FERC Commissioner Norman Bay’s Resignation Throws a Wrench in Natural Gas Pipeline Construction Plans For 2017

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UPDATE (2-3-2017): Rover, Atlantic Sunrise and Northern Access pipelines receive FERC certificate.
FERC issued a certificate that allows Rover to move forward, however it is not a blanket certificate. There are multiple conditions that must be met before construction and bringing the pipeline in-service occur. One key milestone that Rover must meet, it’s the tree clearing as their permit expires at the end of March in order to minimize the environmental impact. DI will continue to monitor advances made by Rover. In addition to Rover, National Fuel’s Northern Access 2016 and Transco’s Atlantic Sunrise also received certificates. For a copy of the FERC orders, click link below:

Rover certificate order
Northern Access 2016
Atlantic Sunrise

The Federal Energy Regulatory Commission (FERC) regulates the construction and operation of interstate natural gas pipelines. The recent resignation of one of the Commissioners, Norman Bay, puts the construction plans of several major pipelines at risk.

Commissioner Norman Bay announced his resignation on January 26, and it will be effective February 3rd. Although the commission is intended to include five commissioners, at the time of Bay’s announcement, there were only three active Commissioners. Three Commissioners are needed for a quorum per 42 U.S. Code 7171 (a quorum is necessary for significant FERC actions).

“The Chairman (or the Acting Chairman in the absence of the Chairman) shall preside at all sessions of the Commission and a quorum for the transaction of business shall consist of at least three members present.”

Bay’s resignation will cut the number of commissioners down to two, and additional commissioners must be appointed by the President and confirmed by the Senate. Without a quorum, the certification of new pipelines effectively comes to a halt, although there are other FERC actions that may continue with two commissioners. At the time of this writing, no appointees have been announced, and once announced, the confirmation process is expected to take up to 60 days given the backlog of confirmations the Senate is currently working through.

For our discussion here, there are 58 projects that are in some phase of development that requires FERC approval:

  1. FERC Application – applications for these projects have been filed but they have not been certified yet. A quorum is necessary for this certification.
  2. FERC Approved – these applications have been approved but construction has not started yet (they must request permission from FERC to start construction). A quorum may not be necessary for construction to begin.
  3. Construction – these projects are currently under construction but are not complete and/or have not filed for and received permission to begin service. A quorum may or may not be necessary for this filing approval.

Additional detail for each of the 58 projects is provided in a table at the end of this document.

The Marcellus/Utica Will Be Impacted Significantly

The region that will be impacted the most significantly is the Northeast. Natural gas production in the Northeast has increased dramatically since 2010 with the discovery and subsequent development of the Marcellus and Utica shales. Today, the region produces over 20 Bcf/d (up from ~2 Bcf/d before the unconventional revolution). Additional growth will require new infrastructure to move volumes out of the region; the Rover and Nexus projects were key projects expected in 2017 that now may be delayed as a result of delays from the FERC. The chart below illustrates historical and forecasted production from the Northeast compared to takeaway capacity.

FERC Commissioner Norman Bay’s Resignation Throws a Wrench in Natural Gas Pipeline Construction Plans For 2017

Adding to the impact on major gas pipeline construction is the timing of this halt given seasonal construction implications and environmental impacts along the paths of some of these projects (specifically endangered bats). A 60 day delay in confirming new commissioners from today could effectively push construction of several projects out a full year. Energy Transfer Partners LP, the company developing the Rover pipeline that will move gas from Appalachia to the Midwest, filed a letter with the FERC on Dec 26, 2016 requesting FERC certify their application so that they could begin construction activities by Mid-January. An issue for Energy Transfer is the tree removal that must take place before construction. The tree removal must be done during “approved seasonal windows between October 1 and March 31 in Michigan, Ohio, and Pennsylvania, and between November 15 and March 31 in West Virginia.” The timeline was agreed to “as a conservation measure to reduce the impacts on the federally listed Indiana and northern long-eared bat.” Rover pipeline was scheduled to begin flowing in July 2017, although construction will effectively be pushed out a full year if certification is not received before Commissioner Bay’s resignation on February 3rd. The other project that could face similar delays is Spectra’s Nexus pipeline since it follows a similar path to Rover. Spectra filed a similar letter on January 27, 2017 requesting certification of the Nexus pipeline project. In the letter they stressed “the timing of the Commission’s decision on the application directly affects whether the Project can meet the committed in-service date for contracted shippers, because there are limited windows for certain construction activities to mitigate environmental impacts.” Spectra’s original application included a Nov 1, 2017 expected in-service date and will be delayed unless the project is certified by Feb 3rd.
We expect significant growth from the Marcellus/Utica in the coming years based on the competitive break-even cost of production. However, the region has long been subject to depressed regional prices (aka basis) and limits on the abilities of producers to grow production as a result of infrastructure bottlenecks. Until these infrastructure issues are worked out, relatively more expensive gas from other regions of the country must be produced to meet demand, and consumers will pay higher prices as a result.

Background on Natural Gas Pipeline Development

Before a pipeline can be constructed, there are four key steps a pipeline operator must step through: Open Season, Pre-Filing with FERC, Filing for Certification of Public Convenience and Necessity with FERC, and Environmental Assessments at the State level for each State that will be impacted. Following state approval, there is an additional FERC filing to start construction, and a final FERC filing to allow pipeline to begin service when construction is complete.

FERC Commissioner Norman Bay’s Resignation Throws a Wrench in Natural Gas Pipeline Construction Plans For 2017

Winners and Losers

  • Oil & gas producers in the Northeast – Losers
  • Oil & gas producers in other regions without infrastructure bottlenecks who can make up for delayed Northeast production – Winners
  • Consumers & Other End-Users of Natural Gas – Losers
  • Midstream operators with delayed projects – Losers
  • Midstream operators with underutilized capacity as a result of downstream bottlenecks (other pipes, processors, etc) – Losers
  • Midstream operators in other marginal plays who can make up for delayed Northeast production – Winners

It remains to be seen whether any of these projects will be certified before the February 3rd deadline.

Project Detail

The table below highlights major pipeline and storage projects with FERC applications in one of the three stages described above (in the first section of this blog). The projects with the most market impact are highlighted in yellow. (Source: EIA, FERC, PointLogic, DrillingInfo)

Pipeline Projects

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Bernadette Johnson

Bernadette Johnson joined Enverus through the acquisition of products and services from Ponderosa Energy. She serves as Vice President of Strategic Analytics for Enverus and is responsible for helping to grow and expand Enverus’ analytics offerings, building on the work she did at Ponderosa Energy leading consulting engagements and research efforts. With nearly 10 years experience in the energy industry, Bernadette has earned the reputation of industry expert with extensive experience providing crude, natural gas, and NGL fundamentals analysis and advisory services to various players in the North American and Global energy markets. A regular commentator for and speaker to the energy industry, her specific market involvement spans: financial trading, production forecasts, infrastructure analysis, midstream analysis, storage value analysis, and price forecasts. Prior to joining Ponderosa, and now Enverus, Bernadette was Senior Research Analyst for Sasco Energy Partners in Westport, CT where she provided analytics and research support for a team of financial traders active in natural gas, power and oil futures markets. Bernadette began her career with BENTEK Energy, LLC as a Senior Energy Analyst, Natural Gas Market Fundamentals and consulting project team lead.