Court rulings, delays and cancellations underscore the challenges facing the construction of gas pipelines | Occasional LLP

Natural gas pipelines are part of the critical infrastructure that carries gas across the United States to commercial, industrial and residential consumers. Interstate gas pipelines that cross multiple states are approved and regulated by the Federal Energy Regulatory Commission (FERC). In recent years, however, the construction of new and expanded gas pipelines has been increasingly put to the test, especially as the USA and other countries are countering climate change by expanding the use of renewable energy resources and reducing the use of fossil fuels. Most recently, the US Supreme Court weighed the right of pipeline companies to build new gas pipelines against the right of states to limit their construction.

Impact of US Supreme Court Ruling on Significant Domain Rights Relating to the PennEast Natural Gas Pipeline

The US Supreme Court recently overturned a lower court ruling confirming the pipeline companies’ preeminent domain rights under the Natural Gas Act (“NGA”). The NGA states that the federal government regulates the transport and sale of natural gas “in international and international trade”. The FERC delegates the eminent domain rights to the pipeline company. The Eminent Domain Right allows the pipeline company to seize property through a lawsuit in order to build the pipeline with fair compensation to the landowners.

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The Philadelphia Third Court of Appeals ruled in favor of the state of New Jersey, which had claimed sovereign immunity to prevent the seizure of land in which the state had an interest. The state argued that the 11th Amendment prohibited condemnation of public land. The Supreme Court ruled in a tight 5-to-4 ruling that the state of New Jersey cannot block the construction of the PennEast pipeline on state land due to a state claim to sovereignty.

In the Supreme Court ruling, the majority stated: “Throughout the nation’s history, the federal government and its delegates have exercised pre-eminent domain authority to implement this vision by connecting our country with barriers, bridges, and railroads – and more recently Pipelines, telecommunications infrastructure and electrical transmission facilities. “

If the Supreme Court had not overturned the lower court ruling, construction of the pipeline would have been suspended and states would have a new legal strategy to block the construction of natural gas pipelines. Even with the recent Supreme Court ruling, the PennEast pipeline will face other environmental and legal challenges for construction. According to an independent study by Concentric Energy Advisors, gas and electricity customers in eastern Pennsylvania and New Jersey would have saved an estimated $ 1.3 billion if the PennEast pipeline had been operational before the winter of 2017/2018.

Pipeline delays and failures

Other planned pipelines, such as the $ 8 billion natural gas pipeline on the Atlantic coast, have been canceled due to delays and cost overruns due to legal and regulatory disputes. The Williams Northeast Supply Improvement Pipeline Project was recently extended by FERC for two years. Construction was delayed because New York had not issued a water permit for construction. The pipeline expansion will be able to deliver an additional 400 million cubic feet per day (MMcf / d) of gas (equivalent to heating approximately 2 million households) to New York City, representing a capacity increase of 14%.

In the meantime, the Mountain Valley Pipeline will deliver gas from Marcellus and Utica to West Virginia and Virginia. The pipeline operated by EQM Midstream is approximately 90% complete; However, the start has been delayed due to regulatory and licensing issues. The pipeline was originally scheduled to be completed by the end of 2018 and recently the scheduled start-up date was postponed to summer 2022, adding to the overall cost of the project.

Proposed Legal Restrictions on FERC Certification of Pipelines

Congress has proposed law that will impose restrictions or affect significant pipeline domain rights. The Landowners Fairness Act (p. 641) would require the FERC to consider certain pipeline licensing factors, change the requirements for key domains, and ban the use of the NGA’s eminent domain for pipelines being built for export.

The CLEAN Future Act (HR 1512) would prohibit pipeline companies from using the NGA domain authority until they have all required state and state permits and are in compliance with environmental permit requirements. The legislation would also prohibit the use of significant domains for gas pipelines built for import or export purposes.

Other legislative proposals from Congress would change the rights of NGA domains or ask the FERC to consider other environmental factors before a gas pipeline certificate could be issued. Most of these bills are unlikely to be adopted in a divided Congress; however, it shows the desire to set further hurdles for the future construction of gas pipelines.

Gas supply restrictions in the northeast

In the north-east there are restrictions on the supply of natural gas and higher prices for gas and electricity. The bottlenecks in the gas supply have led to short-term moratoriums on new natural gas connections at local distribution companies (LDCs). In 2019, both Con Edison and National Grid put restrictions on new natural gas connections in the New York area due to these gas supply restrictions.

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National Grid has partially resolved these supply bottlenecks by transporting liquefied natural gas (LNG) and compressed natural gas (CNG). Both alternative gas supply options have higher transport costs compared to pipeline transport.

What is driving the increasing demand for natural gas in the northeast?

In New York City, demand for natural gas has increased due to new builds and existing buildings replacing their existing oil heating systems. In New York City and Long Island, an estimated 8,000 consumers switch from oil to gas each year. Since 2012, natural gas has won over 1 million new household customers in the northeast.

In April 2021, the Indian Point Center nuclear reactor stopped generating electricity when the last operating unit was shut down. In the past three years, three natural gas power plants have been built to power the areas of New York previously served by the Indian Point reactors.

The US Energy Information Administration (EIA) estimates that annual gas production in the Northeast increased 31% between 2015 and 2019.

New York measures to reduce emissions

In 2019, New York passed New York City’s Climate Mobilization Act (referred to as the “NYC Green New Deal”), which requires 40% emissions reductions for buildings by 2030 and 80% by 2050. According to a study by the Urban Green Council, the cost of building owners to tackle these emissions reductions will be between $ 16.6 billion and $ 24.3 billion over a 10 year period.

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The emission reductions are achieved through energy efficiency and the use of renewable energy sources. Local Law 97 – part of NYC’s Climate Change Act – applies to buildings 25,000 square feet or more and buildings with 35% or less rent-regulated units. The emission reduction laws will help reduce overall demand for natural gas in the long term; In the short term, however, there is still a need for new and expanded pipelines to meet current demand and keep energy costs reasonable for consumers.

Conclusion

The recent Supreme Court ruling confirmed the pre-eminent domain rights of a federally regulated pipeline to seize state and private land, preventing states from 11.Despite the Supreme Court ruling, pipeline companies faced different environmental and regulatory issues which resulted in the construction of new and expanded pipelines or the delay in commissioning.

State and federal governments have either passed or proposed laws and guidelines that promote renewable energy sources in place of existing energy sources such as natural gas. There are over 2 million miles of natural gas distribution lines and pipelines and over 300,000 miles of gas transportation and collection pipelines in the region. These pipelines supply over 75 million residential, commercial and industrial customers with gas. A recent analysis by the Interstate Natural Gas Association of America (INGAA) predicted that more than 30 billion cubic feet per day (Bcf / d) of new pipeline capacity would be required by 2025. Hence, it is unlikely that these pipelines will expire anytime soon.

In the future, expect sustained efforts due to environmental and legal changes that call into question the expansion and construction of new gas pipelines. The courts are expected to face additional challenges and pressure on the FERC to expand the rules for approving pipeline certifications will continue, leading to further increases in the cost of capital and an extension of the overall approval and construction time for pipelines becomes. In areas of the country such as the northeast with existing gas supply bottlenecks, consumers of gas and electricity (from gas) may be exposed to increased price volatility.