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.

New Developments in the Energy World

A lot has happened in the energy world in the past few weeks. Below is a brief summary of my two recent articles for Forbes.com highlighting these recent developments. As always, if you have any questions, feel free to reach out.

Are Northern California’s Blackouts An Image Of Our Energy Future?

Starting Wednesday, October 9, Californians in 34 counties had their power suspended by PG&E, which filed for Chapter 7 bankruptcy protection in January in the face of huge potential liability over the 2018 fires. Is this a glimpse into the future for the rest of the country?

Click here to read more.

Cyprus Launches Drones To Monitor Turkish Gas Drilling In Mediterranean

Last week, the nation of Cyprus deployed drones to monitor Turkish attempts to drill for natural gas in waters claimed by the divided nation. Turkey’s action added to the tension in a region already roiling from the migrant problem, the recent Turkish invasion of Syria, and the overall Middle East uncertainty. The implications for energy and aviation, as well as world security, could be enormous.

Click here to read more.

Questions? Let me know.

Daniel Markind of Flaster Greenberg

Daniel Markind is a shareholder at Flaster Greenberg PC with over 35 years of experience as a real estate and corporate transactional attorney. He has represented individuals and companies in the energy industry for over 20 years. Dan is a frequent lecturer on Marcellus Shale and other mineral extraction issues and is regularly asked to speak at conferences, in the media and at other venues regarding energy issues and their legal and political implications.

NESE Rejected

At 8:30 p.m. yesterday, the State of New York Department of Environmental Conservation rejected Williams Corporation’s proposal for the Northeast Supply Enhancement (NESE) natural gas pipeline. Citing potential water contamination from the project, which mostly would run into New York Bay, the DEC refused to issue the required Section 401 Clean Streams Certification.

The decision was made “without prejudice,” meaning Williams can resubmit its application. The company said it planned to do so.

In reaction to the DEC decision, the two power companies that serve New York City and Long Island, National Grid and Consolidated Edison, are expected to follow through on their moratoria against any new gas hookups in practically the entire New York City metropolitan area within New York State. Among other things, that means that a planned new arena for the New York Islanders ice hockey team to be located in Elmont, New York likely is dead.

A more interesting question will be how this move affects New York City’s bond rating as a whole. Without available new natural gas service, will the rating agencies feel as confident about Downstate New York’s future growth potential?

All of this, and many other questions, remain to be answered.

Questions? Let me know.

Daniel Markind of Flaster Greenberg

Daniel Markind is a shareholder at Flaster Greenberg PC with over 35 years of experience as a real estate and corporate transactional attorney. He has represented individuals and companies in the energy industry for over 20 years. Dan is a frequent lecturer on Marcellus Shale and other mineral extraction issues and is regularly asked to speak at conferences, in the media and at other venues regarding energy issues and their legal and political implications.

NESE: Governor Cuomo Will Decide – And NYC Will Face The Consequences

Huge metal gas pipeline transporting gas

While little noticed outside of the energy industry, New York Governor Andrew Cuomo is about to make one of the seminal decisions of his tenure. Before May 16, 2019, Governor Cuomo must decide whether to allow the New York State Department of Environmental Conservation (DEC) to issue a Section 401 Clean Streams Certification to the Northeast Supply Enhancement Project, which is proposed to bring natural gas from the Marcellus Shale gas fields of Northeastern Pennsylvania to New York City.

NESE, as the Project is known, would utilize portions of the existing 10,000 mile long Transco Pipeline, that currently connects natural gas fields in South Texas with New York City, to add about 10 miles of new pipe in Lancaster County, Pennsylvania, about 3 miles of new pipe in Middlesex County, New Jersey, and about 23 miles of offshore pipe mainly in New York Bay, plus a new compressor station in Somerset County, New Jersey. The additional pipe would allow the existing pipeline to convey increased gas volume originating in the Marcellus region to New York City.

The decision now before Governor Cuomo has profound implications for people as varied as all New York City residents (but especially lower income residents), real estate developers, business owners, and even Vladimir Putin.

NESE received final approval from the Federal Energy Regulatory Commission on January 25, 2019. Cuomo could try to kill the project by refusing to allow his DEC to grant the Section 401 Certification based on the fact that about 23 miles of the pipe will be underwater starting in New Jersey’s Raritan Bay and extending into the lower New York Bay in New York State. The Governor has done this before, of course, with the Constitution Pipeline and other Upstate projects.

Because of his prior maneuvering, Cuomo has no good option. Given his history of withholding the Section 401 Certification for the Constitution Pipeline, the Governor’s environmental supporters expect nothing less here. Indeed, the amount of water the NESE pipe will cross dwarfs anything seen before in the Section 401 controversy (except, ironically, a portion of the existing Transco Pipeline that is already installed offshore in the same general region in Raritan Bay and lower New York Bay).

On the other hand, refusing to grant the 401 Certification means risking power shortages in New York City. Already Consolidated Edison, which services portions of New York City and recently issued a moratorium on new gas hookups in Westchester County, New York, because of concern for future demand, is promising the same for Manhattan should projects like NESE be stopped. Likewise, National Grid, which services other parts of the City, is also threatening a moratorium if NESE is not built. However, of the two utilities, only the latter would actually be the pipeline’s customer.

No new supply means a marked contraction of economic activity in the City and its immediate suburbs in New York State. Along with that economic decline would come higher energy prices, which disproportionately affect the economically disadvantaged, and an increased reliance on imported gas. Little would make Vladimir Putin happier than to have his foot placed squarely on New York City’s economic lifeline.

Until now, Downstate New Yorkers have suffered little from the effects of their environmental activism. They got to feel righteous while the Upstate residents in Binghamton and Elmira paid the price from the moratorium on fracking. Now that economic price will be extracted in the biggest city in the country as well. How will the New York City business community deal with looming power shortages? What will the advocates for the economically disadvantaged say when their gas bills soar? What will the real estate community tell Governor Cuomo if they cannot offer gas service to new customers?

A major influence in Governor Cuomo’s initial decisions first to declare a moratorium on fracking in New York State and then to stop all pipelines through the Section 401 process was his former brother-in-law, environmental activist Robert F. Kennedy Jr.

However, Kennedy’s star has faded recently as he has been one of the leaders of the anti-vaccine movement that resulted in the resurgence of diseases like measles. More have come to question his judgment from that fiasco than arguably was the case a decade ago, when he was the chief attorney and board chair for the environmental activist organization, Hudson Riverkeeper. Will that loss of prestige be enough for Cuomo to approve NESE? If he does, how can he continue to block the Constitution Pipeline as well? If he does not approve NESE, what will happen if there are price spikes and brownouts in New York City, as quite likely will occur? What impact will it have on the 2020 Presidential race if during the next winter Russian gas tankers need to bail out New York City?

Whatever Governor Cuomo decides, this time it will be his Downstate base that feels the result.

Questions? Let Dan know.

Daniel Markind of Flaster Greenberg

Daniel Markind is a shareholder at Flaster Greenberg PC with over 35 years of experience as a real estate and corporate transactional attorney. He has represented individuals and companies in the energy industry for over 20 years. Dan is a frequent lecturer on Marcellus Shale and other mineral extraction issues and is regularly asked to speak at conferences, in the media and at other venues regarding energy issues and their legal and political implications.

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.

2019 – The Marcellus In Winter

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To nobody’s surprise, Pennsylvania Governor Tom Wolf began his second term by calling for a mineral extraction tax to be layered upon the State’s local impact fee.  Of course, the Governor never mentioned the impact fee in his budget address, continuing his administration long policy of seeking to portray Pennsylvania as the only state that doesn’t tax the natural gas industry.

When the Governor first took office in 2015, he advocated the extraction tax as a way to pay for Pennsylvania schools. Now, he seeks the extra revenue to pay for Pennsylvania infrastructure.  Should the tax be approved, the connection to the schools would have been more beneficial to the industry (think of the public relations possibilities it would have brought the industry in every part of the State).  The infrastructure tie-in will not be as helpful, but given current economics the industry will fight the tax under any circumstances.

One thing that’s been made clear by a week-long trip to Texas and conversations with top gas company executives is the disconnect between the public’s perception of the financial health of the natural gas industry and its actual financial condition.  A decade of overproduction combined with insufficient pipeline capacity and low gas prices has caused gas company stock prices to plummet.  Now, the future viability of these companies is at risk.  As one executive put it, “we have no choice but to fight the extraction tax.  We don’t generate enough revenue to pay it.”

In a sense they’ve been trapped by their own success.  The Marcellus has yielded far more gas than most thought possible ten years ago.  Improved production techniques have decreased the cost of extraction, leading to overproduction.  Add that to the lack of pipeline capacity, the antiquated Jones Act prohibition against transporting liquid natural gas on the high seas from one American port to another except on American-flagged ships (of which there are none), and the proximity of gas to the oil being produced in the Permian Basin of South Texas (which has actually dropped the marginal cost of natural gas in that region to negative numbers), and you have the dire economic times facing Marcellus gas producers.

Another source of the gas producers’ frustration is the lack of coordination and communication among themselves and with the pipeline companies.  “We’re not the pipes,” said one.  “We don’t like a lot of things they do, and we think they can portray the entire industry in a bad light, but they don’t care about what we say.”

That’s partially true, although some producers do have ownership stakes in some of the pipelines.  As a general rule, residents of the Northeast lump upstream, midstream and downstream together as one industry.  Together they have risen, and together they now are at risk of falling.

Producers have little left in their budgets to expand outreach to places in Pennsylvania that currently don’t “feel” the industry, like Philadelphia and the Southeast.  That’s bad for us all, as the Southeast stands to gain the most from effective, conscientious and environmentally sensitive development of this resource.  We have the train lines, the interstate highways, the Marcus Hook refinery and the Port of Philadelphia pretty much all in the same place.  That we’ve failed to capitalize on this could be the greatest missed opportunity for the Philadelphia region in the last century.

As for pipeline companies, they face years of delay while well-funded and organized environmental groups, and unsympathetic politicians, place roadblock after roadblock in their way.  Some of this, of course, is nobody’s fault but the pipeline companies for their both perceived and not infrequently actual disregard of local law and sensitivities. Overall for the industry in all of its myriad forms, Winter 2019 is not a pretty picture.

Nobody wins under the current scenario.  Environmentalists temporarily will celebrate the problems in the gas industry, but that glee will be short lived.  Despite breathless claims in the press and among certain politicians, those opposing natural gas can provide no alternative.

Ironically, environmentalists may be the salvation of the industry, as they push politicians into unsustainable, ridiculous policies. New York Governor Andrew Cuomo rapidly is running out of options to counter his “No Nukes, No Fracking, No Pipeline” stance. Already Westchester County feels the pinch as its main utility, Consolidated Energy, now prohibits any further growth due to a lack of power supply. New York City soon may face the same fate.  Jeff Bezos had better be sure that Long Island City will have enough power to handle his new Amazon sub-headquarters.  Where will that energy come from?

Under current conditions, many in the industry expect a further wave of consolidation. The fracking industry was created not by the large oil companies but by the smaller independents.  Those smaller companies now may have to sell out.  That will not be good news for the Northeast.

It’s getting more likely that in the future Governor Wolf and his successors will not deal with six or seven producers based in Houston, Dallas or Oklahoma City, each with major Pennsylvania operations.  Instead, he will find himself trying to get the better of two or three companies based in London, the Netherlands or other foreign countries, for whom Pennsylvania is but a blip on their radar screen.

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.

Venezuela, Iran and American National Failure

While President Trump and House Speaker Pelosi bicker about nonsense, two very important parts of the world are on a hair trigger today.

The country with the largest supply of oil reserves, Venezuela, is teetering on the brink of revolution, while the country with the fourth largest oil reserves, Iran, is threatening all out war against Israel over Israeli bombing of Iranian positions in Syria.  Both of these situations could spiral out of control any minute, with profound consequences for the world’s energy supply, American national interests, and indeed our own security.

Both Iran and Venezuela are led by deeply unpopular governments.  In Venezuela, it is the socialist government of Nicolás Maduro.  In Iran, it is the theocratic government of Ali Khamenei.  Khamenei has as his underpinnings the concept of Shiite Islamic Fundamentalism.  Maduro only has his economic system.

Both governments have run their countries into the ground.  Khamenei has spent so much of his country’s wealth on seeking nuclear weapons and financing military adventures – creating Hezbollah in Lebanon, arming Hamas in Gaza, backing Assad in Syria and supporting the Houthi Rebels in Yemen – that the world slapped sanctions on the country.  President Obama, whose foreign policy team was Class D at best, lifted those sanctions in 2015 as part of a multi-party Joint Comprehensive Plan of Action, but President Trump reestablished them in 2018.

Maduro, successor to the socialist revolution of Hugo Chavez, has established government control over the energy sector and many other parts of the Venezuelan economy.  In doing so, he has turned what once was one of the richest countries in South America into such an economic basket case that the average Venezuelan has lost over twenty pounds in the last year from malnutrition and starvation.

In a desperate attempt to stave off national default on Venezuela’s foreign debt, Maduro has given the Russians large ownership interests in his country’s energy industry and raised the possibility of establishing a Russian military base in Venezuela.  That would be the first in the Western Hemisphere and a direct challenge to the Monroe Doctrine.

Khamenei at least can fall back on his religious fanatical supporters.  Large demonstrations broke out last year in many Iranian cities, but the Iranian Revolutionary Guard put them down.  The mullahs use a combination of religious fervor and selective payments to favored political and military supporters to maintain their control.

Maduro has no such religious backing.  That he continues to hold power shows two things.  First, there remains a deep seated sense of class division in Venezuela to the point that many people will accept the catastrophic state of the economy so long as those who formerly were on the top of the economic and social pyramid no longer remain there.  Second, the opposition is so fractured it has been unable to convince the junior officers in the Venezuelan military and the regular soldiers, who after all are the ones that must put down any rebellions, that Maduro is driving the country to ruin and they can provide a better future.  Whatever happens, this does not portend well for the future.  The Venezuelan energy sector is so rundown it will take time, and massive investment, to rehabilitate.

In the Middle East, Iran has been trying to establish a permanent military presence in Syria, right on Israel’s border.  Israel, facing Hezbollah in the North and Hamas in the South, has reached its red line.  It has begun carrying out continuous military raids against Iranian positions in Syria.

Yesterday, Maduro broke off diplomatic relations with the United States.  Also yesterday, Iranian Air Force Commander Brigadier General Azaz Nasirzadeh stated that the Iranian Air Force is “ready and impatient to confront the Zionist regime and eliminate it from the Earth.”  Of course, both Iran’s and Israel’s actions are complicated by the large presence of Russia in Syria, another byproduct of incoherent Obama era foreign policy.

So now we have two grave crises happening simultaneously in different parts of the globe affecting the world’s largest sources of energy.  Attempting to manage this will be an untried President with little respect at home or abroad and with a government partially shut down over a petty squabble between two politicos, each of whom make themselves look smaller by the minute.  Fortunately, we have our shale gas and oil to cushion the economic blow sure to come from such international uncertainty, but we still can’t move the oil and gas where we need it.  Despite an abundance of domestic energy, whole geographic areas of our nation, most notably New York and New England, rely on imports.  If President Trump embargoes all Venezuelan oil, who will pick up the slack?  Putin?

All of this was foreseeable.  That it is happening at the same time may be some bad luck, but anyone looking at the world over the last few years could anticipate these problems occurring.  The fact that as a nation we are where we are is an example of national failure.  Perhaps it partially explains why both political parties revolted against their establishment candidates in 2016, and why they might do so again in 2020.

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.