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.

2018, The Year in Review

Year in Review - Marcellus Shale Update by Daniel Markind of Flaster Greenberg PC

2018 began with the United States producing immense amounts of oil and natural gas; pipeline companies struggling to build out the national pipeline system but not being transparent about how they are doing it; Europe, led by Germany, continuing to move toward 100% reliance on renewable energy yet becoming even more dependent on Russian gas as a result; and New York and New England continuing to block energy generation and pipeline construction in their areas so that they, too, had to import gas from Vladimir Putin.

2018 ended with the United States still producing immense amounts of oil and natural gas; pipeline companies still struggling to build out the national pipeline system but not being transparent about how they are doing it; Europe, led by Germany, still continuing to move toward 100% reliance on renewable energy yet becoming more dependent still on Russian gas as a result; and New York and New England still continuing to block energy generation and pipeline construction in their areas so that they, too, may have to continue to import gas from Vladimir Putin.

As the saying goes, the more things change….

Meanwhile, here in Pennsylvania, the biggest news was the reelection of Governor Tom Wolf and the confusion over the time-honored “rule of capture”. Wolf’s reelection, along with Democratic gains in the State House and Senate, mean the severance tax issue will be back on the table come budget season. The Governor almost had his severance tax in 2017 but threw it away in a move that remains inexplicable following agreement from Senate Republicans to support it. The “rule of capture” means that whatever gas flows into the producer’s pipes belong to the producer, subject to paying royalties to the landowner. In the hydraulic fracturing context, the argument is that the gas may have been taken illegally because it emanated from an adjacent landowner’s property. How an adjacent landowner could prove any of this, or more importantly how a gas company could disprove it, remains a mystery. Now, it will be up to the Pennsylvania Supreme Court to make a decision.

In West Virginia, the State Legislature in 2018 voted overwhelmingly to uphold the State’s “marketable product” doctrine for paying royalties. The votes followed a 2017 West Virginia Supreme Court decision in the Leggett case changing the calculation rule, which is unusual but also used in states such as Oklahoma and Kansas. The difference between “at the wellhead” states like Ohio and Pennsylvania and “marketable product” states like West Virginia is that in West Virginia a producer cannot deduct its costs from the overall royalty payments it makes to the landowner until the gas has been reduced to a “marketable product”. Of course, exactly what that means often is a subject of controversy. Regardless, West Virginia made sure it stayed in the “marketable product” group of states, and the overwhelming votes in both houses of the State Legislature shows how popular that concept is.

Ohio ended 2018 leading the region in development of the Utica Shale. The Utica is deeper than the Marcellus. Companies such as Cabot Oil and Gas now actively are exploring the Utica in Ohio. Combined with the Marcellus, the two basins portend an enormous potential for energy production in the Marcellus-Utica Region.

Then there’s New York. Governor Andrew Cuomo won reelection easily in 2018 so we can expect his anti-natural gas policies to continue. The Governor is about to shut the Indian Point nuclear reactor and claims there will be sufficient power from renewable sources – mostly hydroelectric from something called the “Champlain Hudson Power Express” – to make up the shortfall. That hasn’t worked in New England and is unlikely to work in New York. Already New York is importing gas from Russia.

In November, FERC gave Governor Cuomo and unusual setback when it granted the Constitution Pipeline a rare time extension to finish construction. The Constitution remains stalled solely because of Governor Cuomo’s power grab regarding the Section 401 Clean Streams Permit.

New York has refused other pipeline permits and seems determined to follow its renewable idealism regardless of the practical consequences. While the Mueller Commission continues to investigate the possibility of collusion between Vladimir Putin and President Donald Trump, Putin’s best friends in the United States may be Andrew Cuomo and the other New England governors. They insist on ensuring that Russia will continue to have influence over the energy security of the Northeastern United States.

Cuomo’s international energy champion is German Chancellor Angela Merkel. Since 2010 Merkel has pursued her energy policy of “Energiewende”, trying to shift the German economy from nuclear power and fossil fuels to renewable energy. It hasn’t worked. Germany now has the highest energy prices in Europe, is increasingly dependent on Russia for supply (hence “Nord Stream 2”), needs to burn coal for decades in order to make up for the intermittent nature of solar and wind, and actually has to pay foreign governments to offload extra supply from solar and wind sources when they actually are producing because the supply is so uneven it would damage the German power grid.

Merkel and Cuomo are environmental “Idealists”. They are not to be confused with true “Environmentalists”, for whom improvements to the environment are paramount. Environmentalists likely will encourage the switch to natural gas from coal as a bridge to hopefully even cleaner fuels in the future. Idealists like Merkel and Cuomo will fight it at every turn. They will continue to preach and pursue policies that are lovely in the abstract. In real life, however, those policies make our environment dirtier, our economies weaker, and the respective national securities riskier.

Finally to pipelines. As with people like Merkel and Cuomo, pipeline proponents often are their own worst enemies. Energy Transfer Partners has been consistently non-forthcoming in its information regarding construction of the Mariner East 2 and Rover pipelines, but ETP is not alone. Two weeks ago a MarkWest Energy natural gas processing plant in Chartiers Township, Pennsylvania, suffered an accident that killed one person and injured three others. Some press reports stated there was an explosion, others that it was a flash fire. The owners of the pipeline involved, including Marathon Petroleum, won’t clarify publically what happened.

Coming on the heels of other pipeline explosions recently in places like Lawrence, Massachusetts, it would seem in the industry’s best interest to clear up what occurred. Without transparency, new pipeline projects such as Jordan Cove in Oregon and Atlantic Coast in Virginia and North Carolina will face more opposition and trouble.. If Cuomo and Merkel are pursuing self-defeating policies on behalf of their constituents, the pipeline companies are doing the same on behalf of their industry. Hopefully honesty, clarity and transparency will be in greater supply in 2019. That would benefit us all.

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.

Pipelines, Courts and Reports

Storage Tanks and pipelines in the refinery.

Pipeline issues continue to dominate the natural gas news.  Last week, the pipeline industry got some good news, some bad news, and some news potentially so devastating it could threaten the entire industry.

Good news came for Mariner East 2.  First, the Pennsylvania Supreme Court rejected a challenge from the Clean Air Council and some landowners in Delaware and Chester Counties to the utilization by the pipeline builder, Sunoco Logistic, of eminent domain along its 350 mile route.  Later in the week, an Administrative Law Judge for the Pennsylvania State Public Utilities Commission rejected a request from seven citizens in Delaware and Chester Counties to shut down finishing of Mariner East 2 and to stop existing operations on Mariner East 1.

Sunoco Logistics repeated again that it would get Mariner East 2 in service by the end of the year, but not in the form originally intended.  In certain areas, Mariner East 2 only will be 20 inches in diameter, with older pipe being attached to newer pipe.  Sunoco Logistics never has fully explained why this is happening.  Is it because of an operational problem?  A cost cutting move?  A supply issue?  A timing issue?  Especially with the use of older pipe that was never part of the original plans and the use of smaller diameter pipe than was originally proposed, concern with safety should be paramount.  At the very least, the public is entitled to a full explanation from the pipeline company.

Make no mistake, Mariner East 2 is a very important project.  It secures the supply of gas to Marcus Hook, where it either can be exported to help free Western Europe from reliance on Vladimir Putin or it can be moved domestically to ensure our national supply.  It’s for this very reason that the PUC should demand answers.  For years, Mariner East was proposed as a certain type of project.  In the end, Sunoco Logistics is delivering another one, with a slightly different route, less capacity, and older pipe in certain places.  If the PUC doesn’t know why this is, it needs to find out and publicize its findings.

While Sunoco Logistics received its good news on Mariner East 2, Penn East Pipeline, which will go from Northeastern Pennsylvania to Central New Jersey, also got positive court results.  On Friday, US District Court Judge Brian Martinotti ruled that PennEast Pipeline Co. LLC, the owner of the pipeline, can use eminent domain to take properties in New Jersey – although initially, PennEast may only be seeking survey access to those properties as it still needs to address local environmental concerns for which the New Jersey Department of Environmental Protection has still not given State blessing.  The pipeline will go through Hunterdon and Mercer Counties in New Jersey, allowing connection to pipelines that serve New Jersey and potentially the New York City Metropolitan Area.  The New Jersey Attorney General’s Office had no comment.  Since the election of Democrat Phil Murphy in 2017, New Jersey has done an about-face and is not friendly to natural gas development.  As with other opponents, however, Governor Murphy has no real plan to live without it.

There was bad news also.  On Friday a pipeline owned by Mark West exploded in Washington County in Western Pennsylvania, injuring four people, one critically.  It is believed that workers were cleaning the pipeline when vapors caught fire and ignited other combustible material.  No matter how you slice it, pipelines are serious business, and safety should always be, but sometimes is not, given the full attention that it deserves.

More bad news for the pipeline industry came further south.  A panel of judges for the Fourth Circuit vacated certain permits issued by the United States Forest Service to the Atlantic Coast Pipeline that would have allowed the pipeline to be built through the George Washington and Monongahela national forests. Atlantic Coast would run 600 miles from West Virginia through Virginia and into Eastern North Carolina.  Twenty one of those miles would be through national forests.  The Forest Service repeatedly told Dominion Energy, Duke Energy and the Southern Company, co-owners of the pipeline, that the pipeline might violate environmental standards.  In 2017, however, the Forest Service issued permits allowing for the pipeline’s building through these forests.  The Fourth Circuit Panel vacated the permits, stating in effect that the Forest Service isn’t doing its job properly.  The pipeline owners intend to fight the decision, saying the judges are undermining the judgment of seasoned professionals.

Finally, the really devastating news came from California, where the California Public Utilities Commission charged utility Pacific Electric & Gas with falsifying safety and maintenance records.  PE&G in effect admitted the accusation.  Now the utility is facing massive criticism in light of the recent wildfires that were the most destructive in California history.  While there is no evidence tying natural gas pipelines to the wildfires, PE&G’s system is antiquated and poorly maintained.  It also doesn’t have enough inspectors to fulfill its reporting obligations.

Should any evidence arise that ties the pipelines to the fires, and then to PE&G’s malfeasance, the entire industry could be at risk.  Once again, it is up to the industry, and its trade groups like the Marcellus Shale Coalition, to start supporting the industry and not just reflexively opposing all government regulation and involvement.  Like all of our nation’s infrastructure, the pipeline system is antiquated and wearing out.  It needs to be rebuilt, using new materials and state of the art construction techniques, and it needs companies willing to do so.  It also needs government both willing to let them do so and to hold them to the highest standards.  Let’s all focus on that.

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.

 

Russia, Ukraine and Marcellus

russian ships blocking access to ukrainian ports

The simmering dispute over waterway rights between Ukraine and Russia broke into armed conflict this week. Its implications are enormous both for the energy world as a whole and especially for us in the Marcellus Shale region. But some background is required to appreciate the connection.

Briefly, when Vladimir Putin seized the Crimea in 2014 he gained control of the Kerch Strait, which cuts off the sea lanes from Southeastern Ukraine between the Azov Sea and the Black Sea. Until 2014, Russia had controlled the eastern shore of the Kerch Strait but Ukraine had controlled the west. The two countries had reached an agreement in 2003 allowing for shared access of the Kerch Strait and the Azov Sea. However, Russia’s military and political moves in Crimea in 2014 changed that.

Eager to connect the Crimea to the Russian mainland, Putin ordered the building of a 12 mile bridge over the Kerch Strait after the annexation, which he formally opened himself this year in May by driving a truck across it. Russia then placed more armed vessels in the waters around the bridge. The Russians claimed they needed better security. In practice, the extra traffic increased delays to ships trying to access and use the Ukrainian ports on the Azov Sea, increasing the costs of doing business there and undermining the utility of these ports in international trade.

Ukraine responded with a military show of force, but this was overwhelmed by Russian naval power. Russia then used the supports of the bridge, which had been built at a strategic distance, to permit its own warships to blockade the Ukrainian ports. Weaker militarily, Ukraine has few cards left to play and access to its Azov Sea ports is now very much under Russian de facto control.

As I noted in July during the controversy over the Nord Stream II pipeline that Germany is building with Russia and which will bypass Ukraine and Poland, Ukraine currently gets over 2% of its GDP from transfer payments for the trans-shipments of Russian gas and oil to Western Europe. Thanks to Angela Merkel, that transport route may become irrelevant. Nord Stream II brings Putin’s dreams of Russia once again dominating Eastern Europe one step closer. However, more than just Ukraine’s loss of access to its ports and its lost revenue from diverted oil and gas trans-shipments, thanks to this new pipeline Russia can cut off energy supplies to Poland, Ukraine and the Baltic States any time it wishes, without worrying that Western Europe will react harshly as their supplies are also cut off. While economically in the short term this direct pipeline access to Russian gas and oil may be better for Germany, Nord Stream II is a geo-political disaster due to its implications for further expansion of Russian power and influence over former Soviet states, if not more globally.

For these reasons, President Trump was right in calling the Germans out on the new pipeline at the NATO summit in July. However, the President has not been forthcoming with an appropriate condemnation of Russia’s actions, leaving our allies confused and leaving UN Secretary Nikki Haley to act as the lone Voice of America while the President – inexplicably but not unexpectedly – dithers on calling Putin out for what is obviously going on.

Meanwhile, with Putin again showing his aggressive nature, the rest of the West is scrambling.  Cyprus, Israel, Greece and Italy agreed this week to build a $7B pipeline for the Eastern Mediterranean from the Leviathan Field in the Mediterranean Sea. Germany, perhaps belatedly realizing the folly of putting all of its energy eggs in Putin’s basket, now is partnering with Dow Chemical also to build a liquefied natural gas import facility in the German city of Strade, near Hamburg.

Who will supply the gas to feed Western Europe should Russia turn out to be unreliable or if Nord Stream II becomes another pawn on Putin’s chess board to regained Soviet dominance? It could and should be us from right here in the Marcellus. By building out our pipeline system in the US, we can supply Strade and other future European gas import terminals, thereby helping thwart Putin’s aggression, and projecting American “soft power” – which is what critics of an aggressive American foreign policy often demand. At the very least, this will help keep American troops out of harm’s way, but it could also serve as a geopolitical foil to Russia’s attempts to use its energy largesse for political, military, and evident expansion purposes.

Will we have the political will to do it?

In order to do so, the natural gas industry in this country must first recognize the strategic reasons why this is important which, in turn, requires understanding the interconnections between domestic energy policy, international trade, and political, military, and diplomatic events in far away places. Few Americans presently understand how Russian moves in the Azov Sea could eventually end up causing young men and women in Pennsylvania, West Virginia, Ohio and elsewhere to be sent overseas in military uniforms. Fewer still comprehend how the pipeline build out and export terminals in this country can help (1) secure our future militarily while simultaneously (2) creating good jobs for people in our region and (3) decreasing greenhouse gas emissions worldwide. None will understand if they are not told.

Tom Wolf just won reelection handily as Governor of Pennsylvania. He is no friend of the natural gas industry. Unlike his counterparts in New York and Maryland, however, he hasn’t moved to try to shut it down. There will be more pressure on him to do so now that the National Climate Assessment has been released.

Wolf, though, lives in the real world. He must perform for Pennsylvanians. Strange as it sounds, the Governor and the industry need each other. The gas industry has to provide him with the explanation as to why working with the it not only is in Wolf’s own best interests politically but is also in the best interests of all Pennsylvanians, and indeed all Americans. Somehow this message has not gotten through as forcefully as it should.

Further, our newly elected representatives from the Marcellus States in their state legislatures and in the United States Congress must understand – and not be hesitant to educate the public about – the international dynamic. Some, like Chrissy Houlahan of my home district in Southeastern Pennsylvania, are military veterans who have dealt with the intricacies of international relations. Others are untested. It will be up to all of them to work to keep American men and women safe. It will be up to all of us involved with the industry to explain how it can be instrumental – indeed, strategically essential – in doing so.

Meanwhile, Vladimir Putin will be watching, waiting, and planning his next chess move.

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.

Natural Gas’s Dilemma – How to Respond to the National Climate Assessment?

The day the world changed concept

On Black Friday, the Trump Administration released Volume II of the National Climate Assessment. Running 1,600 pages, the report is the second volume of the fourth National Climate Assessment, which was mandated by Congress in the late 1980’s and is required to be prepared every four years by scientists from 13 designated government agencies. It is being referred to as NCA4 Vol. II.

According to initial press headlines, the warnings contained in NCA4 Vol. II are dire. They include:

  • The “earth’s climate is now changing faster than at any point in the history of modern civilization, primarily as a result of human activities.”
  • Average sea levels along the United States coast have increased by about 10 inches since the early 20th century as the oceans have warmed and land ice has melted.
  • More than 100 million people in the United States live in places with poor air quality – and climate change will “worsen existing air pollution levels.”
  • Climate change will “disrupt many areas of life” by affecting trade and exacerbating overseas conflicts.

It is conceivable that the initial press reports will turn out to be exaggerated and that the actual language in NCA4 Vol. II is more nuanced than what has been reported. This Update specifically is being written before full examination of the 1,600 pages can be made, although we will certainly correct any errors or omissions in what the press has written about the Assessment as soon as a more fulsome review of the report is possible.

However, for most members of the public, the press reports may be the only information that they will ever receive about the Assessment because it is unlikely that most people will take the time to pore over 1,600 pages of dense text. They will only remember headlines like those listed above. Whether fair or not, this is the environment that the natural gas industry finds itself in during 2018. It must adapt to that reality. While the industry can, and should, pick apart reports and assessments, including NCA4 Vol. II, to the extent that they contain erroneous data or jump to conclusions unwarranted by the evidence, the industry must realize the impact that the overall public mindset has on national, state, and local energy policy and initiatives.

To that end, the industry needs to recalibrate its message. For too long, what little public relations the industry as a whole has engaged in has concentrated almost only on the economic benefits of natural gas to consumers. While certainly not inaccurate, that overly simple message no longer will carry the day. The economic argument now is framed as: “We all can spend $X for energy which will destroy our planet, or we can spend $X time Y and save our planet. Nobody likes paying higher costs for anything, but if it will save our children’s futures, why shouldn’t we do it?”

It is imperative for the industry now to do two things. First, it must concentrate on the environmental case for natural gas, both over other fossil fuels and until so-called renewable energy becomes more universally available. The natural gas industry has a terrific story to tell, but it needs to tell it. The public does not know what the industry has not told it. America leads the world in greenhouse gas reductions since the fracking revolution. We’re producing massive new quantities of oil and gas, yet our greenhouse gas emissions have dropped over 10% to levels not seen since the 1980’s.

There is no harm in admitting that natural gas may not be the be all and end all of energy use to save the planet, but as a bridge fuel it is unsurpassed. If, as NCA4 Vol II states, we must do something positive fast for the environment to lessen any climate change impacts, there is no better way than to build out the natural gas pipeline infrastructure. This will allow the massive switch from coal to natural gas to occur as quickly as possible.

Second, the industry must point out, gently, that currently there is no feasible alternative. All proposals to power our economy via renewables still are speculative at best. Even if it can be done, we are decades away from a realistic plan to power the world with net neutral sources. Germany is a great example of this. In 2010 it refined its renewable energy policy to limit most, if not all, power projects not involving renewables. Despite this, over the last few ytears, German carbon emissions have increased, not decreased. Now, despreate for energy, Germany is helping the Russians build a new pipeline directly to Germany and it is involved with Dow Chemical to erect a new liquefied natural gas power plant in Strade. Good intentions are one thing. NCA4 Vol. II makes it clear they are not enough.

If the industry truly believes in itself and what it’s doing, it should take up the challenge. Engage on the playing field where the battle is taking place. Target our message to the mindset of the audience, and don’t be afraid to amid there are things we don’t know. Despite NCA4 Vol. II’s warnings, fossil fuels will be with us for decades moer, at least. Wishful thinking about promoting more renewables will not change that stark reality. Until such time as renewables can effectively and completely power our modern economy, we all will benefit from clear headed policies that encourage increased natural gas development, transportation and usage while simultaneously establishing a priority to develop and implement a nationwide renewable energy strategy. Isn’t that really what we all should want?

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.

Pipelines and Politics

Marcellus Shale Update by Daniel Markind of Flaster Greenberg

The tortured story of the Mariner East 2 Pipeline construction may be coming to an end.  If so, it will end the way it began, mired in controversy and inconsistent with what had been proposed and promised by the developers.

Last Thursday, Energy Transfer Partners announced that it will start shipping natural gas liquids through the pipeline by the end of the year.  That pipeline, however, will look different from what had been expected.  The original plans called for a 16-inch pipeline (Mariner 2X) and a 20-inch pipeline (Mariner 2) that each would run along the same right-of-way as the original Mariner East Pipeline from 1931.  ETP now says it only will construct one pipeline, that will merge an existing 12-inch pipe with certain areas of 16-inch pipe and other areas of 20-inch pipe, and this will be called Mariner East 2.  ETP did not explain why its plans had changed, how much of each size pipe will be used, and why the final route through Delaware and Chester Counties in Pennsylvania will be slightly different than previously stated.

Not surprisingly, local residents and elected officials were not pleased.  Pennsylvania State Senator Andy Dinniman, who has been a longtime critic of the pipeline and has also pointed out instances of ETP’s failure to follow State regulations, released a statement that said in part “the cobbling together of new and antiquated pipelines of varying sizes appears to have the potential for even more safety risks and concerns.”

As Mariner East limps toward the finish line, natural gas prices surged this week to five-year highs.  The early storm combined with low stockpiles to produce spot market prices over $4/Mcf.  With winter still a month away, this should be a good time for the natural gas industry to redouble its efforts to convince the Northeast public about the virtues of the pipeline buildout.  The industry has an excellent case to make, both economically and ecologically.  Stories like Mariner 2 however, put the industry in a deep hole.  It’s hard to convince the public of the environmental benefits when a feature project is recycling antiquated pipe at the last minute without explanation.  If the gas industry wants to thrive in the Marcellus, it might try doing itself a favor and treating the public like the concerned residents most are.

Elsewhere, judicial and administrative rulings affected other Marcellus pipelines.  Last Wednesday, the 4th Circuit Court of Appeals ordered a temporary halt to a water crossing permit in West Virginia needed to build the Atlantic Coast Pipeline from West Virginia to North Carolina.  The Court ruled that two conditions required by the West Virginia Department of Environmental Protection to protect the state’s water quality, including a requirement that the stream crossing must be completed within 72 hours, had not been met.  The three judge panel in Charleston, which in October had issued a similar stay to the Mountain Valley Pipeline, overruled an Army Corps of Engineers grant which was issued following a route change.  This should be worked out without much difficulty, but it adds to the suspicion with which pipeline projects currently are viewed.

Finally, FERC granted the Constitution Pipeline, which would run from Dimock, Pennsylvania to Schoharie County, New York, a two-year extension to complete the project.  The unanimous ruling came from two Democratic commissioners and one Republican commissioner.  The Constitution is much needed and was the source of the original power grab by New York Governor Andrew Cuomo regarding the Section 401 Clean Streams Permit, a power play that has been copied by other activist governors (and in spirit by Premier John Horgan of the Canadian Province of British Columbia).

The ruling may be prophetic.  Just one week after winning reelection, Cuomo is in serious political trouble.  Details of the extraordinary giveaways New York State made to the richest man in the world, Amazon’s Jeff Bezos, so that Amazon would locate one of its new headquarters in Long Island City have put Governor Cuomo squarely on the defensive.  From an Upstate New York perspective, Amazon is another case of Upstaters getting taxed heavily and having their industry stymied so that New York State Government literally can give their money away to a multi-billionaire for the benefit of Downstaters.

New York’s natural prices already are rising.  A difficult winter possibly is approaching and New York needs gas, which it may have to import again from Vladimir Putin.  None of this looks good for Governor Cuomo, especially with the 2020 Presidential Election season approaching.  It is possible that the Governor may have to do something that actually helps the Southern Tier and build the pipeline.  This will begin to unlock the Marcellus potential for the benefit of New York, New England and the entire United States.  If so, it means we could be less dependent on the Russian dictator for our energy.  That should strike all of us as a good thing.

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.

Pre-Election Update

Marcellus Shale UpdateSeptember 11, 2018 (8)

Just a day before one of the most consequential elections in a generation, there are fewer major races and ballot initiatives pertaining to shale and hydraulic fracturing than in recent years.

Here in Pennsylvania, Democratic Governor Tom Wolf is cruising to reelection.  The most recent polls have him up double digits.  In the 2014 gubernatorial election, then little-known State Treasurer Tom Wolf shot to prominence by running ads focusing on Pennsylvania’s lack of a mineral extraction tax (while ignoring the local impact fee structure) and positioning himself as a foe of the gas industry.  In return, the industry has matched that opposition, and so far has beaten back all attempts to enact an extraction tax, in addition to the local impact fee.

Effective Tuesday, it appears both sides will have four more years to work together and try to figure this out, or not to work together and continue to serve no one’s interest.  They came very close to a resolution in 2017 during the eternal budget negotiations of that year but were ultimately not successful.  Now with Wolf freed from reelection constraints, expect the extraction tax to come back with a vengeance.  Once again, we shall see if the industry considers its most important legislative priority in Pennsylvania to oppose the tax, or whether it decides there are other issues in which it can deal with the Governor that will work better for the industry, the Governor and all Pennsylvanians.

Just north, New York Governor Andrew Cuomo also is way ahead in his reelection bid.  Cuomo, who banned hydraulic fracturing by gubernatorial edict, can rely on the immense power of the downstate environmental lobby without worrying about its effect on the southern tier, where all the gas is and where struggling family farms also are.  However, if there is another severe winter, the failure of Governor Cuomo to address the pipeline issue may cause him trouble.  In order to grow, New York needs gas.  Cuomo has made that very difficult, if not impossible.

He has wanted it both ways.  He can play to his environmental base without having to worry about the economic effect to the State as a whole.  That will cease soon.  As the State, and especially New York City, try to keep growing, they’ll need power.  They’ve closed their nuclear reactors, the hydro from Quebec has not been sufficient, and they’re ideologically opposed to coal.  What’s left?  There is no real plan for renewables and how they’d power New York’s economy.  Could it be that statewide groups like “Chefs Against Fracking” may get their wish, and have to live with the consequences?

The most important ballot initiative is in Colorado.  Proposition 112 would mandate a state setback of 2,500 feet on any drilling operations from most inhabited buildings.  It is five times larger than previous and from the standard nearly everywhere else in the country.  Even in rural areas, plotting 2,500 feet setbacks from any inhabited building would make it very difficult to engage in any drilling activities.

As usual, the industry has spoken with many voices.  Just last week, an internal paper was leaked suggesting the increased setback actually would have little impact on the gas and oil that could be extracted in Colorado.  That was heatedly rebutted with another study – again “leaked” to the press – which stated the original paper was misrepresented.

Despite almost no support from the political establishment on both sides of the aisle, Proposition 112 is leading coming up to election day.  If it passes, expect similar pressure in other states, even in ones with entirely different geography.  Yet, some of the companies, including ones headquartered in Colorado, have been slow to make their case.  This is no surprise given the history of energy company public relations and the industry’s lack of understanding of where its long-term damage may be coming from.

Of course, the major event will be what happens to the US House and Senate.  If we have divided government once again, it will fall to both private industry and local governments to chart the path forward.  For the good of the economic, ecologic, and security health of the country, let’s hope they’re up to the job.

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.