto letter, the Governor objected to the tax rate cut on the low-producing wells and stated that the money to plug the abandoned wells should come from West Virginia’s General Fund. That seems a curious position given the positive environmental goal and the amount of public support.

Some see a nefarious purpose behind the Governor’s move. The “Marcellus Drilling News” suggested that the Governor vetoed the bill as a payoff to his supporters in the coal industry, specifically big coal mine operator Robert Murray. Indeed, last week the Governor signed a bill lowering the tax rate on steam coal used in power plants, but then turned around and rejected a cut in the gas tax rate payable by low producing wells and raising other funds to help clean up West Virginia.

It’s not a pretty picture. At best, the Governor committed political malpractice by blindsiding nearly everyone in the State. At worst, the Governor made a terrible choice to reward certain large coal operators at the expense of the citizens of West Virginia.

This all comes at a time when West Virginia is about to receive a massive $2.5 billion investment in an ethane cracker plant to support the gas industry. How Governor Justice explains his veto to the industry that is plowing money and resources into his economically depressed State will be interesting to watch in the weeks to come.

Questions? Let Dan know.

Daniel Markind of Flaster Greenberg

Daniel Markind is a shareholder at Flaster Greenberg PC with over 35 years of experience as a real estate and corporate transactional attorney. He has represented individuals and companies in the energy industry for over 20 years. Dan is a frequent lecturer on Marcellus Shale and other mineral extraction issues and is regularly asked to speak at conferences, in the media and at other venues regarding energy issues and their legal and political implications.

Marcellus Shale Update – When the Snow Turns Green

When the snow turns green in russia

Residents of the Siberian town of Pervouralsk have been horrified by a sight they never expected – green colored snow.  Vladimir Putin’s Russia, in the same way as the Communist Soviet Union, industrializes with little regard to the environment.  Now, pollution from a chrome factory in Pervouralsk turns snow a poisonous green.  Elsewhere in Siberia, pollution from open air coal pits in Kemerovo falls as toxic black snow and makes streets black and grimy.  Meanwhile, residents of Sibai in the Urals must wear masks due to choking smog from a copper factory.  Protests have broken out throughout Siberia and elsewhere.  Meanwhile, the Russian citizens’ trust in Putin has plummeted more than 33 percent since 2006.  The environmental mess, together with a stagnant economy and related issues, means that Putin now has popularity ratings south of Donald Trump’s.

The Russian environmental disaster shows the folly of American states like Massachusetts and New York that rely in any way on Russian oil or natural gas, then claim that this is environmentally superior to building pipelines from the Marcellus Basin.  Simultaneously, it’s a cautionary tale for the pipeline builders and the natural gas industry themselves about the importance of environmental responsibility in their operations.

New York and New England continue to pursue policies destined to produce both energy deficiency and environmental destruction.  The Boston Globe reported that two Massachusetts towns, Holyoke and Middleborough, have issued moratoria on new natural gas hookups due to lack of supply.  This follows Con Edison’s moratorium in Westchester County, New York.

Massachusetts’s supply constraint is the result of the Bay State’s failure to allow the build out of natural gas pipelines from the Marcellus Shale region of Northeastern Pennsylvania.  The Globe warned that many energy experts believe that while the State’s two largest gas suppliers, National Grid and Eversource, claim their natural gas supplies are adequate for now, that won’t last long.

Environmentalists in Massachusetts call for increasing supplies from Canadian hydropower and offshore wind, but fail to state what the grid to store and transmit that power would look like.  Skeptics also note that whenever a large offshore wind farm project is proposed there is mass opposition from many of the same environmentalists who oppose shale drilling.  Martha’s Vineyard, Nantucket, the New Jersey Shore, Chesapeake Bay, Vermont and others are places where offshore wind farms have been proposed but dropped due to local opposition.  Where exactly do we build the wind farms that the environmentalists want?

It is this type of idealistic, irrational thinking that results in environmental destruction.  Alexandria Ocasio-Cortez’s “Green New Deal” calls for eliminating fossil fuels in ten years.  Were this concept to pass, how would that occur?  Presumably, a politically appointed group would be authorized to decide unilaterally how and where energy is created, where transmission lines go, and how it gets stored.  To make this work at all, there could be little opportunity for public input.  There wouldn’t be enough time.  But how happy could the public possibly be ceding this kind of decision making to a politically appointed body?  And what about things like eminent domain and the need to seize private property for wind turbines, solar panels and the like; where and how will power storage occur when battery storage technology simply does not exist at present to meet the demands of the system; etc.  The result would be a disaster for our environment, if it could even work at all which is most dubious.

Of course, the opposite also is true.  The energy industry must show continually that it can preserve the environment as it performs its tasks.  Those who wish to see the end of the fossil fuel industry will not hesitate to point to every mistake that the industry makes as rationalization for its elimination.  This week the CEO of Energy Transfer Partners, the company building the Mariner East 2 pipeline, admitted that “we’ve made mistakes and we are correcting those mistakes and will not make those mistakes again.”  Let’s hope he means it.  Mariner East has been plagued with problems, and ETP has done little before to show it cares or that it even is aware of the depth of suspicion that exists toward its performance.

From a political standpoint, environmental degradation can have enormous consequences.  Putin, already facing dissention over his economic performance, must deal with the people who can’t understand why their snow now is poisonous.  The air in Beijing is so bad that Chinese Communist leaders no longer can just add more factories to China’s enormous metropolises.  Ironically, the pollution itself is the only thing capable of putting a stop to its creation.

It remains true that the greatest environmental destruction occurs in places wholly run by government.  The Massachusetts and Mariner situations remind us we need to seek the proper balance.  That will be a continuous but evolving process in which both public and private interests must participate.  Without both, our planet will not be safe.

Questions? Let Dan know.

Daniel Markind of Flaster Greenberg

Daniel Markind is a shareholder at Flaster Greenberg PC with over 35 years of experience as a real estate and corporate transactional attorney. He has represented individuals and companies in the energy industry for over 20 years. Dan is a frequent lecturer on Marcellus Shale and other mineral extraction issues and is regularly asked to speak at conferences, in the media and at other venues regarding energy issues and their legal and political implications.

2019 – The Marcellus In Winter

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To nobody’s surprise, Pennsylvania Governor Tom Wolf began his second term by calling for a mineral extraction tax to be layered upon the State’s local impact fee.  Of course, the Governor never mentioned the impact fee in his budget address, continuing his administration long policy of seeking to portray Pennsylvania as the only state that doesn’t tax the natural gas industry.

When the Governor first took office in 2015, he advocated the extraction tax as a way to pay for Pennsylvania schools. Now, he seeks the extra revenue to pay for Pennsylvania infrastructure.  Should the tax be approved, the connection to the schools would have been more beneficial to the industry (think of the public relations possibilities it would have brought the industry in every part of the State).  The infrastructure tie-in will not be as helpful, but given current economics the industry will fight the tax under any circumstances.

One thing that’s been made clear by a week-long trip to Texas and conversations with top gas company executives is the disconnect between the public’s perception of the financial health of the natural gas industry and its actual financial condition.  A decade of overproduction combined with insufficient pipeline capacity and low gas prices has caused gas company stock prices to plummet.  Now, the future viability of these companies is at risk.  As one executive put it, “we have no choice but to fight the extraction tax.  We don’t generate enough revenue to pay it.”

In a sense they’ve been trapped by their own success.  The Marcellus has yielded far more gas than most thought possible ten years ago.  Improved production techniques have decreased the cost of extraction, leading to overproduction.  Add that to the lack of pipeline capacity, the antiquated Jones Act prohibition against transporting liquid natural gas on the high seas from one American port to another except on American-flagged ships (of which there are none), and the proximity of gas to the oil being produced in the Permian Basin of South Texas (which has actually dropped the marginal cost of natural gas in that region to negative numbers), and you have the dire economic times facing Marcellus gas producers.

Another source of the gas producers’ frustration is the lack of coordination and communication among themselves and with the pipeline companies.  “We’re not the pipes,” said one.  “We don’t like a lot of things they do, and we think they can portray the entire industry in a bad light, but they don’t care about what we say.”

That’s partially true, although some producers do have ownership stakes in some of the pipelines.  As a general rule, residents of the Northeast lump upstream, midstream and downstream together as one industry.  Together they have risen, and together they now are at risk of falling.

Producers have little left in their budgets to expand outreach to places in Pennsylvania that currently don’t “feel” the industry, like Philadelphia and the Southeast.  That’s bad for us all, as the Southeast stands to gain the most from effective, conscientious and environmentally sensitive development of this resource.  We have the train lines, the interstate highways, the Marcus Hook refinery and the Port of Philadelphia pretty much all in the same place.  That we’ve failed to capitalize on this could be the greatest missed opportunity for the Philadelphia region in the last century.

As for pipeline companies, they face years of delay while well-funded and organized environmental groups, and unsympathetic politicians, place roadblock after roadblock in their way.  Some of this, of course, is nobody’s fault but the pipeline companies for their both perceived and not infrequently actual disregard of local law and sensitivities. Overall for the industry in all of its myriad forms, Winter 2019 is not a pretty picture.

Nobody wins under the current scenario.  Environmentalists temporarily will celebrate the problems in the gas industry, but that glee will be short lived.  Despite breathless claims in the press and among certain politicians, those opposing natural gas can provide no alternative.

Ironically, environmentalists may be the salvation of the industry, as they push politicians into unsustainable, ridiculous policies. New York Governor Andrew Cuomo rapidly is running out of options to counter his “No Nukes, No Fracking, No Pipeline” stance. Already Westchester County feels the pinch as its main utility, Consolidated Energy, now prohibits any further growth due to a lack of power supply. New York City soon may face the same fate.  Jeff Bezos had better be sure that Long Island City will have enough power to handle his new Amazon sub-headquarters.  Where will that energy come from?

Under current conditions, many in the industry expect a further wave of consolidation. The fracking industry was created not by the large oil companies but by the smaller independents.  Those smaller companies now may have to sell out.  That will not be good news for the Northeast.

It’s getting more likely that in the future Governor Wolf and his successors will not deal with six or seven producers based in Houston, Dallas or Oklahoma City, each with major Pennsylvania operations.  Instead, he will find himself trying to get the better of two or three companies based in London, the Netherlands or other foreign countries, for whom Pennsylvania is but a blip on their radar screen.

Questions? Let Dan know.

Daniel Markind of Flaster Greenberg

Daniel Markind is a shareholder at Flaster Greenberg PC with over 35 years of experience as a real estate and corporate transactional attorney. He has represented individuals and companies in the energy industry for over 20 years. Dan is a frequent lecturer on Marcellus Shale and other mineral extraction issues and is regularly asked to speak at conferences, in the media and at other venues regarding energy issues and their legal and political implications.