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.

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.

When Governors Face Real World Energy Choices

Hand holding light bulb in front of global show the world's consumption with icons energy sources for renewable, sustainable development. Ecology concept

Last week, New York City area utility Consolidated Edison notified regulators that, as of March 15, it would accept no new natural gas customers in Westchester County due to supply shortages.  It is possible that cutoffs in the City itself may follow.  While this is happening, New York City is requiring customers to switch out of dirtier burning fuel oil.  Most are seeking natural gas.  Already, over 5000 buildings in the City have made the switch.  Meanwhile, as prior commentary in this blog has noted, New York Governor Andrew Cuomo and his administration have stymied all attempts to build a new pipeline that would be capable of supplying the City and other areas, like New England, with plentiful and inexpensive natural gas from the nearby Marcellus Shale region.

Once again we are seeing the Alice in Wonderland effects of New York State environmental incoherence.  It desperately needs energy to grow, and also to improve environmental air quality, but does everything possible to prevent that energy from being available.

New York’s inconsistent energy policies make Amazon’s decision to build massively in Long Island City quite curious.  The metropolitan New York area has numerous advantages, but it simply may not have access to enough energy needed to power the growth it seeks.

The energy dilemma cannot just be wished away.  The implications of not building pipelines and securing our energy future are real and starting to bite.  Without reliable energy supply, regions can’t grow.  Without growth, there will be no jobs for an expanding population.  Intellectual discussions and arguments about the large job opportunities available in the renewable sector are nice, but where are they?  More to the point, where is the consistent supply of energy that will be provided by these renewable sources?

Out west in Oregon, newly reelected Governor Kate Brown, who ran on a progressive, clean energy platform, faces a challenge from her left with a new Clean Energy Jobs bill.  Back in 2007, Oregon set goals for reducing its carbon emissions in 2010, 2020 and 2050.  It met its goals for 2010 but admits it will not do so for 2020.  In fact, the Oregon Global Warming Commission predicts the State will over-pollute in 2020 by 20%.  There is an interim goal for 2035, but lawmakers may choose to ignore that and concentrate on 2050.  This has environmental advocates alarmed.

Ironically, one proven way for the environmental advocates to reduce CO2 emissions is through increased use of natural gas.  They have not been inclined to accept that option, however, putting all their eggs in the basket of renewables.  Governor Brown then likely will face the problem Governor Cuomo faces.  She will run a left-leaning state with a well-meaning yet unrealistic program for achieving goals about which most of us can agree.  Governor Cuomo has chosen one path.  It won him electoral platitudes but now faces future trauma.  It will be interesting to see which way Governor Brown goes.

In Pennsylvania, the long battle over the Mariner East 2 pipeline appears over.  Last week the Public Utility Commission ruled that a landowner group had failed to show that safety concerns necessitated an emergency shutdown of the pipeline.  In typical fashion for this matter, two days later another sinkhole exposed a section of the older Mariner 1 pipeline.  Chester County emergency service officials stressed there was no damage to the pipeline and no danger, but the entire situation continues to be messy and delicate.  It does not help public perception that a horrific gasoline pipeline explosion in central Mexico predated the Mariner 1 sinkhole occurrence by a few days.

Internationally, and ironically, the country with the world’s largest proven oil reserves, Venezuela, falls deeper and deeper into turmoil.  President Nicolas Maduro’s security forces put down another mini-uprising Monday, but nationwide demonstrations have been called for Wednesday, the anniversary of the end of the most recent military dictatorship in 1958.  Venezuela’s oil production has plummeted along with the rest of its economy, and President Maduro has given away large amounts of it to Russia in exchange for needed foreign reserve to service its enormous debt.

Despite starving his nation, Maduro retains the loyalty of large segments of the military command.  Those commanders don’t carry the guns that fire on the starving people, however.  The weapons themselves are in the hands of individual soldiers commanded on the street by junior officers.  It remains a confounding question as to why the opposition, which still exists in Venezuela, has been so unsuccessful in convincing the junior officers that their long term interests do not lie with Maduro and the senior military commanders but with the starving people in the streets.

Of course, should Maduro’s regime eventually fall, it would set in motion the need for some fancy diplomatic footwork and military readiness, something neither the Trump Administration, nor its predecessor, have shown much capability to implement.  Under those circumstances, energy markets would be thrown another huge curve ball.  Both our government and companies retaining any interest in Venezuela, either directly or indirectly, should be planning for these scenarios right now.

For those of you in most of the country, try to stay warm.  I’ll be in Texas in two weeks.  Hopefully the wind chill will be in the positive numbers down there at that time.

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.