The Federal Energy Regulatory Commission (FERC) has made several announcements in the past week potentially impacting US natural gas infrastructure. Changes to FERC’s key areas of focus were expected. However, FERC is making changes at lightning speed under its new Chairman Richard Glick. Today’s Energy Market Insight will help to explain the recent announcements and potential impacts of FERC’s evolving role on the natural gas markets.
One of FERC’s new tasks is to better involve the public in the natural gas infrastructure approval process. Currently, the public is given opportunities to comment throughout the process. Then, FERC considers the comments during the approval process. The public has already been quite involved in projects via comments. The chart below shows public comments over time for several major projects. Mountain Valley and PennEast have garnered the most comments out of these projects, with PennEast nearing 7,500 comments. While some comments are in support of the project, typically many of the comments are from local and national groups opposed to the project.
Historically, FERC received criticism from public commenters that the agency has not given fair weight to public comments in the approval process. The creation of the new Office of Public Participation, combined with the addition of a new Environmental Justice role within the agency, are FERC’s first solutions to further involve the public in the approval process. FERC is especially concerned with involving marginalized and environmental justice communities that may be disproportionately impacted by infrastructure development. These two initiatives show that FERC is committed to further involve the public in decision making. By adding additional public involvement in the decision making, projects like Mountain Valley and PennEast, where the public has been very outspoken against these projects, face additional risks to both timing and project execution.
Additionally, two of the pipelines shown in the chart above, Rover and Midship, were the subject of FERC’s attention last week. FERC ordered Rover to explain why it should not pay a $20 million fine for allegedly leaving key information out of its FERC application regarding a property in Ohio. Also, FERC ordered Midship to expedite its process of resolving outstanding restoration issues with landowners, many of whom have filed complaints about the restoration process. The chart below shows the recent surge in comments on Midship, which had previously received very few comments compared to projects in Appalachia.
In the order to Midship, Chairman Glick made clear that when pipelines are found in noncompliance, even after service has begun, FERC “can also consider whether to revoke the certificate of public convenience and necessity itself”. If a pipeline is unable to operate without its certificate, the loss of a certificate could significantly disrupt natural gas markets. As an example, Rover and Nexus, both sanctioned by FERC in the last 5 years, are flowing full to the Midwest as key outlets for Appalachian natural gas. If either of these pipelines ceased operation, even temporarily, the reduction in pipeline capacity from the region would have major impacts to Appalachian production, Midwest natural gas demand, Canadian imports, and regional natural gas prices.
Putting in perspective the potential impact of FERC policy changes on natural gas pipeline development, the chart below shows natural gas pipeline capacity brought online or planned for service by governing authority through 2025. Of the pipeline capacity brought online between 2005 and 2021, 71% is under the authority of FERC and could face disruption if certificates are revoked while the pipe is already in service. Additionally, nearly all planned projects after 2021 currently fall under FERC authority. Though the threat to revoke existing certificates is new and likely would face significant legal challenges, it creates a new level of uncertainty for both existing and new natural gas pipeline projects.
Lastly, FERC made clear in a recent approval for an expansion on Northern Natural Gas (NNG) that the Commission will now consider the greenhouse gas emissions from a pipeline project during the approval process. Previously, FERC concluded that it was unable to assess emissions from pipeline projects. FERC now plans to compare a project’s expected emissions with total US emissions to assess whether the project will contribute material incremental emissions. In the case of NNG, FERC estimated that NNG would increase US emissions by 0.0003% relative to 2018 levels, and thus found the project’s “contribution to climate change” would not be significant. As of publication, based on the data presented in the chart above, 8.8 Bcf/d of capacity is in the “Application” or “Pre-Application” stage of the FERC process, meaning these projects have not yet received their certificates and may still be susceptible to FERC’s new charge to consider emissions. It remains to be seen whether a conclusion of significant “contribution to climate change” from a pipeline will automatically disqualify a pipeline from receiving FERC approval, but this change from FERC adds additional risks to these projects.
Under the leadership of Chairman Glick, FERC’s role is evolving to increase public participation, quantify the greenhouse gas emissions from proposed pipelines, and crackdown on alleged noncompliance from existing pipelines. With these developments in their early stages, the tangible impact they may have on natural gas infrastructure is unclear, but they all add risk to existing and proposed projects.