You Say You Want a Constitution

This is for Ron Wagn 

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Janet

You Say You Want a Constitution - Can Gas-Pipe Projects Through New York Be Revived?

Monday, 02/18/2019Published by: Rick Smead

 

The vast majority of the incremental natural gas pipeline capacity out of the Marcellus/Utica production area in recent years is designed to transport gas to either the Midwest, the Gulf Coast or the Southeast. Advancing these projects to construction and operation hasn’t always been easy, but generally speaking, most of the new pipelines and pipeline reversals have come online close to when their developers had planned. In contrast, efforts to build new gas pipelines into nearby New York State — a big market and the gateway to gas-starved New England — have hit one brick wall after another. At least until lately. In the past few weeks, one federal court ruling breathed new life into National Fuel Gas’s long-planned Northern Access Pipeline and another gave proponents of the proposed Constitution Pipeline hope that their project may finally be able to proceed. Today, we consider recent legal developments that may at long last enable new, New York-bound outlets for Marcellus/Utica gas to be built.

 

More than four years ago, in our 50 Ways to Leave the Marcellus Drill Down Report, we discussed the race by midstream companies to add new gas pipeline takeaway capacity out of what was already the U.S.’s premier natural gas production area. By late 2014, production in the Marcellus/Utica was topping 18 Bcf/d and headed for 30 Bcf/d by 2019. Well, here we are in The Year of the Pig and, sure enough, production is at ~30 Bcf/d and most of the 40-plus takeaway projects we listed have been completed and are in operation. We looked at a number of the more recent takeaway additions in our “Waiting on the World to Change” blog series, including Williams/Transco’s 1.7-Bcf/d Atlantic Sunrise project, Enbridge/DTE Energy’s 1.5-Bcf/d NEXUS Gas Transmission, and TransCanada’s Mountaineer Xpress and Gulf Xpress, which together will allow another 1 Bcf/d to flow south/southwest out of the Marcellus/Utica.

As we said in today’s intro, many of the efforts to develop new gas takeaway capacity into New York — and beyond the Empire State into New England — ran into trouble early and often. There have been some successes, such as Williams/Transco’s New York Bay Expansion, which increased gas flows into New York City, and Enbridge’s Atlantic Bridge project, which boosted flows through the Big Apple’s northern suburbs and into New England. But those improvements were essentially expansions of existing pipelines and largely along existing rights of way. Two bigger-capacity pipeline projects in upstate New York — the 650-MMcf/d Constitution Pipeline (dashed yellow line in Figure 1) from northeastern Pennsylvania to just west of Albany, NY, and the ~500-MMcf/d Northern Access Pipeline (dashed red line) from north-central Pennsylvania to near Buffalo, NY — have been stalled for a number of years, mostly due to their failure to secure water-quality permits from the New York Department of Environmental Conservation (NYDEC).

Fig1_NYPipes.png?itok=w8-f-fIv

Figure 1. Source: RBN (Click to Enlarge)

The controversy centers around a so-called Clean Water Act Section 401 finding by a state that a project is consistent with the state’s policies for protecting streams and wetlands. This finding (the state permit) has to be issued before the actual permit — the permission to move forward — can be issued by the U.S. Army Corps of Engineers, the ultimate regulatory authority. In the case of both projects, the NYDEC said no, they were not consistent with New York’s clean water plan. Recent court actions have created new hope for the projects, but other things still have to happen. In other words, we’re not saying today that the Constitution and Northern Access projects are back on track — far from it. What we are saying is that, thanks to the recent federal court rulings, there may finally be a light at the end of the tunnel for the projects’ developers. (Whether that light turns out to be an oncoming train remains to be seen.)

We’ll look at Northern Access first. National Fuel Gas’s plan for the 97-mile, 24-inch-diameter pipeline from McKean County, PA, to Erie County, NY — and a few related improvements — was first proposed in early 2015. The project would allow for the export of up to ~360 MMcf/d into Ontario, as well as the delivery of about 140 MMcf/d into Line 200 on Kinder Morgan’s Tennessee Gas Pipeline (TGP; blue line) system to serve demand in western New York. The Federal Energy Regulatory Commission (FERC) approved the Northern Access plan two years ago this month (in February 2017), but in April 2017 the NYDEC denied the Section 401 water-quality permit the project needed to proceed. The project remained in limbo until February 5 (2019), when the U.S. Court of Appeals for the Second Circuit (which covers federal issues in New York) ruled against the NYDEC. Wait, scratch that — more accurately, what the court said was that the NYDEC didn’t do a good enough job of explaining and justifying its denial of the permit or its rejection of FERC’s finding that National Fuel’s water protection plan was fine. The Second Circuit vacated and remanded the NYDEC denial — which doesn’t mean the permit happens, just that the agency has to go back to the drawing board and redo its decision. It could end up with NYDEC simply explaining itself better while still not issuing the permit, but we’ll see. In other words, Northern Access is still in limbo, just a more optimistic limbo.

As for Constitution, it’s a joint effort by Williams, Cabot Oil & Gas, Piedmont Natural Gas Co. and WGL Holdings that we first discussed six years ago in Return to Sender. The planned 125-mile, 30-inch-diameter pipe would run from Susquehanna County, PA (in the “dry” Marcellus area) to Schoharie County, NY (again, west of Albany), There, Constitution would interconnect with TGP’s Line 200, which runs west-to-east from western New York into Massachusetts, and the Iroquois Pipeline (orange line), which runs north-to-south from the New York-Canada border (at Waddington, NY) to Long Island. FERC approved the Constitution project in December 2014, and its developers hoped to have the pipe in operation by early 2016, but the NYDEC’s review of their Section 401 permit application hit a series of snags, and in April 2016 that permit was denied. The developers went to court (also the Second Circuit). 

In August 2017, the Second Circuit upheld the NYDEC’s Section 401 permit rejection, but said the court didn’t have jurisdiction to decide the pipeline developers’ alternate claim that the New York regulator had waived its authority under Section 401 to issue a permit by taking so long to act. (The way it works under Section 401 is, if the state doesn’t get around to deciding on a permit application within a one-year window, the Corps of Engineers can go ahead and decide on its own.) The NYDEC had responded to the developers’ claim by saying Constitution’s application wasn’t complete enough and once it was, the agency only took a year. The developers then took that same issue to FERC, got turned down there, and then took their case to the U.S. Court of Appeals for the District of Columbia — the DC Circuit is usually the one to decide major federal cases in regulatory law. Last November, that court put the case on hold, telling the Constitution folks that the matter of how long a state regulator can put off acting on a Section 401 permit application was going to be decided in another case on its docket. That case — Hoopa Valley Tribe vs. FERC — was decided by the DC Circuit court on January 25 (2019). In its ruling, the court said that, yes, a state agency has only a year to act on a Section 401 permit application and that, if it doesn’t issue a decision within that time frame, the permitting right reverts back to the Corps of Engineers.

With the Hoopa Valley Tribe ruling in hand, Cabot Oil & Gas (one of the Constitution project’s developers) sent FERC Chairman Neil Chatterjee a letter on February 11 (2019) in which the company said that both the court’s ruling and the need for more reliable gas supply in New York and New England suggest that FERC should take timely action to move the Constitution project forward.

As we said, it’s too soon to know whether the recent rulings by the DC Circuit and the Second Circuit will give the Constitution and Northern Access projects the final pushes they need. It’s worth pointing out that even if Constitution were to finally advance — again, far from a sure bet — the pipeline wouldn’t be a panacea. New England would still be pipeline-constrained from its west, and midstream companies have become understandably wary of proposing big new pipelines through Patriots Nation, with some suspecting that the only guy who could get one built would be Tom Brady.

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