US ELECTIONS: November contests add to thicket of gas pipe project woes

A challenging environment for North American interstate natural gas pipeline development could get tougher as a consequence of the November 2020 elections, according to a range of industry observers.

And project applicants facing litigation could face a new reality in which the federal government is no longer reliably defending its prior permitting decisions.

If Biden wins and Democrats have a majority at the Federal Energy Regulatory Commission, most analysts foresee an increased focus on environmental considerations including climate change and environmental justice.

CAPITOL CRUDE PODCAST: The election stakes for US natural gas pipeline permitting

Evidence of need for a pipeline also is likely to face deeper scrutiny, in cases where contracts with project affiliates provide the main market support.

Higher threshold

FERC-watchers disagree on how often there would be outright rejection of projects if the five-member commission comes under Democratic control.

"It wouldn't surprise me certainly to see climate be a primary consideration for infrastructure and that be a significant hurdle for a lot of major projects," said Katie Bays of FiscalNote Markets.

While at FERC, Democratic Commissioner Richard Glick has dissented on 54 certificate orders authorizing gas projects, according to recent tally by LawIQ. Most often he cited a failure to consider the significance of the impact of greenhouse gas emissions, although he has objected over other environmental considerations and at times found FERC scrutiny of project need to be inadequate.

Still, environmental advocates such as Collin Rees of Oil Change International and Maya van Rossum of Delaware Riverkeeper Network are not counting on a quick turn of fate.

Rees sees Glick as a break in tradition at a commission with near perfect support for projects but says it is unclear what the scope is for greater climate considerations to lead to denials.

"I'm not leaping to the conclusion that we're hugely better off with just a change in administration," given the history at FERC, agreed van Rossum. Even under the administration of Bill Clinton and Al Gore, "we didn't end up with a bunch of good decisions out of FERC," she said.

One thing that could turn around is federal agencies' approach to litigation surrounding their permitting decisions, according to Christi Tezak, ClearView Energy Partners managing director.

"We think it could look like a mirror image of the early part of the Trump Administration," in which the Environmental Protection Agency, Council on Environmental Quality, the US Army Corp of Engineers, the Department of Interior or even FERC could "ask the courts to put in abeyance and or voluntarily remand appeals before them for substantive consideration and rewrites," she said.

From Bays' vantage point, the investment community is not expecting new permitting under a Democratic president for LNG or gas pipelines.

"In a way, it's like the market's already pricing in this really draconian outcome," Bays said. For companies working on projects that are in the post-2021 timeframe, that means the value of those projects gets heavily discounted, affecting the cost of capital, she said.

There could also be a different flavor to secondary decisions, such as whether to allow a project to enter service, or whether to halt work when landowners or environmentalists raise objections.

Yet even under a second Trump administration, gas pipeline infrastructure is already seen as at the end of a roughly nine-year buildout cycle, particularly in the Northeast. Northeast pipeline capacity entering service peaked in 2018 at 8.1 Bcf/d, while only 2.6 Bcf/d is targeted to enter service in 2021 and just 490 MMcf/d in 2022, according to a tally of significant projects tracked by S&P Global Platts.

While stronger activity continues in the Gulf Coast region, a wave of new capacity out of the Haynesville Shale, tied largely to LNG demand, is mostly already permitted and seen coming online by 2024.

Trump scenario

If elected, Trump is expected to continue his pro-fossil fuel infrastructure, deregulatory push, which has had mixed results thus far at achieving the goal of streamlining the process. Gas pipeline reviews slowed for a period at FERC, while a large batch of LNG projects advanced. Some major gas pipeline projects, such as the 603-mile, 1.5 Bcf/d Atlantic Coast Pipeline, or Transcontinental Gas Pipeline's Northeast Supply Enhancement Project, were stopped in their tracks through litigation or state denials.

Rob Rains of Washington Analysis notes that even if a fossil-fuel friendly Trump administration persists, states will play a pivotal role.

"What we've seen the last several years is that if a state official or a state agency denies a key permit to a pipeline or an LNG terminal, in many instances that is fatal," he said.

Developers may give up on building major new interstate gas projects in the Northeast where it's evident there is greater interest in electrification, transmission, demand side management, and energy efficiency, he said.

In addition, market forces, including a second shakeout in the production side of the gas business could have a chilling effect on development, benefiting existing assets, he said.