Week Ending July 10, 2020

ACP Cancelation, DAPL Ruling Show Difficulties Facing Pipelines

This Article Appears as Published in Foster Report No 3307
ACP Cancelation, DAPL Ruling Show Difficulties Facing Pipelines

The cancelation of Atlantic Coast Pipeline (ACP) and a court ruling to shut down Dakota Access Pipeline (DAPL) illustrate the difficulties facing pipeline owners, with a need for permitting reform referenced by groups and officials in the industry.

Environmental groups and others who oppose the projects welcomed the news as indications that legal battles can be won and persistence can pay off when regulatory rollbacks to facilitate pipeline additions do not follow the law. The cancelation of ACP made it another pipeline that was halted after FERC approval and legal challenges, following Constitution Pipeline and Transcontinental Gas Pipe Line Corp.’s Northeast Supply Enhancement Project.

The decision by Duke Energy and Dominion Energy on July 5 shows that challenging key pipeline permits in court can lead to victories for opponents, even if those victories come years after FERC approval, groups said.

ACP had been behind the schedule originally planned, billions of dollars higher in cost and still faced legal hurdles after a victory at the U.S. Supreme Court about crossing the Appalachian Trail. The reasoning given by the owners – uncertainty regarding the U.S. Army Corps of Engineers’ Nationwide Permit 12 program and litigation over other needed permits – was partially addressed when the U.S. Supreme Court on July 6 lifted a federal district court stay of the NWP 12 program for all new pipelines except Keystone XL Pipeline.

Dominion and Duke said a stay would not minimize the uncertainty associated with an eventual ruling on the NWP 12 program, making further spending on ACP “no longer a prudent use of shareholder capital.”

Observers also pointed to additional court challenges and state legislation in Virginia that made Dominion’s utility use of gas delivered through ACP questionable. Utility affiliates of Dominion and Duke were the primary shippers on ACP, and the Virginia legislation signed by Governor Ralph Northam in the spring of 2020 was passed by lawmakers to safeguard utility customers from excessive costs associated with fossil fuel projects.

The 600-mile, $8 billion ACP and the related Supply Header Project was designed to move roughly 1.5 Bcf/d from West Virginia to parts of Virginia and North Carolina. Dominion will absorb about 53% of the $3.4 billion spent on the project, media outlets reported. ACP was originally estimated to cost between $4.5 billion and $5 billion.

Some tree cutting had taken place along the pipeline route before construction was halted when a U.S. Fish and Wildlife Service permit was vacated by the U.S. Court of Appeals for the Fourth Circuit. Tree cutting was a major time factor cited by Duke and Dominion in their statement cancelling the project. The cutting of trees by Constitution Pipeline owners has been the subject of litigation with landowners where eminent domain was used,[1] including compensation to landowners, returning land to them and ongoing negotiations, and it is not known if ACP owners face a similar fate for some land along the pipeline route.

Dominion and Duke said their decision “reflects the increasing legal uncertainty that overhangs large-scale energy and industrial infrastructure development” in the U.S., and that until such issues are resolved, “the ability to satisfy the country’s energy needs will be significantly challenged.”

The American Petroleum Institute (API) and the Interstate Natural Gas Association of America (INGAA) had similar statements, with INGAA noting that pipeline construction requires legal stability and regulatory certainty.

As the country moves toward greater reliance on renewable resources for power generation, there is an increased need for natural gas and related infrastructure to ensure reliability, INGAA said. “It is imperative that policymakers work to address the significant problems associated with permitting uncertainty and delays so that our nation has the required infrastructure to meet our domestic energy needs and compete in the global economy,” INGAA said.

API President and CEO Mike Sommers linked the ACP cancelation and court ruling to shut down DAPL as troubling setbacks in a July 6 statement. “Our nation’s outdated and convoluted permitting rules are opening the door for a barrage of baseless, activist-led litigation, undermining American energy progress and denying local communities the environmental, employment and economic benefits modern pipelines provide. The need to reform our broken permitting system has never been more urgent,” he said.

Trump administration officials also commented on the decision of Dominion and Duke, with Secretary of Energy Dan Brouillette saying that “the well-funded, obstructionist environmental lobby” killed ACP and denied benefits to the region. Brouillette said he will fight for expanded energy infrastructure and that the Trump administration wants to bring reliable and affordable energy of all kinds to all Americans.

In a Twitter post that was criticized for supporting fossil fuels, the Environmental Protection Agency (EPA) said even though ACP permitting challenges were not associated with the agency, EPA “has made significant progress under the Trump administration clearing inherited backlogs & streamlining processes to ensure more certainty for American companies seeking to develop energy projects.”

Numerous environmental groups referred to the ACP cancellation and court ruling on DAPL as watershed developments in the climate change fight to limit fossil fuel use. Appalachian Mountain Advocates said it was proud to be part of the coalition of citizens and communities that worked together to end the “destructive and unnecessary” ACP, while the Sierra Club, Earthjustice and Native American groups praised the court for adhering to the requirements of the National Environmental Policy Act.

The ruling on DAPL “is a testament to the perseverance of the Standing Rock Sioux, who have refused to give up the fight to protect their water from this dirty oil pipeline,” said Catherine Collentine, associate director of Sierra Club’s Beyond Dirty Fuels campaign. DAPL owner Energy Transfer has plans to expand the pipeline, but the court ruling show that it is time for the company to abandon the expansion and shut down the pipeline for good, Collentine said.

Katie Bays, co-founder of Sandhill Strategy LLC and managing director at FiscalNote Markets, said there is getting to be investor fatigue around the “parade of legal and regulatory headwinds to energy projects.”

Others noted that DAPL and Keystone XL have been the subject of political moves based on who is in the White House, with former President Barack Obama exerting pressure for the Army Corps of Engineers to conduct an environmental impact statement (EIS). President Donald Trump took steps very early in his administration to try and ensure Keystone XL is built, but that has not happened, and the shutting down of DAPL, which has been operating for three years, shows that even operating pipelines can be halted.

An EIS is underway for DAPL but it is not expected to be completed during 2020, throwing the future of the pipeline in doubt if Energy Transfer cannot convince courts to keep it in service. If it is shut down in August as ordered by the court, oil transportation by rail out of the Bakken shale play could expand and oil prices in the region could climb.

If Energy Transfer and the Army Corps seek an appeal to the U.S. Court of Appeals to the D.C. Circuit, it was not given strong odds for success by Christine Tezak of ClearView Energy Partners LLC. That is based on the Army Corps not expected to complete the EIS before late April of 2021, and the court unlikely to order service restored before that process is complete, Tezak said.

The future of DAPL could hinge on the upcoming presidential election, with Trump being re-elected more favorable for the pipeline, Tezak said. If Joe Biden is elected, there is a strong possibility that the permits for DAPL will not be reauthorized, she said.

In a separate statement on the ACP decision, Tezak said the industry could expect significant risk to conventional infrastructure projects if Democrats gain a majority in the Senate, Biden is elected and the House of Representatives retains the Democrat majority.

However, the push by states for cleaner energy resources and decarbonization plans can play a large role, even if Trump secures a second term and Congress works on economic stimulus efforts to address the COVID-19 pandemic, Tezak said. The winner of the presidential election will inherent an economic recovery mandate to facilitate infrastructure, but “we expect state-level preferences to shape the prospects of individual projects where state-regulated electric and natural gas utilities are involved,” she said.

At the FERC technical conference on COVID-19 and the effects on the energy industry, speakers referred to the difficulty building pipelines in certain parts of the country. “There are political and environmental forces aimed at stopping those projects at all costs, and even when you win in court, as we just saw last week, it doesn’t mean success,” said Robert Brooks, founder and president of RABC Inc. He was referring to ACP’s victory at the Supreme Court, and stated that the industry has not figured out a solution to the infrastructure siting challenges it faces.

By Tom Tiernan ttiernan@fosterreport.com

[1]   For a related story, see, Constitution Pipeline, Landowners Reach Deal After Project Was Scrapped, FR No. 3306, pp. 10-12.

Want to try it out? Sign up for a free trial!
Subscribe Here