A major natural gas pipeline in Pennsylvania was canceled this week in the face of a thicket of legal obstacles and intense local opposition. The cancelation may punctuate what could be the end of a decade-long pipeline building frenzy in the U.S. as federal regulators begin to heed calls from activists and local communities to increase scrutiny over unneeded pipelines crisscrossing the country.
The PennEast pipeline would have carried Marcellus shale gas from Luzerne County, Pennsylvania, across the Delaware River and to Mercer County, New Jersey. But the developers of the project canceled it on September 27, citing its inability to obtain state-level water quality permits from New Jersey. The decision came three months after the company won a case before the U.S. Supreme Court related to the corporation’s ability to seize state land using eminent domain authority.
PennEast would have crossed more than 88 waterways, 44 wetlands, 30 parks, and 33 conservation easements, according to the Sierra Club New Jersey Chapter. The state of New Jersey, including Governor Phil Murphy, has long opposed the project — and the threat the pipeline posed to water quality always meant that it faced a steep uphill climb in obtaining local approval.
The cancelation highlights the obstacles that several other high-profile projects currently face. For instance, the Mountain Valley Pipeline in West Virginia and Virginia still needs state-level environmental permits, as does the Pacific Connector gas pipeline in Oregon, which would feed the Jordan Cove liquefied natural gas export project. The Mountain Valley Pipeline is under construction but still faces many more hurdles standing in the way of its completion. Jordan Cove is all but dead.
But the fate of PennEast is not simply a story about a pipeline stopped by state regulators over water permits. It also represented the “systemic ostrich-like refusal” by federal regulators to assess whether there is market demand for gas before approving pipeline projects in the first place, Megan Gibson, an attorney at the Niskanen Center, a nonpartisan think tank based in Washington, D.C., told DeSmog.
Natural gas pipelines that cross state lines must obtain approvals from the Federal Energy Regulatory Commission (FERC), which grants a certificate if the project is deemed to be in the public interest. Typically, if a project shows that there is a commercial need for the gas, FERC simply approves the certificate.
But in many cases, the need for the gas is highly suspect. An industry trend in recent years saw developers of natural gas pipelines make deals with subsidiaries or affiliates of themselves, and use those agreements to demonstrate that a pipeline is needed.
“FERC has in the past assumed that if the company wanted to build it, then it must be needed. It’s not such an unusual thing to think if you don’t think through how the money works,” Suzanne Mattei, an energy policy analyst with the Institute for Energy Economics and Financial Analysis (IEEFA), told DeSmog.
The pipeline “doesn’t have to be needed for them to make money off of it,” she said.
That is because gas pipelines are guaranteed a rate of return for building the projects – the pipeline builder recoups the cost of construction plus extra for profit – so pipeline companies can make money whether or not the gas is actually needed. In the end, gas ratepayers are saddled with the costs of a superfluous pipeline.
“If several years out the pipeline is really not needed at all, you still have to pay for it. The ratepayers are paying for it,” Mattei said. “Doesn’t matter how much gas is used. They’ve got a guaranteed return on their investment.”
For this reason, it is crucial that FERC conducts a thorough assessment of whether or not the gas is truly needed by consumers, rather than simply taking the company’s word for it, she added.
But FERC did not do that in the case of PennEast. “This project was never based on actual need,” Jennifer Danis, a senior fellow at the Sabin Center for Climate Change Law at Columbia University, said in an email to DeSmog. “[T]he record was replete with data from independent energy experts showing that even on the coldest days of the polar vortex, NJ [New Jersey] was flowing gas out of the region due to excess capacity.”
PennEast was not the only project where a company signed agreements with its affiliates and showed that to federal regulators as evidence of need. This type of “corporate abuse” and “self-dealing” is evident in other projects, Danis said.
She pointed to the Spire STL gas pipeline in Missouri. In July, the U.S. Court of Appeals for the District of Columbia Circuit shot down Spire’s FERC permit, citing the fact that the customers of the gas the Spire pipeline intended to move were affiliates of the company (the builders and the buyers were related entities). Was there really a need for the pipeline? The D.C. Circuit essentially said it wasn’t clear and FERC didn’t do its homework.
That decision is part of a string of federal court rulings pushing back on FERC’s pattern of rubberstamping new gas pipelines, a shift that could help force a reckoning at FERC. “My hope is that FERC is taking this seriously, and is moving in a direction where it will actually conduct a true market need analysis,” Gibson said.
The commission is in the midst of a major overhaul of how it evaluates pipelines, and Gibson pointed to FERC Chairman Richard Glick’s testimony before Congress on September 28, in which he acknowledged that the completion of that process “is even more urgent in the aftermath of several appellate court decisions highly critical of aspects of the Commission’s approach to pipeline certification.”
In other words, federal courts have shot down FERC approvals of major gas pipelines, criticizing the rubberstamping of unneeded pipelines, and perhaps it is time for the agency to reform its ways, Glick seemed to suggest.
The PennEast cancelation “bolsters the arguments” by activists and communities opposed to unwanted pipelines around the country, Mattei said, citing examples such as the Mountain Valley Pipeline in Virginia and the already-canceled Atlantic Coast Pipeline, which was also proposed in Virginia. “It adds more credence to the arguments that are being made” that the projects are unwanted and unneeded, she added.
Gibson agreed, and said the Jordan Cove LNG project was a particularly egregious example of FERC not doing due diligence because the gas was entirely for export.
More scrutiny from FERC, combined with the broader market shift towards renewable energy in the face of the climate crisis and the deterioration in economic competitiveness of natural gas, could close the curtain on the building spree of new pipelines that have questionable need over the last decade.
“I hope it’s a signal [to the gas industry] that their projects are not viable and they should kill them. They should be gone. They should be dead,” Gibson said emphatically. “This should be the end of this period of time in our country where these projects were approved and being built under the false guise of market need when in fact there was no evidence of market need. Hopefully this is an end of an era.”