Washington — Virginia regulators have said they will need at least until December 2021 to complete a water quality review for the Mountain Valley Pipeline, further pressuring the project's late-2021 in-service target.
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The 303-mile, 2 Bcf/d project connecting Appalachian Shale gas to Mid-Atlantic markets, recently initiated a new round of permitting, after suffering setbacks in the 4th US Circuit Court of Appeals related to water crossing authorizations. The new approach included an individual water crossing permit application filed with the US Army Corps of Engineers to enable use of the open-cut method for some water bodies and wetlands, as well as a separate certificate amendment application at FERC.
As part of the Army Corps process, the Virginia Department of Environmental Quality, in a March 25 letter, said 120 days was not enough time for the state to complete its part of the review, despite the Army Corps having determined that was a reasonable timeframe. VDEQ said it must use its individual Virginia Water Protection Permit, and that it would be impossible to issue the permit by July 2.
"Based on the complexity of this project and past public controversy, we cannot reasonably issue the VWP permit before December 2021 and we believe it is quite likely that we could not issue this permit until early 2022," it said.
Instead, it sought an extension of the Army Corps' reasonable period to one year, or March 3, 2022.
MVP is sticking with its in-service target, though some analysts were expecting that timeline to slip into 2022 even prior to the VDEQ letter.
Height Securities analysts, in a research note March 30, said the VDEQ letter supports their view that the project is unlikely to enter service until the first half of 2022.
In a more positive sign for the project, they interpreted the Army Corps' 120-day request as a "strong signal that the Biden administration is willing to work with MVP to get the project done quickly," despite opposition from environmental groups.
On a separate track, the project is proceeding through a new review process at FERC, where MVP has filed an amendment to use trenchless water crossings methods at 120 locations to cross 181 waterbodies and wetlands that FERC originally authorized for open cut methods (CP21-57).
MVP told FERC March 29 it believes that no additional Clean Water Act Section 401 water quality permit is required for the amendment project.
Gary Kruse of Arbo said the end of 2022 may be a more realistic timeframe for completing construction, taking into account the potential for further regulatory delays, such as risks associated with MVP's split permitting approach and uncertainties about FERC action under Chairman Richard Glick.
In response to the VDEQ letter, MVP expressed disappointment, suggesting federal and state agencies have an in-depth knowledge of the project and the regulatory record.
Natalie Cox, a spokeswoman for MVP said the company "believes an efficient permitting process, including all required public participation, can be completed in a timely manner, and we are disappointed with the VDEQ's recent request to extend the [Army Corps'] 'reasonable period of time' to be one year."
MVP continues to target a late-2021 in-service date "and is following all procedures for the [Army Corps'] Individual Permit process and related FERC amendment process, adhering to the requirements and decisions of each agency," she said.
The MVP project was first pitched in 2014 at time when producers were flush with cash and the opportunities to connect areas of burgeoning production with rising demand for gas were rife. In that period, price spreads for calendar year 2022 between Dominion South and Transco Zone 5—the upstream and downstream markets Mountain Valley aims to bridge—were trading well north of $1.50, putting the project's estimated costs of about 90 cents/MMBtu well in the money.
But as other production-takeaway projects have beat it to market, and downstream demand growth forecasts have grown lesser amidst the rise of renewables and a slowdown in power plant development, spreads have fallen considerably just as the costs of building the project—and likely the costs of owning capacity on the project—have grown by almost double.