From the Strait of Hormuz to the Port of Philadelphia – It’s All One World

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Two attacks on oil tankers in the Strait of Hormuz have set the energy world, and the world at large, on edge. It also shows the folly of the unilateral energy disarmament being practiced on the West Coast and in New England, in the United States.

The Strait is the narrow channel between Iran and the Arab Gulf state of Oman through which 30% of the world’s exported oil flows. As happened during the 1980’s Iran-Iraq war, attacks on oil tankers are used as a political weapon to disrupt the world economy.

The first attack came on the Japanese-owned Kokuka Courageous. It was followed by an attack on the Norwegian-owned Front Altair. Both attacks happened near the Iranian naval base at Jask, both ships sent distress signals, and both crews had to be evacuated.  Iran responded with conflicting accounts. It first said that it had rescued all of the crew of the Kokuka when it had not. Then it claimed that they, the Iranians, are responsible for security in the Strait.

The Trump Administration blamed the Iranians – who denied responsibility – and confusion reigned about whether torpedoes, mines or “flying objects” were responsible for the destruction. In response, the price of oil rose sharply and the Norwegian insurance company DNK, which insured the Front Altair, raised its threat assessment while saying Iran likely is to blame.

Reports since have been measured, with most nations believing Iran is responsible while others urging caution. While this shakes out, however, one name looms large and should be remembered by all – Qasem Soleimani – the Commander of the Iranian Revolutionary Guard Corps..

Soleimani, often considered the mastermind of Iranian military expansionism, has been the key figure in exporting Iranian power overseas. He is behind the drive to surround Israel with a “Ring of Fire” and to challenge Saudi Arabia for control over the Arabian Peninsula.

With Iran’s economy reeling from the Trump Administration’s sanctions, it likely was only a matter of time before Iran sent Soleimani into action. Last week, Iranian backed Houthi Rebels in Yemen fired a missile at the Saudi airport in Abha, wounding 26 and constituting a direct challenge to international aviation. Hamas operatives continued to lob fire balloons and rockets into Israel, bringing that area to the precipice of another military conflagration. Now the ship attacks.

If Iran is responsible, it is because the Mullahs are scared. Demonstrations broke out last year in many Iranian cities, showing the depth of antipathy toward theocratic rule. Unlike Venezuela, where the country’s wealth is being squandered by an incompetent kleptocracy, much of Iran’s natural treasure is being diverted from the people to finance military conflicts about which the average Iranian cares little.

Still, it would be foolish to imagine the regime is in immediate danger. The more likely scenario is a drawn out war of attrition with the potential of violent conflict erupting and spreading throughout the entire Middle East at any time. Under this world situation, the price and availability of energy becomes a weapon and will be even more volatile.

Meanwhile, in the Marcellus region back home, the Delaware River Basin Commission last week approved an LNG export terminal in Gibbstown, New Jersey, across the river from Philadelphia.  In addition, the Philadelphia City Council approved an LNG terminal on abandoned property in South Philadelphia. Neither the DRBC nor the Philadelphia City Council has been friendly toward the gas industry, but both seem to realize the importance of these actions both to the region and to the world at large.

From a geopolitical standpoint, the “keep it in the ground” movement makes this country less secure. Whether it makes the world more secure depends on what the alternatives are.  Until that is clearly shown, we run the risk of making our country more dependent on foreign energy sources at a time of extreme international volatility.  Before we do so, we all should understand the stakes. The issues are decidedly more complex and geopolitical than the locally oriented “keep it in the ground” movement would have us believe.

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.

 

 

 

The DRBC and the Limits of Administrative Agency Power

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There are two lessons from the petition by Pennsylvania State Senators Lisa Baker and Gene Yaw and Senate President Pro Tempore Joseph Scarnatti to intervene on behalf of a Wayne County landowner in his challenge to new rules by the Delaware River Basin Commission that would ban hydraulic fracturing in the entire Basin. The first is that there is a limit to how far administrative agencies can go and how far their power extends.  The second is that it is imperative for the industry to engage with the citizens of the State to enforce its rights and not just speak to some residents or concentrate on only one issue.

The move by the State Senators is the latest in a series of maneuvers related to proposed rules by the DRBC that stretch back years. In their current manifestation, the DRBC announced on September 13, 2017 it would publish new rules that would ban fracking throughout the Basin. The Commission claimed that fracking anywhere in the Basin constitutes a “water project” that is within the DRBC’s power to regulate. Earlier, in 2016, a landowner in Wayne County had sued the DRBC claiming that it did not have jurisdiction to prevent the drilling of a natural gas well on his property. The lawsuit was dismissed in US District Court but overturned by the Third Circuit, which in July 2018 sent it back to the District Court.

The current landowner argues that the DRBC interprets the term “Project” so broadly that it can regulate anything that happens within the Basin. I made that same argument at a public meeting in Philadelphia in January 2018. One person from the American Petroleum Institute came, but nobody from any of the natural gas producers showed up. Because there was no one there to advance the industry position, all we heard was a series of truths, half-truths and plain falsehoods. It was a propaganda session for those who oppose any natural gas development. Given a chance to engage with Southeastern Pennsylvanians who know little about the subject, the energy industry punted. It was yet another missed opportunity.

The industry could have made the point that the DRBC’s position is so overbroad it puts them in virtual control of, or at least gives them a veto over, any development, whether fracking related or not, that happens anywhere within the Basin – which extends the length of the 330 mile Delaware River. Supporters of the ban were thrilled, but cooler heads in the Third Circuit asked whether the 1961 interstate compact granting power to the DRBC was meant to be so broad. Using the DRBC standard, it could prevent the erection of a gas station 30 miles away from the river.

All three Pennsylvania State Senators seeking to intervene are Republican, but we need to ask ourselves whether this truly is a partisan issue. Are our citizens truly comfortable with an administrative agency comprised of five unelected but appointed individuals claiming so much power to regulate our lives, even for activities outside the natural gas industry? There are those who think fracking should not be permitted in the area within the jurisdiction of the DRBC – or anywhere else for that matter. Regardless, they should not be so sanguine about the enormous power grab being attempted by the DRBC.  Over subscribed power has a way of appearing fickle when the next project comes along that we do not oppose but actually support.

One other area where those opposed to natural gas development should not be so sanguine is in their ultimate reliance on Russian gas exports for their winter power.  Heading into the 2018-9 winter, New York and New England may be even more reliant on gas imports than they were last winter. As you recall, that meant Boston had to turn to Moscow for gas drilled in the environmentally sensitive Arctic. The Russian supply may not be as available this winter. While all eyes have been focused on the Supreme Court confirmation, the United States and Russia are edging closer to confrontation in the Middle East.

Last week, Israel attacked a Syrian rocket facility in Latakia, on the Mediterranean coast north of Lebanon.  The area is well outside of the normal Israeli area of operation, and indicates the importance the Israelis placed on the target. Syrian anti-aircraft guns erupted, missing all of the Israeli planes but shooting down a Russian military transport plane, killing 15 Russians. The Russian military blamed Israel, claiming it did not follow the normal rules for informing Russia when Israel conducts military operations in Syria.  Although Russian President Putin played down the issue, the Russian military continued to accuse Israel. Last week Russia announced that new, more sophisticated anti-aircraft weapons were being transferred to Syria. National Security Advisor John Bolton warned Russia that such a transfer would be a “significant escalation”.

Oil prices rose over $70/barrel. While not moving in step with natural gas prices, the coming of further Iran sanctions adds to the price pressure on fuel. If Russia and the United States grow further estranged in the Middle East, it could affect the ability of Massachusetts to call on Russian gas now that it has effectively banned Pennsylvania gas. Both short term and long term, I doubt that is a good move economically, ecologically or national security-wise for New Englanders.

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 – 1.29.2018

The Delaware River Basin Commission held public hearings last week on the proposed ban on hydraulic fracturing in the basin.  On Thursday, the DRBC met near Philadelphia International Airport.

Public comment lasted three hours.  Each speaker was allowed three minutes.  Within the first half hour, a man named Jonathan Lutz from the American Petroleum Institute stated that the industry supports 320,000 jobs and encourages healthy regulation but opposes the full ban.  He questioned the science quoted by many of the speakers.  After his three minutes, Mr. Lutz walked out (at least I think so, I didn’t see him afterwards).

I was speaker 52.  With the exception of me, every speaker afterwards spoke in favor of the DRBC’s proposal.  Every one!  Many asked the DRBC to go further and to expand the ban to include the prohibition of water withdrawal for fracking purposes from the basin or the treatment or storage of flowback within the basin.

A good approximation of what I said can be found here.  This is not verbatim as I ad libbed my testimony based on notes I took during the meeting.  I listened to every speaker, heard what they said, addressed some key points they made and stayed afterward for anyone who wanted to talk about the issues.  A couple actually did.

Where was the industry?  Did they care that to the uninformed who were present, the only points made were the same ones, over and over, unchallenged, about how many scientific studies linked fracking to health problems, how bad fracking is for the environment and what it does to property values?  Of course,  the overwhelming majority of the 100-150 people in attendance were anti-fracking activists who had their minds made up, BUT NOT ALL.  In fact, I would guess that most of the attendees had never heard the industry’s environmental case articulated.  They certainly didn’t hear it Thursday.

Despite paying lip service to the need to outreach to the people of Southeastern Pennsylvania (where the majority of votes are in this State), on Thursday the industry was AWOL.

The Marcellus Shale Coalition sent nobody.

The Northeastern Pennsylvania energy producers sent nobody.

The pipeline companies sent nobody.

The Pennsylvania and Philadelphia Chambers of Commerce sent nobody.

Had only three or four people spoken in opposition to the “groupthink”, the whole tenor of the meeting could have been different.  Certainly the press coverage might have been.

Not surprisingly,  “Dimock” was mentioned at least ten times.  Imagine if a representative of Cabot Oil and Gas had been present, gotten up and said:

“Hello, I’m Joe Smith from Cabot Oil and Gas.  It was my company that had the spill in Dimock and we’ve been working with the residents there since then.  I can never promise that we’ll be perfect from now on, but we’ll try our best.  It’s been almost a decade since that spill and nothing like that has happened since.

By the way, you might be interested to learn that about three years after that spill Cabot had to decide where to build our Northeastern Pennsylvania headquarters.  We chose Dimock.  The residents were thrilled.  Local Dimock residents come to our headquarters every day.  Quite a few of them work for us.  From what you’ve been told today, you would think that the people of Dimock hate us.  Actually, the opposite is true.  Every poll that’s been taken of the local residents shows overwhelming support for fracking.  But please don’t take my word for it, why don’t you come up and see for yourselves.  On behalf of Cabot, I’m inviting everyone here to come up to Dimock and visit.  I’ll show you around our offices, you can drive around the area and judge the situation for yourself.  I think you’ll be very surprised.”

Does the industry care whether or not people in non-shale areas understand its position?  With a little foresight, the industry could have begun to engage the residents of Southeastern Pennsylvania at an event where there was local press coverage and in a way that makes their point.  The industry knew the scientific studies would be raised.  Did anyone even consider bringing down a health professional from Susquehanna County to give the true story of how life expectancy has increased there since fracking started and overall public health is better?

Who exactly is getting paid right not to act as public relations consultants for the natural gas industry, and what are they doing?  Until the industry gets serious about making its legitimate case to everyone in the State, it has no right to complain about how the public in Pennsylvania doesn’t understand the good it provides.

Questions? Let Dan know.