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

World Map Isolated on White Background. Vector Illustration

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.

 

 

 

Pacific Dreams & Nightmares

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By a vote of 17-11, the Oregon State Senate last week just passed a five-year moratorium on fracking in that State. The Senate bill cut in half a 10-year moratorium passed in March by the Oregon House of Representatives, but the House is expected to quickly agree to the Senate version. Then the bill will be passed along to Governor Kate Brown, who is likely to sign it.

The fracking moratorium comes on the heels of the Oregon Department of Environmental Quality’s rejection of Section 401 Clean Water Certifications for the Jordan Cove Pipeline, which would have transported gas and oil to a terminus on Coos Bay in economically depressed Southwestern Oregon. Currently there are no fracking operations in Oregon. The proposed moratorium and the DEQ decision, however, put Oregon clearly in the camp of states that stake out an environmentalist position, with future consequences to be seen.

North of Oregon, across the Canadian border, the province of British Columbia lost a ruling issued by the Provincial Court of Appeals where the Court said that the BC government could not stop the Mountain West Pipeline from Edmonton, Alberta to Burnaby, BC, north of Vancouver. Long time readers of this blog will remember that last year two Canadian provinces, Alberta and British Columbia, almost had a trade war over BC’s attempts to stop the pipeline.

What BC did accomplish was forcing out the pipeline developer, Kinder Morgan, and requiring the Canadian Federal Government to take over the project. That Canadian Federal involvement was the main reason the BC Court of Appeals rejected BC’s latest attempt to stop Trans Mountain. The Court ruled that the Province did not have the power to stop what now is a Federal enterprise.

Given the Section 401 Certification situation in Oregon, which we have seen repeated elsewhere in the United States, such as New York’s recent rejection of the Northeast Supply Enhancement Pipeline, it bears asking the question of whether this will be the model that we will have to follow in this country to get interstate pipelines built at all? Will the US Government actually have to build the pipelines itself and fight out Federal-State constitutional issues every time we need to build a pipeline somewhere?

All along the North American West Coast, states and provinces are moving against what they perceive as “dirty” energy.  But as they move against oil and natural gas (although don’t ask BC about coal, which the Province still hypocritically produces and exports in massive quantities), the West Coast needs viable energy sources to replace them. That part of the equation remains lacking.

What the West has now is large quantities of wishful thinking and good intentions, but no sensible, practical or economically viable energy policy. This is true especially in the short term, as Westerners assume that, eventually, so-called green energy will be sufficiently widespread to actually fill projected needs.

Left Coast residents should take heed. Laws that appear good in the abstract can be devastating when put into actual practice. Good intentions are never sufficient to make up for lost services that are essential to human life and economic well-being.

If Oregon goes ahead with its fracking moratorium and bans Jordan Cove, it will need to ensure that it has energy sources ten years in the future. Does it have a plan for this? If so, the Oregon public has a right to know what it is. If that plan calls for large amounts of “renewables”, the public should ask itself how that power gets stored and transmitted. Will Oregon need massive new investment in huge batteries to store solar energy that cannot be produced at night or power lines to move wind power from the wilderness (where it is typically generated) to populated areas where it is most needed?  If that’s the case, what type of power lines will Oregon need?  Are they the same type that just was shown to have caused California’s deadly and destructive wild fires last year?  If large batteries are needed, does this battery storage technology even exist to handle all that would be needed if there were no fossil fuels?  Technologically, can any of this actually be done – at least in 2019 – 2029?  If not, what official in Kate Brown’s Administration gets to tell the good citizens of Portland, Eugene and Medford that there will be no heat during the winter?

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.

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.