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Texas' ban on sending gas out of state raises question: Is that allowed?


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Texas' ban on sending gas out of state raises question: Is that allowed?

Texas Gov. Greg Abbott took an extraordinary step in an effort to restore power to millions of residents left in the dark amid an Arctic blast and deepening energy crisis: He ordered that no natural gas be shipped out of the state before being offered for sale to Texas power generators.

The Republican governor's announcement during a Feb. 17 briefing with reporters raised questions among market observers, legal experts and energy regulators. Chief among them: Does the governor have the authority to do that? Some observers raised the prospect that the order violated the dormant commerce clause, which prohibits states from discriminating against interstate commerce, and anticipated legal challenges.

One of those people was Federal Energy Regulatory Commission Chairman Richard Glick, who said he viewed the governor's directive as flawed.

"Anyone who even has had one law school class probably knows that the dormant commerce clause plays a pretty important role here, and I suspect that some or maybe a lot of parties will take this to court quite quickly," Glick told reporters Feb. 18. "And the courts will at some point assess whether Gov. Abbott's proposal satisfies the Commerce Clause. It strikes me that it doesn't. But again, I'm not the judge or any of the judges that are going to review this, so we'll see what happens litigation-wise."

Glick, a Democrat, said he had not had a chance to consult neighboring grid operators about potential impacts in neighboring states after reading Abbott's order late the previous night.

"Probably this is unconstitutional under the dormant commerce clause. That said, it's a five-day order," James Coleman, an energy law professor at Southern Methodist University, said in an interview. "Is anybody able to get a lawsuit together to overturn it in time? I would have to say the chances of that are less than 50%."

Abbott's office did not respond to requests for comment.

Besides questions about the legality of the order, there was uncertainty about its impact. Crippled gas-fired generators in the state have been trying to overcome pipeline supply shortfalls and frozen instrumentation. Days into a crisis that sent Texas prices soaring, market observers questioned whether the order would significantly impact gas flows. However, the order could affect Texas' reputation as a reliable supplier of gas, some said.

"As a pragmatic issue, this may not make much of a difference during a crisis given the short duration of the order," Height Securities LLC analysts wrote in a Feb. 18 note to clients. "The lasting impact from this decision may come in the future from importing geographies or customers when Texas wants to make free market and or reliability arguments."

The Height Securities LLC analysts agreed with Coleman that Abbott's order likely raises questions about the federal government's authority over interstate commerce, including the Natural Gas Act.

Kinder Morgan Inc., whose Florida Gas Transmission Co. LLC, El Paso Natural Gas Co. LLC and Natural Gas Pipeline Co. of America LLC gas pipeline systems originate in Texas, declined to comment. Williams Cos. Inc., Enbridge Inc. and TC Energy Corp., which also have several systems that deliver Texas gas out of state, had not responded to requests for comment at the time of publication.

A spokesperson for the pipeline trade group Interstate Natural Gas Association of America said in an email that the organization and its member companies "continue to be in close contact with federal and state agencies and vigilantly monitor operations as safety and reliability remains our priority."

Flows to the two U.S. LNG terminals in Texas — Cheniere Energy Inc.'s Corpus Christi LNG plant and the Freeport LNG Development LP facility south of Houston, were negligible Feb. 17 even though total flows to the six major U.S. export facilities had recovered to about 3.5 Bcf/d on Feb. 17 after falling to about 2.2 Bcf/d a day earlier, according to pipeline flow data from S&P Global Market Intelligence. So were gas deliveries to Sempra Energy's Cameron LNG facility in Louisiana, where plant workers were working to ensure their ability to safely restart operations after a power outage that was resolved the night of Feb. 16. The gains Feb. 17 were driven by increased deliveries to Cheniere's Sabine Pass LNG terminal in Louisiana, the country's largest LNG export facility.

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Even before the Texas governor's order, Abbott's office had asked the operators of the LNG export facilities in Texas and other large industrial users of gas and electricity in the state to curb their consumption so supplies could be used for homes, according to Charlie Riedl, the executive director of the Center for Liquefied Natural Gas, a Washington, D.C.-based LNG trade group. That "emergency request" from the governor stopped short of an order, but the LNG facilities — Freeport LNG and Cheniere Energy Inc.'s Corpus Christi LNG plant — were quick to comply, Riedl in a Feb. 17 interview.

The governor announced the emergency order later that day.

"All of the Gulf Coast projects, they have backed [feedgas deliveries] way off in order to respond to all of this," Riedl said. "Our focus is on making sure that we are helping and being part of the solution."