Natural Gas Pipelines: Will Prior Decisions Come Back to Haunt Governors Cuomo & Wolf?

Huge metal gas pipeline transporting gas

The controversy about natural gas pipelines took another twist during the last two weeks. In my latest article, read how two Northeast governors face major challenges over very different pipeline decisions that could impact both of their administrations.

Click here to read more on Forbes.com.

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.

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.

 

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.

Marcellus Shale Update – 5.26.2018

The on again, off again saga of Mariner East 2 is off-again.  On Thursday, a Pennsylvania State Public Utility Commission judge again suspended construction of Mariner East 2 and 2X and the use of Mariner East 1 following a petition by State Senator Andy Dinniman.  Despite the pipeline being 98% complete, PUC Judge Elizabeth Barnes wrote that the pipeline constitutes an “emergency situation which presents a clear and present danger to life or property.”  She added “(t)he rupture of a hazardous liquid pipeline at the welds of an 8-inch pipe in a (high consequence area) such as West Whiteland (Township) and the ignition of such a potential vapor cloud could have catastrophic results.”

In the end, it is doubtful that Mariner East 2 and 2X will be stopped.  However, the long term effects of this process are truly harmful to the industry and all concerned.  Serious questions have been raised both about the pipeline route and the construction, and Sunoco Logistics, the owner of the pipeline, often has simply ignored the rules for construction.   This has raised community suspicion about the project and the PUC process.  It also has made a hero of Senator Dinniman, who is not a friend of the industry.  Critics who seek to fight other pipeline projects point to Mariner East 2 of an example where the industry cannot be trusted, and they have lots of ammunition.

Despite all of these issues, pipeline buildout in 2018 in the Northeast will exceed all previous construction.  The Energy Information Agency expects an additional 20Bcf/day to be added to capacity.  Unfortunately, that buildout is spotty geographically. In the I-95 corridor, where it is needed the most, we likely will see the least.  Winter 2018-9 could see the most extreme geographic variations yet in terms of natural gas price.

In contrast to Mariner East 2, Trans Mountain in Northwestern Canada presents the opposite situation.  The pipeline owner, Kinder Morgan, continues to win in court and generally follow the rules, while the provinces squabble with each other and hurt themselves.  The latest was the British Columbia Supreme Court throwing out a challenge by the City of Vancouver and the Squamish National indigenous tribe claiming that BC did not act reasonably earlier when it gave Kinder Morgan an environmental assessment certificate.  The Court also ordered Vancouver – which is fighting so hard against the pipeline but depends on coal for much of its economic wellbeing – to pay Kinder Morgan’s legal fees.

Kinder Morgan’s self-imposed deadline of May 31 still looms, and the company now is facing major cost overruns.  Both Alberta and the Canadian Federal Government have promised to assist in the financing of Trans Mountain, and Alberta needs the revenues from the pipeline to balance its budget, but neither has been able to make it happen.

Like Mariner East, the long term ramifications may be significant.  In Mariner East 2 it’s the suspicion engendered by the pipeline company, in Trans Mountain it’s the lack of trust in the Canadian business climate.  At this point I would guess that both pipelines get built, but each will result in long term residual yet needless damage.

Finally, construction continues on the Nord Stream 2 pipeline that will take gas from Russia to Germany through the Baltic while bypassing the traditional transit route through the Ukraine.  The Trump Administration is going all out to try to block its construction, even threatening our European allies with potential economic ramification should the pipeline be finished.

Germany, which is almost entirely dependent on Russian gas (notice how quiet it’s been on Russia matters over the last few years), is furious with the American position.  The United States is wary of increased Russian expansion of influence in Western Europe and sees this as a tool to isolate European nations such as Ukraine, the Czech Republic, Slovakia, Poland and the Baltic States.  All of these nations have faced energy price and supply manipulation in the past from Russia.  Not coincidentally, the Germans, who are held up as environmental paragons, are now so dependent on Russian gas that they have raised no environmental objection to a pipeline being built in the Baltic Sea being used to transport Russian gas produced in the Arctic.

There are three lessons here.  First, be wary of those who wrap themselves in the banner of environmentalism.  They tend to forget about that when their economic security is threatened.  Second, understand that the current German hostility to the Trump Administration is not just about ripping up the Iran Nuclear Deal or moving the American Embassy in Israel to Jerusalem.  Nord Stream 2 is far more significant.  Finally, notice that, contrary to claims that he is being soft on Russia, the Trump Administration is fighting far harder against Russian economic interests in Western Europe than did the Obama Administration.

I am neither a Trump hater nor supporter.  I want all American Presidents to succeed.  I do think though that Nord Stream 2 is more important than many of the stories we hear on the evening news.  We would be much better informed as a citizenry if CNN and its ilk took time out from Stormy Daniels’s lawyer and talked about the ramifications of what really matters to people.

Happy Memorial Day.