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Commodities 2021: Midstream gas sector enters shifting permitting policy landscape in 2021

Highlights

Court tests ahead for Trump streamlining rules

Chairman swap at FERC could add to push for compromise

Possible slowdown in some stages

Washington — Coming off a year marked by legal setbacks and economic headwinds, the US midstream natural gas sector faces an altered federal policy climate in 2021.

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Trump administration efforts to codify streamlined permitting reviews will be confronting battles in the courts, with questions looming about how far the Biden team will retreat from those regulations.

The Federal Energy Regulatory Commission also will switch to Democratic leadership after several years in which a key Democrat there, Commissioner Richard Glick, has pushed for climate impacts of gas projects to further inform decisions under the Natural Gas Act. He also has urged a deeper dive into whether projects have adequate market support.

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Soon to be seen is whether Glick will strike compromises with the possible swing vote, Commissioner Neil Chatterjee, to allow gas projects to continue advancing, when FERC starts out the Biden term with a 3-2 Republican majority.

Longer term, Democrats are expected to seek changes to the FERC's pipeline permitting policy statement.

Separately, Biden's team promises to limit new leasing for oil and gas production on federal lands and waters pose potential risk for midstream volumes in the West, if the policies turn out to impact supply and production, said Katie Bays of FiscalNote Markets in a recent interview.

The near-term impact of a policy turnabout is softened by the fact that the scope of gas project expansions awaiting federal approval has already diminished from giant Northeast projects stretching hundreds of miles that awaited the incoming Trump administration in 2017, a year when 30.8 Bcf/d of pipeline capacity was certificated.

The year 2020 saw some large projects falter amid fierce environmental opposition. And ongoing economic headwinds for producers were exacerbated by the freefall in oil prices and COVID-19 market impacts.

Weaker appetite for new projects

"The producing community, in a financial bind, had to take a further step back from development of their resources, let alone any kind of desire to underwrite more pipe and further extend their impaired financial condition," said Rich Redash, head of global gas planning for S&P Global Platts Analytics.

The lack of appetite for new producer-driven projects could extend well into 2021, depending on what happens with prices, he said, though end-users, such as Gulf Coast LNG developers, could still provide some momentum.

But Redash saw potential for future growth.

"Over the next five to 10 years, we are still looking at a significant increase in US gas demand, weighted toward exports, anchored by LNG, and, with that, we see the need of an additional 10 Bcf/d of added US production," with the Permian and Haynesville areas well-positioned, he said. Some Permian Basin projects that have been on the back burner are likely to advance, but the question is when, in his view.

The Haynesville Shale has seen some of the most activity recently, and that will extend through 2024 at least. Most of the Haynesville projects are contracted by downstream demand projects, mainly LNG, securing a direct line to upstream supply. These smaller projects are likely to become the new normal for expansions, opening smaller, yet effective corridors to get natural gas to specific demand areas downstream, according to Platts Analytics.

Gary Kruse of LawIQ characterized projects now pending in the queue at FERC as reflecting a period of "regionally significant" pipeline additions that make the system more efficient. Additional laterals to serve new gas-fired generation and tweaks to the pipeline system also are likely, he said.

While FERC isn't behind schedule, he suggested projects up for a decision or rehearing that are not approved by the January open meeting could end up waiting a couple of months as the commission adjusts to a new chairman and sorts through what accommodation may be needed between Glick and Chatterjee to approve projects.

Policy analysts are watching to see how Glick, should he become chairman, will follow through on efforts to encourage mitigation of gas project climate impacts, and how that will affect project economics.

Pending gas expansion projects at FERC
Docket#
Project
Description
EA/EIS schedule
*Federal deadline
CP20-47
PennEast 2020 Amendment
116-mile, 1.1 Bcf/d project in two phases; PA, NJ
8/3/2020
10/8/2020
CP20-50
Evangeline Pass Expansion
13 miiles, 2.2 Bcf/d; LA, MS
8/24/2020
11/23/2020
CP20-27
North Baja Xpress project
495 MMcf/d; CA, AZ
9/8/2020
12/7/2020
CP20-48
Enhancement by Compression
125 MMcf/d; CT, NY
9/30/2020
12/29/2020
CP20-68
Gulf Run and Line CP
135 miles, 1.65 Bcf/d; LA, TX
10/29/2020
1/27/2021
CP20-503
Northern Lights 2021
45.6 MMcf/d; MN
12/15/2020
3/15/2021
CP20-52
North Bakken Expansion project
250 MMcf/d, 92.5 Miles; ND
12/17/2020
3/17/2021
CP20-481
Rio Bravo pipeline
Reduces compression on 4.5 Bcf/d project; TX
12/21/2020
3/22/2021
CP-20-484
Alberta Xpress project
165 MMcf/d; LA
12/4/2020
3/31/2021
CP20-55
Port Arthur LNG Phase II
13.5 million mt/year LNG export capacity; TX
1/15/2021
4/15/2021
CP20-486
Tuscarora Xpress
15 MMcf/d compression; NV
2/8/2021
5/9/2021
CP20-493
East 300 Upgrade Project
115 MMcf/d compression; PA, NJ
2/8/2021
5/9/2021
CP21-1
Compression Relocation, Modification
Relocates Golden Pass facilities; LA
2/26/2021
5/27/2021
CP20-527
East Lateral Xpress
8 miles, 725 MMcf/d to supply Plaquemine LNG
3/16/2021
6/14/2021
CP21-6
Clear Creek Expansion Project
Adds 16 Bcf certificated storage; WY
5/13/2021
8/11/2021
PF20-3
Regional Energy Access
36 miles, 760 MMcf/d expansion; PA, NJ
PF20-4
Delta Lateral Project
36 mile, 140 MMcf/d; UT
PF20-5
Hackberry Storage Project
26 Bcf/d storage capacity, 22 miles of pipe; LA
Source: Federal Energy Regulatory Commission dockets
*Deadline for agencies participating on FERC process, rather than FERC

Earlier hurdles

Christine Tezak, managing director of ClearView Energy Partners, suggested that while post-certificate litigation imperiled some projects under the Trump administration, the risk to projects could move to the pre-permit phase under Biden because the hurdles will get taller and because of the new administration's increased receptivity to hearing the opposition out.

"But if you survive that process, then I really think that an agency would have a permit that they would be able to defend," she said in a recent interview.

On another front, Tezak said it will be important to watch for US Supreme Court review of a case addressing whether state sovereign immunity blocked PennEast Pipeline from condemning lands in which New Jersey held an interest.

If pipeline developers lose eminent domain authority on state lands, "that's just going to make a difficult [siting] process harder," she said. "It would be a very negative sentiment," particularly as some states are turning away from gas, she said.

Post-certificate decisions at FERC could also see a change.

"We're expecting to see an incremental slowness in notices to proceed" with construction issued by FERC, said Tezak.

Also in question is whether FERC would continue to allow construction in one area if there are outstanding permitting issues, for instance related to court actions, in another area.

"It makes no sense to allow pipeline developers to dig up land, potentially impact landowners and the community, until the private business has all its permits to move forward along the route," Glick said recently in objecting to FERC's Dec. 17 decision for more construction to resume on the Mountain Valley Pipeline project.

Christine Wyman, senior principal at Bracewell, said she would be watching for signs during the first 100 days of how the Biden administration will treat infrastructure permitting reforms that were the cornerstone of the Trump administration domestic policy agenda, such as a new National Environmental Policy Act regulation.

A key question is whether the Biden administration will unwind some of the permanent reforms in a thoughtful way, keeping "good government" reforms, while "separating out some of the more controversial things that were included," she said.