Atlantic Coast Pipeline (ACP) and Mountain Valley Pipeline (MVP) both intended to enter service in late 2018. However, regulatory delays pushed MVP’s scheduled in service date to late 2019. Additionally, ACP projects to enter service in early 2021. ACP’s most recent delay announcement also included a substantial cost increase for the project. Recent pipeline news included a flurry of announcements about ACP’s legal battles with environmental groups challenging various permits issued to ACP in the 4th circuit court of appeals. Even the 45th Vice President Al Gore joined in the debate on ACP, attending a rally in Virginia and calling the pipeline an “environmental injustice”.
Today’s Energy Market Commentary will delve into ACP’s regulatory and legal process thus far and the potential implications to MVP. We will also briefly discuss the possible impacts to Atlantic Seaboard basis dynamics when MVP and ACP are online. For a deeper dive on the topic, please see more in-depth write up in this quarter’s Gas Basis Outlook. The timeline below includes some of ACP’s major developments since the project was announced in 2014.
This timeline includes actions by FERC, state agencies, federal agencies, and the 4th Circuit Court of Appeals. A key update to watch for in the next few months is an official announcement regarding Dominion’s (NYSE: D) planned appeal to the Supreme Court of the 4th Circuit Court’s decision on Forest Service authorizations. In December 2018, the 4th Circuit vacated ACP’s permits to cross the Appalachian Trail. The decision, at present, leaves ACP unable to cross the Appalachian Trail. If the Supreme Court upholds the 4th Circuit Court ruling on ACP, it could set legal precedent for similar future rulings on MVP.
In July 2018, the 4th Circuit reversed MVP’s Forest Service authorization to cross National Forest land, including the Appalachian Trail. In February of 2019, EQM (NYSE: EQM) announced construction on the whole project reached 70% complete. However, additional work on National Forest land and waterbody crossings remains unauthorized. EQM stated they are keeping a close eye on ACP’s Appalachian Trail case. Also indicating a negative ruling in the case could impact MVP’s schedule and cost.
The Supreme Court upholding the 4th Circuit ruling would leave ACP with 3 primary options. First, ACP could go through another authorization process for the crossing. Second, ACP could attempt to reroute the pipeline. Third, ACP could be forced to abandon the project. Depending on the timeline for a Supreme Court ruling on ACP’s Appalachian Trail crossing, it could be some time before MVP continues construction in the Jefferson National Forest. The map below highlights the areas of concern in the recent court proceedings.
In the analysis for the February edition of the Gas Basis Outlook, BTU Analytics took a deep dive into the outlook for demand available for MVP and ACP in the Atlantic Seaboard come late 2019 through early 2021. Currently, minimal new demand will manifest in the region in this time frame. A significant portion of new demand already entered service in 2018. The delays in the original in-service dates of MVP and ACP resulted in demand coming to fruition before pipeline capacity. Even in our high-case demand scenario, there would still be an oversupply of gas in the region in 2024 if MVP and ACP flow full. If this scenario comes to be, spreads between Transco Z5 and Dominion South could compress to reflect transport cost between the two points. This could pull Transco Z5 into the Appalachia pricing box which would reduce volatility in Transco Z5 basis.
However, MVP and ACP may not have new production in Appalachia to meet new pipeline capacity. The lack of production could potentially drive additional volatility in pricing across the broader region. For more of BTU Analytics’ views on changing basis dynamics and our basis forecasts for twenty-four basis points across the US and Canada, request a sample of our new Gas Basis Outlook.