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Midstream's regulatory 'whiplash'

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Midstream's regulatory 'whiplash'

A weekly recap of SNL Energy'scoverage of major themes in the natural gas industry.

Midstreamgiants with moribund pipeline projects are fighting back, calling for both astreamlined FERC process and a stronger hand at the federal level to defendagainst state actions.

StanChapman III, senior vice president and general manager for U.S. gas pipelinesat TransCanada Corp.and part of a panel at the Republican National Convention, talked about theeconomic benefits pipelines can help bring across the nation. But pipelinedevelopers need a clear paththrough the permitting process, Chapman said.

TheU.S. needs "clear, reliable, understandable regulations in effect, so thatpipelines can be vetted through a regulatory process, approved and constructedin a timely manner, in an efficient manner, but also a responsible manner,"Chapman told S&P Global Market Intelligence after a July 21 energy panel atthe convention.

Chapman,who came to TransCanada with its purchaseof Columbia Pipeline Group Inc.,said that when he started in the industry, pipeline projects used to take threeto five months to go through the FERC process. Now it is expected to take 12 to24 months.

"Ourchallenge right now is to make sure that U.S. production has access to theworld market," Chapman said in the interview. "So one of theoverriding themes we've been hearing [at the convention] has to do with exportopportunities, and to make sure there is not an undue delay with respect to thereview process or other legislation that would somehow hinder U.S. producersand U.S. production as they compete on that world stage."

Meanwhile,the Williams Partners LP-backedConstitution Pipeline Co. LLC, battlingan April denial of aClean Water Act permit by New York, receivedbacking from the greater oil and gas industry and manufacturing andcommercial groups. The groups joined Constitution in a court case that aims toprotect all natural gas infrastructure projects, stating that the permit denialis dangerous from a regulatory and an economic perspective.

"ObtainingFERC approval for a proposed pipeline is a long, thorough, and costly process,"the groups told the U.S. Court of Appeals for the 2nd Circuit. "Denialslike the decision under review are likely to make investors wary of risking thesubstantial time and money necessary to undertake that process, only to see asingle state veto the project in the end — perhaps on the very grounds FERCalready considered."

"Theresulting whiplash is particularly jarring where, as here, the state agencyactually participated fully in the FERC process," the groups said.

Theorganizations said state agencies should not be allowed to use the Clean WaterAct Section 401 process to "second guess" FERC approvals. The groupsreminded the court that FERC conducts an environmental review of pipelineprojects under the National Environmental Policy Act and the Natural Gas Act.

"Inshort, the many benefits of natural gas projects, which span state borders andsectors of the economy, are precisely why Congress made FERC the keydecisionmaker," the groups said.

Alack of regulatory coordination also led Kinder Morgan Inc. to cancel its Northeast Energy Direct project in April,company CEO Steve Kean saidin a talk with researchers, policymakers and energy executives. Connecting thedots from the Marcellus Shale to New England seemed like a lock to theself-described "pipeline guy." "The lowest price of [natural]gas is in western Pennsylvania," he said. "The highest price for gasis in the Northeast."

Keanblamed Northeast Energy Direct's demise on the inability of New England state regulators to develop amechanism for the region's gas-burning electric utilities to pass alongpipeline costs to ratepayers. "We would have gotten a 7% return,"Kean said, if the project went through without the mechanism. "We're notspending our investors' money only for a 7% return."

"Ifwe're not able to get pipes to go from Point A to Point B," theconsequences hurt all parties, Kean said. "If it becomes apparent thatstates are acting to frustrate [development], that's not the place any projectdeveloper wants to be in."

Keansaid the biggest curveball that can be thrown into today's idyllic scene ofplentiful natural gas supplies from shale and low prices is a lack ofregulatory consistency driven by ignorance of energy markets. "We need toinform people in the regulatory community, think tanks, non-governmentalorganization, [legislative] committees," he said.