The Lawrence, MA Pipeline Explosions

20180914_Marcellus Shale Update

On January 11, 1912, women weavers shut down the Everett Mill in Lawrence, Massachusetts.  Earlier that day, they opened their pay envelopes to find their wages cut by 4%.

A recently enacted Massachusetts law had reduced the workweek for women and children from 56 hours to 54. Mill owners reacted by cutting the pay of their already lowly-paid workers.  The women revolted.

The strike soon engulfed the city.  Workers slashed machine belts, threads and cloth. Mill owners hired strike breakers and militiamen.  That only ratcheted up the tension.

Known in history as the “Bread and Roses Strike”, the bitter work stoppage lasted nine weeks.  When it was over, Congressional hearings had galvanized the public against the working conditions allowed by the owners, and the workers gained a 15% pay raise.  The political earthquake would be one of the seminal moments of the American labor movement.

A century later, a more literal earthquake in Lawrence, Massachusetts may portend a seminal movement for the natural gas industry.

Just three days after a gas pipeline exploded in Western Pennsylvania, at least 70 explosions tore through a Columbia Gas pipeline in Lawrence.  Fires broke out throughout the city.  One person is dead, at least twelve are injured, and 60-100 homes burned.  A large geographic area around Lawrence has been evacuated.

It is far too early to tell what caused the explosions, but certain things are clear.

First, our national infrastructure is deplorable.  Decades of disinvestment leave us with power lines, electrical grids, roads, airports and bridges that would embarrass a third world country.  The nation is falling apart.

Second, it is the responsibility of the owners of natural gas pipelines to ensure their safety.  That means adequately maintaining lines that already exist, properly building new pipelines, and informing the authorities when pipelines begin to decay or show damage.

Third, pipelines carrying pressurized gas are inherently dangerous.  To deny that is to deny reality.  It is up to the owners of the pipelines to show that they are safe, and not up to the public to show they are not.

Fourth, “renewable energy” will not solve this transmission problem.  Solar and wind power can create electricity, but it takes high-tension lines to transmit it.  To those who propose offshore solar and wind as a major source of the nation’s power, imagine the situation in the Carolinas right now if they obtained a significant amount of their power through offshore solar and wind farms transmitted by high-tension lines.  Even inland, think about the aftermath of Hurricane Florence in a “renewable energy’ world.  How many of those solar and wind installations would survive intact, and what would be the result of the storm on the transmission lines?  For how long would the area be unlivable?

Fifth, given modern political realities, the natural gas industry in the Northeast could be in serious trouble.  It must get a handle on its pipeline situation.  Andrew Cuomo defeated Cynthia Nixon in the New York Gubernatorial primary, but Nixon pushed Cuomo even further to the left than before.  With two pipelines blowing up in four days, what chance does the industry have of convincing the public or political leaders that natural gas pipelines are a good idea?

For the last decade, gas industry workers have produced an energy revolution in the Marcellus Region.  Whole parts of Pennsylvania, Ohio and West Virginia that faced economic depression have been revitalized; the grip on our economic lifeline of tyrannical regimes in the Middle East, Africa, South America and Russia has been broken.  American consumers throughout the country have saved tens of billions in energy costs.

All of that will be at risk if the gas industry doesn’t get serious about policing its own.  The boards of directors of our major gas producers should think about the tens of billions of dollars in investment they’ve made in our region.  Are they prepared to see it vanish because they refused to hold the pipeline companies to the highest standards of construction and maintenance?  If they abdicate their responsibility at this most delicate moment, they will have only themselves to blame.

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 Gas Pipelines Explode

20180911_Marcellus Shale Update

At 5:00 a.m. yesterday, a portion of the newly-built Revolution pipeline exploded in Center Township, Beaver County, western Pennsylvania.  Luckily nobody was hurt, but one home, two garages, a barn and several vehicles were destroyed.  Nearby residents described what at first sounded like an airplane crash or a freight train, then a fireball.  The fire burned out by 7:00 a.m., but parts of Interstate 376 were closed for hours and the Central Valley school district cancelled classes.

The Revolution Pipeline is a 24 inch gathering line owned by the star-crossed Energy Transfer Partners.  It is used to feed ETP’s Rover and Mariner East 2 pipelines.  Officials believe that a mudslide occurred in the vicinity and may have caused the explosion.

ETP of course, is the same company that has had such difficulty with Mariner East 2.  It is instructive that fear of moving earth in the form of sinkholes in Chester County caused the suspension of construction of Mariner East 2 earlier this year.  If a mudslide was sufficient to cause such a fireball in the Revolution, then ETP has some serious explaining to do about how Mariner East 2 will be safe given the geology of Chester County.

As I’ve written numerous times before, ETP has done itself no favors with its dismissive attitude toward governmental oversight and regulation.  Now, at perhaps the worst possible time (right before an election and with Mariner East 2 still not completed and operational) and with little to no goodwill among Pennsylvania State legislators or DEP officials, ETP must show how and why the Revolution exploded, why this won’t happen again and why residents near Mariner East 2 shouldn’t be suspicious of that pipeline.

The leaders of this demand for explanation should come from the industry itself.  The people at the Marcellus Shale Coalition and at the major producers like Cabot, Range Resources, Chesapeake and EQT need to be insisting that all work on such important projects be done correctly, without cutting corners, with maximum transparency and giving safety ultimate priority.  It is their industry that is at risk, and all of our futures.  It must be the industry standard to insist that all companies use best practices and to demand that any company which fails to do so not be allowed to continue operating in Pennsylvania.

There is no risk free method of energy generation and transmission.  We all know about the dangers of nuclear power.  You can generate electricity by solar and wind but you need dangerous high tension wires to transmit it.  Given the modern political realities regarding fracking and natural gas, however, it is in the industry’s interest to show that it will not tolerate anyone who won’t walk the extra mile for the safety of all Pennsylvanians.

In more mundane legal news, last week the industry received a split decision from Pennsylvania Commonwealth Court.  Ruling in the case of Marcellus Shale Coalition v. Pennsylvania Department of Environmental Protection, the Court struck down part of the Act 78a Regulations  which stated that as part of the well-permitting process the DEP had to consider comments and recommendations submitted by municipalities.

The background is a little confusing.  Previously in the Robinson case, the Pennsylvania Supreme Court invalidated what was known as Section 3215(d) of the regulations that said the Environmental Quality Board of the DEP “may” take such comments into account.  This was considered improperly minimizing local input.  The new regulation sought to cure this defect, but the Court said this fix would not work because the clause in the Act 13 Oil and Gas Law that gave the DEP the right to promulgate such regulations in the first place no longer exists.

The result of the ruling is hard to predict.  The Court also said the DEP did not exceed its authority in the regulations when it allowed applicants and public resource agencies, including municipalities, to provide information that could assist the Agency in deciding whether or not to grant a permit.  A lot of this seems inherently contradictory.

On the plus side for the industry, the Court ruled that the expansion of the definition of “public resources” in the Act 78a Regulations to include “common areas of a school’s property” and “playgrounds” was unlawful as it was “unduly burdensome” on the applicants.  The Court noted that a McDonald’s playground or a school parking lot utilized as a playground would be covered by this definition.  These uses were not of the same class or nature as a scenic river or public park.

Finally, north and east of the Pennsylvania border New York State goes to the polls today for its primary election.  Two-term Governor Andrew Cuomo has run an uninspired campaign against challenger Cynthia Nixon.  Ms. Nixon, known most for her role in Sex and the City, has forced Cuomo even more to the left than before.  Specifically, Nixon proposes that New York adopt a law requiring it to obtain all of its energy through renewable sources by 2050.  In her platform, Ms. Nixon criticizes the Governor by saying “his plan still won’t fully halt all new fossil fuel infrastructure.”

Cuomo’s policies already have led to a halt in the pipeline infrastructure for New York and New England, as well as a stoppage of much power plant construction.  Events like today’s explosion in western Pennsylvania can only add to the pressure on natural gas proponents.  Unfortunately for New York, their governmental officials have been overly optimistic in describing the current science for renewable energy.  New York officials will shut down Indian Point Nuclear Power Plant by 2021.  Given Massachusetts’s sad experience in predicting how it will make up the energy shortfall from mothballed nuclear plants, expect New York’s energy situation to become dire quite soon.

With Massachusetts likely to import more natural gas from Russia this winter, New Jersey and Maryland officials limiting construction of offshore wind and solar farms and Pennsylvania natural gas pipelines exploding, the time is more critical than ever to have an honest conversation on energy.  It needs to be led not by Cynthia Nixon, Josh Fox or the executives at ETP but by people who recognize the pluses and minuses of all forms of energy generation, storage and transmission, and who are not afraid to ask the stupid questions.

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 – 5.18.2018

The Canadian pipeline civil war got even nastier this week.  To those observant enough to notice, the warning sirens for the United States are blaring.

On Wednesday, the Alberta provincial government followed through on its threat to neighboring British Columbia by passing a law permitting Alberta to control who receives Albertan energy shipments.  Premier Rachel Notley said that “if the path forward for the (Trans Mountain) pipeline through B.C. is not settled soon, I am ready and prepared to turn off the taps.”

Immediately B.C. Premier John Horgan responded by threatening to seek an injunction preventing Alberta from ever using the law.

Thanks to his leftist environmental supporters, Horgan has backed himself into a corner.  He now is fighting Alberta, the Canadian federal government in Ottawa and the B.C. Liberal Party opposition.  “We’re seeing the biggest pump prices in B.C. history” noted B.C. Liberal leader Andrew Wilkinson.  “We can’t live with that forever.”

All of this is devastating Canada’s ability to attract investment.  The Liberal federal government of Prime Minister Justin Trudeau strongly backs the Trans Mountain pipeline project, but seems powerless to make it happen.  Canadian Finance Minister Bill Morneau announced that the Federal government would provide financial assurances to anyone building the pipeline, and said that if Kinder Morgan will not go forward there are plenty of other investors who will.  That’s debatable.  Canada is now a slow growth economy.  Its provincial infighting over pipelines is but one example of a business climate unwelcoming to investors.

From an energy perspective, British Columbia is to Canada what New York and New England are to the US.  At least in Canada they don’t have the absurd spectacle of a “Sex and the City” actress so spooking the Governor of New York that he is moving ever further to the left.

Both countries now are staring into the energy abyss.  Increased local control over interstate or interprovincial projects means increased paralysis due to local veto power. New York is finding this out the hard way.

Earlier this month the owners of the Constitution pipeline extended their legal losing streak by failing to get the United States Supreme Court to overrule the Second  Circuit’s decision not to intervene in New York’s rejection of a Section 401 Clean Streams Permit.  In effect, this both killed the project and solidified State ability to block Federally-approved pipelines.

Statewide, New York has gone further.  Since 2014, New York State Court rulings enshrined the right of localities to pass on energy projects. Unfortunately for Cynthia Nixon, those localities are now vetoing “renewable” solar and wind farms.  Ultimate hypocrisy rests in Dryden, near Ithaca, which was a name plaintiff in the case that ended the State’s right to control energy projects.  Last year Dryden blocked a large solar project, claiming that it was too big and being built in the wrong place.  Dryden, they name is NIMBY.

From where, Governor Cuomo or potential Governor Nixon, do you intend to find energy to power New York’s  economy?  The winters get very cold in Upstate New York.  Like the voters in British Columbia who are dealing with massive gas price increases, the voters in New York may love environmental justice warriors now, but wait until the winter.

Questions? Let Dan know.

Marcellus Shale Update – 3.10.2018

There are two huge stories playing out in the Marcellus region right now.  Each, however, will take a little background to understand.

Story Number 1 involves the continued problems for the Mariner East pipelines.  On Wednesday the Pennsylvania Public Utility Commission shut down the Mariner East 1 pipeline after sinkholes developed in West Whiteland Township, Chester County.  That morning the PUC Board of Investigation and Enforcement petitioned the PUC Chair for an immediate halt of the shipping of highly volatile fuels through the Mariner East 1 pipeline.  In the afternoon, facing immense public pressure, the PUC Chair issued an emergency order stopping “the continued flow of hazardous liquids through the ME1 pipeline without the proper steps to ensure the integrity of the pipelines (which) could have catastrophic results impacting the public.”

In its report, the PUC Board of Investigation and Enforcement stated that without proper review, and in light of three sinkholes developing in the Mariner East 1 pipeline area right near the site of Mariner East 2 construction, the pipeline is “potentially hazardous to the life, property and/or the environment.”

On Thursday, Democratic Pennsylvania State Senator Andy Dinniman, a constant critic of the energy industry, asked that the Mariner East 2 pipeline, which has been suspended numerous times, be shut down.  Yesterday, Dinniman’s call was joined by Republican State Senator Duane Milne of Chester County (who represents my district).  Milne issued a public statement in which he said he “is outraged that further work on this route even can be contemplated, as significant sinkholes continue to erupt along the pipeline path.”

For background, Mariner East 1 was built in the 1930s to take oil products from Marcus Hook, on the Delaware River south of Philadelphia, west across the rest of the state.  It has a capacity of carrying the equivalent of approximately 70,000 barrels of gas (liquid propane and ethane) a day.  Following the shale revolution, Sunoco Logistics reversed the flow of the pipeline to allow for gas to flow from the Marcellus region of Southwestern Pennsylvania to Marcus Hook, where it can be sent to other domestic customers or exported overseas.

Mariner East 2 is a much bigger pipe with a capacity of approximately 250,000 barrels/day and is being built mostly in the same right of way parallel to Mariner East 1.  The fear is that the drilling of Mariner East 2 may have disturbed the ground, causing the sinkholes.  This is made more possible by the fact that the geology of the region includes large amounts of karst, which sits on old limestone formations and is susceptible to sinkholes.

In times like these, the affected pipeline company needs to rely on its reputation, good will and common sense to work out a proper plan with the PUC and the State as a whole.  Unfortunately, the way Sunoco Logistics has gone about this process from Day 1 indicates that all three are in short supply.  If the State believes a complete reboot of this project is not needed, let’s hope that at least a reboot of Sunoco Logistics’ modus operandi is and has taken place.

Story Number 2 comes from West Virginia, where last week the West Virginia Legislature voted overwhelmingly to prevent oil and gas producers from deducting post-production costs that have the effect of reducing the royalty amount received by a landowner below the statutory 12.5%.  To get an appreciation of public sentiment on this, the vote in the West Virginia Senate was 34-0 and in the House it was 96-2.  The bill now sits on Governor Jim Justice’s desk for signature.  Justice is a Republican but it’s hard to see how he can veto a bill that passed with such overwhelming majorities in both chambers.

This West Virginia bill comes following a decision in the West Virginia Supreme Court in the case of Leggett v. EQT Production, which was published in May 2017.  In Leggett, the Court stunningly reversed its own prior ruling by agreeing  in 2017 that EQT had acted properly in deducting post-production costs incurred by the company after the gas hit the wellhead and before it could be sold.  The action by the legislature both places West Virginia back in the “marketable product” realm of states but also is a huge repudiation of the State’s Supreme Court.

As background, nearly all energy states have laws requiring that a landowner be compensated for any oil or gas taken from his/her property in an amount not less than 12.5% of the value received for the oil or gas.  That is only the starting point, however, for the energy industry says it should have the right to deduct from that amount the storage, transportation, refining and other costs incurred by the company before the oil or gas can be sold.  Most states, like Pennsylvania, allow for this post-production deduction of any costs incurred after the gas hits the wellhead, and therefore are called “At the Wellhead” states.  A few, like West Virginia, would not allow any deductions until the oil or gas has been turned into a marketable product, and are called “Marketable Product” states.  This of course leads to a definitional problem of what constitutes a “Marketable Product” and how is it determined?

There is logic to the industry’s position on the deduction of costs post capture “at the wellhead”, but some energy companies (not all) have abused the doctrine to deduct massive amounts of questionable costs before turning any money over to the landowners in royalties.  In certain truly egregious cases in Pennsylvania, landowners actually found themselves not receiving royalty checks but bills from companies like Chesapeake Energy for their share of costs incurred by the company in transporting, storing etc. gas taken from their land!  Not surprisingly, this resulted in a class action lawsuit which has been settled pending an agreement with Pennsylvania Attorney General Josh Shapiro on an unfair trade practices suit.

In the end, Story 1 and Story 2 have one thing in common.  Here in the Northeast, the energy industry is not the 800 pound gorilla dominating each State’s economy.  States like Pennsylvania and West Virginia have held out the welcome sign for the industry.  It’s up to the industry to keep that sign standing.

Questions? Let Dan know.

Marcellus Shale Update – 3.01.2018

The curious inconsistency among our national energy policy, national security policy and national environmental policy is coming into sharper focus.  It likely will be amplified by events thousands of miles away in the Middle East.

Start locally.  Last month I wrote about the astounding fact that people in New York and New England are more comfortable paying the Russians to import gas thousands of miles over ships of questionable seaworthiness than they are building pipelines to secure a cheap, reliable energy supply and pay Americans.  This aversion to pipelines is not unique to New York and New England – witness Dakota Access in North Dakota, Keystone in Nebraska and Jordan Cove in Oregon.   In Lambertville, NJ (next to Trenton), Mayor Dave Del Vecchio signed off on new zoning restrictions aimed at stopping the Penn East Pipeline which would transport gas from Northeastern Pennsylvania to the Trenton area.  Other municipalities have expressed their intent to try to stop the project.  Despite the fact that Penn East has received FERC approval, in the post-Andrew Cuomo/Constitution world interstate pipelines construction is a free-for-all.  How that serves the national interest is anyone’s guess.

Now broaden the horizons internationally, and especially to the Middle East.  The papers are full of stories about an impending war between Israel, Iran and Hezbollah.  Having been “invited” into the Syrian situation, Iran has used the opportunity to build its own military bases and extend its “Ring of Fire” around Israel.  They may be close to accomplishing it.  The Israelis are more and more convinced that war will break out soon.  They will not let Iran and Hezbollah build missile factories right under their nose.  Add to this the military power Russia has established in Syria, and for good measure take a small dose of American-backed Syrian rebels, Kurds and Turks, and you have a giant mess.  With Iran constantly pushing for a military confrontation, it’s hard to see how one will be avoided.  Once underway, there is no margin for error, and war is an exceedingly messy and imprecise business.

Already Americans have directly killed Russians.  On February 7 Russian forces attacked the town of Deir al-Zor in Syria, held by American-led Kurdish and Arab forces. At least 100 and potentially many times more Russians were killed and wounded in American air strikes.  The Russians have kept this hush hush, but it shows the danger.

Meanwhile, Syrian President Bashar Assad is carpet bombing anti-government rebels using chlorine gas in the Syrian region of Eastern Ghouta.  Western diplomats like British Foreign Secretary Boris Johnson are demanding a response, but any must take into account Russian air defenses.

With rather clear cut human rights violations, and with Russia directly involved, it would seem that Europe would love to give Russia a black eye over the Eastern Ghouta outrage, at least diplomatically.  The problem remains European dependence on Russian oil and gas.   Russia is Europe’s main supplier.   As of 2015, the 28 EU Member States imported 902 Mtoe of energy from Russia.  If a conflagration happens, and if we end up directly involved with the Russians – each of which is very possible – don’t expect overwhelming European support in areas like sanctions against the Russians.  Thanks to our pipeline buildout confusion and delays in establishing export terminals, we may face the prospect that the only way to project American power is to put American young men and women in harm’s way.  This is not a pleasant prospect. And didn’t have to happen.  It is, however, a direct response to our failure to counteract a Russian energy stranglehold despite having the opportunity to do so.

In any war situation, the price of commodities, including oil and gas, is likely to skyrocket.  Thanks to shale gas, that price spike will be tempered, at least everywhere in the Country except New York and New England.  We are on our way to overtaking Russia as the world’s largest oil producer, but we have no way to get the oil and natural gas to the Northeast.  Thanks to Andrew Cuomo and the other New England Governors and politicians, their region remains remarkably exposed.

As one nation, can we simply cut a geographic region loose during a price spike and say there will be no help coming from the rest of the country and no imports permitted from Russia and Yemen due to the international situation?  This could devastate New England economically.  On the other hand, does the whole country have to suffer for the well-meaning yet naïve environmental extremism of that region?  Let’s hope we don’t find out, but it’s more and more likely we will.

Questions? Let Dan know.

Marcellus Shale Update – 2.15.2018

It’s a few years too late, but the foolishness of absolutism under the guise of environmentalism finally is becoming too much to ignore.  Just two weeks after I railed against New England importing natural gas from Russia, the ultra-liberal Boston Globe joined in.  On Tuesday, in a remarkable 2,000 word editorial, the Globe finally said what needed to be said about the anti-pipeline movement.

Where I disagree with the Globe is in its portrayal of Massachusetts Senator Ed Markey as a fighter against these gas shipments.  Markey may have demanded the Federal Government stop the importing of gas that was drilled in Russia, but Markey has done nothing to alleviate the problem New England is causing itself by its environmental policies.  If anything, he’s done the opposite.  It is curious that while Markey demands Federal action to stop these Russian gas shipments, he remains mute over the usurpation of Federal control over our interstate gas pipelines by ideological state regulators under the pretense of protecting clean streams.

Environmental absolutist self-righteousness isn’t limited to New England, of course.  I saw it firsthand at the Delaware River Basin Commission hearings in Philadelphia three weeks ago.  The West Coast is full of it.  California has sued the Trump Administration over 25 times about rules related to hydraulic fracturing.  Churches, mosques and synagogues in Oregon have environmental committees seeking to prevent more oil and natural gas pipelines in that State.  Oregonians don’t seem to question the wisdom of having their gas and oil brought in by rail over the environmentally sensitive Columbia River Gorge.  In June 2016, 16 oil tank cars derailed from a Union Pacific train, igniting an explosion, spilling 42,000 gallons and forcing an evacuation of the town of Mosier.

Then there’s New York.  Usurping federal power over interstate pipelines granted to the Federal Energy Regulatory Commission by using a loophole in the Clean Streams Law, Governor Andrew Cuomo has blocked the building of any pipeline from the Marcellus Shale region of Northeastern Pennsylvania into New England.  Even if New Englanders wanted to stop paying off Vladimir Putin, they couldn’t until Governor Cuomo approves.  I take no position on the entire Trump/Russia collusion spectacle, but it is ironic that the people actually putting American dollars into Mr. Putin’s pocket are the politicians of New York and New England.

By any rational evaluation, the shale revolution and the pipeline buildout have been a net positive for the environment, the economy and our national security.   No matter how ineptly the energy industry makes its case, that use of natural gas has decreased our carbon emissions to levels not seen since the late 1980’s (more than offsetting any increase in methane emissions), given hope and money to people in rural communities that were on the verge of bankruptcy, allowed individuals with only a GED to get good jobs that actually can support their families and made our country functionally energy independent for the first time in my lifetime.

Rationality often is lost in this debate, however, to be replaced by ideology and extremism.  As with most absolutisms, that has the opposite of its intended effect.  How else do you explain the goings-on in Boston?  What Northeast politician would run on a platform that he/she would encourage drilling for natural gas in the Arctic with lax or no environmental safeguards, transporting that gas in ships of unknown safety through sensitive habitats, charging New Englanders for that gas eight times the amount paid by Pennsylvanians for their gas and sending much of that money to Vladimir Putin’s cronies?  It’s all happening now – right before our eyes.

This is not to say that regulation of these pipelines shouldn’t be robust and vigorous – it should, and this is not to say that there isn’t a place for national environmental policy to interact with national energy policy – it must.  It is to say, however, that these issues need to be examined from a practical, not ideological, perspective.  There is nothing noble about drilling into the ground for gas and oil or in building pipelines.  They all have downsides.  But so does everything else.

Let’s keep looking for ways to develop, store and transmit renewable energy, including spending large sums of tax dollars on research and development, but let’s not use the hope of a truly renewable, environmentally-neutral power supply to prevent us from doing the things now to clean our environment and protect our children’s future.  To do otherwise would be national negligence.

Questions? Let Dan know.