Above: A Kinder-Morgan pipeline protest in 2015.
Note: Below is a review of the impact on protests on the approval of new oil and gas infrastructe. It was written for PNC Bank by Rob Rains and Tim VandenBerg. It shows how the financiers of fracked gas, pipelines, compressor stations and export terminals are well aware of the impact of the opposition to carbon infrasture are.
Recent public demonstrations before the Federal Energy Regulatory Commission (FERC) underscore the ongoing tension between the Commission and state-level reviews necessary to advance new natural gas pipelines. We believe that recent delays in approvals for pipelines that have largely completed the FERC review process constitutes a new normal of sorts for pipeline permitting, which ultimately means longer review times but should not necessarily lead to projects being denied. Adjustments by the Commission to placate pipeline opponents have and will likely continue to manifest themselves through more opportunities for input from potentially affected landowners, and more detailed analyses of potential effects from the projects that, in sum, add time to reviews.
Therefore, while we maintain that limited state-level review processes remain a key linchpin for advancing pipelines and LNG terminals, we also note that the Administration’s overall energy and environmental agenda supports a continued buildout of natural gas infrastructure, albeit perhaps at a slower pace.
Consider the following:
· Congressional Review Rescue For FERC Unlikely. Proposed measures by GOP lawmakers in both the House and Senate to accelerate pipeline and liquefied natural gas (LNG) reviews by time-limiting them are unlikely to become law, and, even in the low-probability event that such measures should advance, we view a veto as likely in light of opposition by FERC staff and the White House. Comprehensive energy legislation that may seek to address this issue has been discussed at length by Senate Energy Committee Chairman Lisa Murkowski (R-AK) but appears out of reach due to a dwindling legislative clock and a looming presidential election.
· Protestors Flooding FERC, Disruptions Effective? Disruptions during monthly Commission meetings by protestors at FERC have become almost as routine as reciting the pledge of allegiance, and although the Commission has reacted with hostility to these overtures, we note that procedural matters reflect a small degree of success for disruptors. Specifically, pipeline and liquefied natural gas reviews are being inundated with comments and demands for more thorough reviews, that, on the margin, are lengthening review times by a matter of months, but not affecting approvals by FERC. On this basis, we expect a similar level of hostility for projects like Kinder Morgan’s (KMI-$40) Northeast Energy Direct, PennEast [owned by AGL Resources (GAS-$48), New Jersey Resources (NJR-$28), PSEG (PEG-$41), South Jersey Industries (SJI-$26), Spectra Energy Partners (SEP-$49), and UGI Energy Services (UGI-$36)], and potentially Atlantic Coast [owned by Dominion (D-$68), Duke (DUK-$73), Piedmont (PNY-$37), and AGL Resources (GAS-$48)].
· State Watch. Although state pressure points for pipeline reviews remain limited, it is hard to overstate their importance because states control a handful of permits that must be obtained prior to FERC construction authorization. Illustrative of this point, we have observed three pipeline projects (Williams’ (WMB-$60) Leidy Southeast expansion, Constitution Pipeline and Spectra’s (SE-$31) Algonquin Incremental Market expansion) that have successfully completed their FERC review only to be held up by outstanding state-level approvals.
· Despite Potential For Delays, Administration’s Agenda Positive For Pipelines. FERC still appears inclined to support these projects, and we note the White House’s remaining energy agenda reflects a net positive outlook for the space despite some likely headwinds at the state level. Yes, the White House is seeking to modify FERC reviews to include greenhouse gas (GHG) emissions analysis, but FERC had begun to introduce this information in reviews anyway, and we hardly expect this to impact final approvals. Furthermore, the Administration’s recently released Quadrennial Energy Review and its forthcoming final regulations for GHGs from existing and future coal plants clearly anoint natural gas as the electric fuel winner.
The Gas Industry is Feeling the Pressure from “Entrenched” Environmentals and “Noisy Opposition”
The Black and Veatch survey of the gas industry, 2015 Strategic Directions: U.S. Natural Gas Industry Report, found: “Respondents felt the most significant barrier associated with the construction of new pipelines was delays caused by opposition groups.”
According to the report, the expansion of pipelines is “not without challenges. Regulatory authorization wait times and limits on capital recovery along with entrenched opposition from environmental and other non-governmental organizations (NGOs) present challenges to the successful execution of projects.” (Page 16).
The gas industry sees “Activists Engage Regulators and Industy” this is causing them problems:
Pipeline projects are receiving greater attention from environmental and safety activists as owners attempt to build infrastructure to meet the rising demand for gas power generation and liquefied natural gas (LNG) exports. Environmental activists have recently turned their attention to FERC’s extensive pipeline siting process as an opportunity to slow or block projects.
In particular, environmental groups opposed to increased supply from shale gas production have tried to disrupt FERC pipeline proposal meetings through mounting protests and social media campaigns. This creates additional hurdles for maintaining project timelines and has the potential to derail pipeline projects because of rising development costs and missing key milestones in contract obligations. (Figure 9, Page 20).
Their poll of the gas industry found that protesters were the cause of the two biggest factors creating barriers for pipeline construction. The report notes that the gas industry and the federal “regulatory” agency FERC that works closely with the industry are seeking to develop new strategies to combit the protest movement.
The two factors that pipeline respondents felt were the most significant barriers associated with the construction of new pipeline capacity were delays from opposition groups, 78 percent, and regulatory uncertainty, 68 percent (Figure 17).
To provide additional guidance for project participants, Federal Energy Regulatory Commission (FERC) recently issued a set of guidelines that it expects the pipelines to follow: check with landowners and the community, know who you should notify and how to deal with environmental groups. If an energy company has not checked the boxes, it is pretty clear that FERC is not going to process the application to build the pipeline. At the same time, the interstate pipeline industry is pushing back against the noisy opposition, rather than letting the activist groups monopolize the story unchallenged. Industry associations are finding new ways to reach the public, such as the use of social media and other venues, while attempting to reach the landowners first.
The process is in educating the public and engaging in community outreach sooner than later. Every proposed pipeline project must include a proactive public and community relations effort. Even FERC experienced the activist push at its meetings and has seen everyday citizens become unexpected interveners in routine filings. (Page 42-43)
The reality of the marketplace is also beginning to set in, more cautious optimism and depressed prices: “What is clear is that the exuberance of 2014 is waning. In its place is a more cautious optimism buoyed by an expectation that LNG exports and natural gas-powered electric generation — along with opportunities in transportation — will fuel industry growth, but pricing will remain depressed by historical standards.” (Page 16)
What does it all mean? Activists should keep the pressure up and if possible escalate to build on the success of protest.