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.

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.