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Resignation of former FERC chairman may hobble 4 major gas pipeline projects

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Resignation of former FERC chairman may hobble 4 major gas pipeline projects

The departure of former FERC Chairman Norman Bay could cause delay for months for four major natural gas pipeline projects at vulnerable points in their review, analysts said the day after Bay announced his intent to step down.

Bay’s resignation, which he announced Jan. 26, will leave FERC with just two commissioners as of Feb. 3: acting Chairman Cheryl LaFleur and Commissioner Colette Honorable, both Democrats. Three commissioners are needed for the independent agency to establish a quorum to vote on orders, such as those to issue Natural Gas Act certificates for gas pipeline and LNG terminal projects. Much of the agency's business, including environmental reviews and construction authorizations of these projects, can continue without action from the commissioners.

Analysts from ClearView Energy Partners LLC, FBR & Co. and Washington Analysis LLC see the lack of a quorum affecting four significant gas pipeline projects, all involving the Marcellus Shale: DTE Energy Co. and Spectra Energy Corp's NEXUS project and Energy Transfer Partners LP's Rover project to the west of the shale; Williams Cos. Inc.'s Atlantic Sunrise project on the southern edge; and National Fuel Gas Co.'s Northern Access 2016 project to the north.

The analysts noted that a delay in approvals could delay construction schedules, which are often subject to tight windows because of environmental and wildlife conflicts. If the delay is substantial, the projects could miss their targeted in-service dates.

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They said nominating and confirming a third commissioner could take two to three months but that the Trump administration would be motivated to announce a nominee quickly and may have been working on a name already because of the existing vacancies. "While we have retained cautious optimism for both NEXUS and Rover, Bay's surprise departure suggests that these projects will encounter further delays until the Senate can confirm at least one additional commissioner," said Rob Rains of Washington Analysis.

The oil and gas industry is looking for quick action to fill the FERC slots. "We believe this administration will prioritize filling the commission's vacancies so that critical natural gas infrastructure projects can be approved and begin delivering benefits to the U.S. energy consumers," Williams spokesman Christopher Stockton said. "We are encouraged by recent statements made by U.S. Sen. Lisa Murkowski, chairman of the Committee on Energy and Natural Resources, committing that she will work with the president and her colleagues in the Senate to move nominees rapidly and to re-establish a working quorum on the commission."

Sen. Lisa Murkowski, R-Alaska, and chairman of the Committee on Energy and Natural Resources, promised swift action on three Republican replacements for Bay and two existing vacancies. President Donald Trump moved Commissioner Cheryl LaFleur to acting chairman Jan. 26, bumping out Bay.

"After next week, FERC will need a full complement of commissioners as soon as possible so that it can tackle the important work on its busy docket," Murkowski said in a Jan. 27 statement. She called the nomination and confirmation process for new commissioners a "top priority."

A representative of the industry said he hopes FERC can get as much done as it can with the tools it is left with. "We encourage the commission to act on all matters that are ripe for decision prior to Commissioner Bay's departure, and especially pending applications for authority to construct needed interstate natural gas pipelines," Interstate Natural Gas Association of America President and CEO Don Santa said in a statement. "We also urge the commission to exercise to the fullest extent possible its authority to delegate certain functions to the staff in anticipation of the period during which it will lack a quorum."

Acting Chairman LaFleur said the commission is working to get through as many orders as it can while it still has a quorum, but noted that it would be "very welcome" to have new nominations. "We are evaluating how best to do the business of the commission after Commissioner Bay's departure," LaFleur said in a statement. "We have already confirmed that all existing staff delegations will continue."

Appalachian producers have struggled for years with a huge differential between the local price at Pennsylvania hubs and the price at the benchmark Henry Hub in Louisiana. According to S&P Global Market Intelligence data, an index of Marcellus prices at five major Pennsylvania hubs had a volume-weighted average of $1.42/MMBtu over the 12 months prior to Jan. 27, compared to $2.63/MMBtu at Henry Hub. The producers solution is more pipelines to higher-priced markets in the Midwest, Canada and along the Gulf Coast, but all of those interstate projects need FERC approval.

Bay's resignation throws an additional wrench in the process at a time when prices have started to recover in Appalachia. "With critical energy infrastructure projects currently under review, the Trump administration and Senate should quickly fill these vacancies so the commission can move forward with approving much-needed infrastructure that will create jobs and connect new markets with our abundant natural gas resources," Marcellus Shale Coalition president David Spigelmyer said.

LNG export terminals are unlikely to see major impacts from the lack of a FERC quorum, since none of the proposed projects were expecting a certificate from the commission anytime soon, LNG Allies Executive Director Fred Hutchison said in an email. While the proposed Delfin LNG project is next up to receive approval for its facility, the off-shore terminal falls to the U.S. Coast Guard and the U.S. Maritime Administration, rather than FERC.

"I do not think that this will affect the current batch of LNG projects in the FERC queue and will give the current administration time to appoint new Commissioners for the three open seats before any impacts to the LNG projects are felt," said Ernie Megginson, president of the energy projects consulting firm Megginson & Associates Inc. and a former vice president of development for Magnolia LNG.

Charlie Riedl, executive director of the Center for LNG, said he was encouraged by Murkowski's statement. "Projects already face a lengthy and uncertain approval process, so it's important that the administration recognizes the essential role the Commission plays in advancing American LNG terminals," Riedl said in an emailed statement.