Court makes North Carolina revisit denial of Mountain Valley Pipeline permits

North Carolina regulators will have to reconsider their denial of water permits for Mountain Valley Pipeline LLC's proposed Southgate natural gas transportation expansion project and better explain their decision, according to a March 11 ruling by a federal appeals court.

The opinion by the U.S. Court of Appeals for the 4th Circuit also found that the regulators' decision to deny the permits "is consistent with the state's regulations and the Clean Water Act." But the ruling will still give the project developer another chance to win the necessary approvals for Southgate, a 75-mile extension of the Mountain Valley natural gas mainline from Virginia into North Carolina.

The North Carolina Department of Environmental Quality denied Mountain Valley's application for Clean Water Act Section 401 water quality certification and Jordan Lake riparian buffer authorization for the 375,000-Dth/d expansion in August 2020, citing uncertainty over the completion of the Mountain Valley mainline amid legal challenges and the lack of key federal permits.

The 303-mile, 2-Bcf/d Mountain Valley mainline project was designed to carry Appalachian shale gas south out of West Virginia to mid-Atlantic markets. The Equitrans Midstream Corp.-led project is 92% complete, but litigation and permitting challenges have delayed work on the final pieces.

Gary Kruse of LawIQ, a firm that analyzes the legal and regulatory aspects of the energy industry, said the 4th Circuit was essentially leading the regulator on how to make the permit denial valid, so the court's decision is unlikely to offer much help to the project developer in the near term.

"Until they can get the main project through its hurdles, the NCDEQ will likely continue to deny this [water quality certification], and I don't think that denial, if better reasoned as guided by the court here, will be overturned by the 4th Circuit," Kruse said in an email.

This means the developer would likely either need to pursue further federal appeals or reapply for water quality certification once the challenges for the mainline project appear resolved, Kruse said.

Mountain Valley has received some key federal approvals since North Carolina denied the state water permit. The developer has said it expects to have the remaining permits in hand by midyear and enter the pipeline into service by the end of 2021. The needed approvals included federal water crossing authorizations after the developer took a new permitting approach to overcome long-running legal challenges.

Height Securities LLC analyst Josh Price described the 4th Circuit ruling as "an incremental positive, but not very significant for the outlook of the project." Price said it would not be difficult for the state regulator to deny certification again.

"The DEQ may be inclined to issue a conditional certification, given the progress MVP has made since the original denial in securing water permits among other issues," the analyst said in an email. "Either way, for the time being, the primary concern for [Equitrans] is getting MVP over the finished line, which we expect will happen by mid-2022."

The developer welcomed the 4th Circuit decision. "The MVP Southgate team appreciates the court's comprehensive and thoughtful review, and is pleased the court agrees that NCDEQ failed to adequately explain its decision to deny the project's application rather than issue a conditional approval," spokesperson Shawn Day said in an emailed statement.

Mountain Valley recently came under fire in a report by the Institute for Energy Economics and Financial Analysis, a sustainable-finance think tank, which argued that changes in the natural gas market since the conception of the pipeline project have undermined the economic case for building it and increased the risk that it will be underutilized. The report said the risk facing the Southgate expansion "weakens the case that the Mountain Valley Pipeline is needed."

The pipeline developer objected to the report's conclusions. It called the findings incorrect and "in alignment with the group's specific policy agenda, as opposed to being based on facts and data related to the MVP and MVP Southgate projects."

Day said the design of the Southgate project would minimize water impacts, and the project would comply with all state water quality standards. "We look forward to working with NCDEQ to satisfy any concerns that it may have, and we remain committed to building this important infrastructure project to meet North Carolinians' demand for cleaner and more reliable, affordable natural gas," Day said.