Pipelines are part of the critical infrastructure that transports gas across the United States to commercial, industrial and residential consumers. Interstate gas pipelines that cross multiple states are approved and regulated by the Federal Energy Regulatory Commission (FERC). In recent years, however, the construction of new and expanded gas pipelines has come under increased scrutiny, especially as the United States and other countries fight climate change by expanding the use renewable energy resources and reducing the use of fossil fuels. More recently, the United States Supreme Court ruled on the rights of pipeline companies to build new pipelines versus the rights of states to impose limits on their construction.
Impact of the United States Supreme Court ruling on eminent domain rights to the PennEast pipeline
The United States Supreme Court, in a recent decision, overturned a lower court decision reaffirming the eminent domain rights of pipeline companies under the Natural Gas Act (“NGA”). The NGA states that the federal government regulates the transportation and sale of natural gas “in interstate and foreign commerce.” The FERC delegates the eminent domain rights to the pipeline company. The eminent domain right allows the pipeline company to seize property through legal proceedings to build the pipeline with fair compensation to the landowners.
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The Third Philadelphia Court of Appeals had ruled in favor of the state of New Jersey, which had claimed sovereign immunity rights to block the seizure of land in which the state had an interest. The state argued that the 11e amendment prohibits the condemnation of public lands. The Supreme Court voted in a narrow 5 to 4 decision that the state of New Jersey cannot block construction of the PennEast pipeline on state land based on a claim of state sovereignty.
In the Supreme Court ruling, the majority noted: “Throughout the nation’s history, the federal government and its delegates have wielded eminent domain power to give effect to this vision, connecting our country by highways. , bridges and railways – and more recently, pipelines, telecommunications infrastructure and power transmission facilities.
If the Supreme Court had not overturned the lower court’s decision, construction of the pipeline would have ceased and states would be armed with a new legal strategy to block pipeline construction. Even with the latest Supreme Court ruling, the PennEast pipeline will face other environmental and legal challenges for construction. It is estimated that if the PennEast pipeline had been commissioned before the winters of 2017/2018, gas and electricity customers in eastern Pennsylvania and New Jersey would have saved about $ 1.3 billion, according to a report. independent study by Concentric Energy Advisors.
Pipeline delays and cancellations
Other proposed pipelines, such as the $ 8 billion Atlantic Coast gas pipeline, have been canceled due to delays and cost overruns attributed to legal and regulatory disputes. The Williams Northeast Supply Improvement Pipeline Project was recently granted a two-year extension from FERC. Construction had been delayed due to the fact that New York had not issued a water permit for the construction. The pipeline upgrade will have the capacity to deliver an additional 400 million cubic feet per day (MMcf / d) of gas (the equivalent of heating approximately 2 million homes) to New York City, an increase of 14 % of capacity.
Meanwhile, the Mountain Valley pipeline will carry gas from Marcellus and Utica to West Virginia and Virginia. The pipeline operated by EQM Midstream is approximately 90% complete; however, start-up was delayed due to regulatory and licensing issues. The pipeline was originally scheduled to be completed by the end of 2018 and recently the planned commissioning date was pushed back to summer 2022, increasing the overall cost of the project.
Proposed legislative limits on FERC certification of pipelines
Congress has proposed legislation that would impose limits or affect eminent domain rights for pipelines. The Landowners Fairness Act (S. 641) would require the FERC to consider certain pipeline licensing factors, change eminent domain requirements, and prohibit the use of the NGA eminent domain for pipelines built for export.
The CLEAN Future Act (HR 1512) would prohibit pipeline companies from using the eminent domain authority of the NGA until they have all necessary federal and state permits and comply with the conditions of environmental permits. The legislation would also prohibit the use of the eminent domain for gas pipelines constructed for import or export.
Other legislative proposals from Congress would change the prominent domain rights of the NGA or require FERC to consider other environmental factors before a pipeline certificate can be issued. Most of these legislative proposals are unlikely to be approved by a divided Congress; however, it demonstrates the desire to place more obstacles for the future construction of the pipeline.
Northeast gas supply constraints
In the North East, there are natural gas supply constraints and higher prices for gas and electricity. Gas supply constraints have led to short-term moratoriums on new natural gas connections at local distribution companies (LDCs). In 2019, Con Edison and National Grid placed limits on new natural gas connections in the New York area due to these gas supply constraints.
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National Grid has partly resolved these supply constraints by transporting liquefied natural gas (LNG) and compressed natural gas (CNG) by truck. Both alternative gas supply options have higher transportation costs than pipeline transportation.
What explains the increased demand for natural gas in the northeast?
In New York City, demand for natural gas has increased due to new construction and existing buildings replacing their oil heating systems. In New York and Long Island, an estimated 8,000 consumers switch from oil to gas each year. Since 2012, natural gas has added more than one million new residential customers in the Northeast.
In April 2021, the Indian Point Center nuclear reactor stopped producing electricity when the last unit in operation was shut down. Three natural gas power plants have been built in the past three years to provide electricity to areas of New York that were previously powered by reactors at Indian Point.
According to the United States Energy Information Administration (EIA), annual gas production increased by 31% in the Northeast between 2015 and 2019.
New York Actions to Reduce Emissions Levels
In 2019, New York passed New York City’s Climate Mobilization Act (known as the “NYC Green New Deal”) which imposes 40% emission reductions for buildings by 2030 and 80% by 2050. According to a study by the Urban Green Council, the cost to building owners of these emission reductions will range from $ 16.6 billion to $ 24.3 billion over a 10-year period.
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Emissions reductions will be achieved through energy efficiency and the use of renewable energy sources. Local Law 97, which is part of the New York City Climate Act, applies to buildings 25,000 square feet or more and buildings with 35% or less regulated rent units. Emission reduction laws will help reduce overall demand for natural gas in the long run; However, in the short term, there remains a need for new and expanded pipelines to meet current demand and keep energy costs reasonable for consumers.
The recent Supreme Court ruling upheld the eminent domain rights of a federally regulated pipeline to seize state and private land, thus preventing states from using the 11e Amendment to claim state sovereignty to block construction of the pipeline. Despite the High Court ruling, pipeline companies faced other environmental and regulatory issues resulting from the construction of new pipelines or pipeline expansion or delayed commissioning.
State and federal governments have passed or proposed laws and policies that promote renewable energy sources in place of existing energy sources such as natural gas. There are more than 2 million miles of natural gas distribution pipelines and pipelines and over 300,000 miles of gas transmission and collection pipelines in the country. These pipelines supply gas to more than 75 million residential, commercial and industrial customers. A recent analysis by the Interstate Natural Gas Association of America (INGAA) predicted that more than 30 billion cubic feet per day (Bcf / d) of new pipeline capacity would be required until 2025. Therefore, it is unlikely that these pipelines be phased out in the short term. term.
Going forward, expect sustained efforts through environmental and legislative changes challenging the construction of new and expanded gas pipelines. It is expected that additional challenges in court and increased pressure on FERC to expand pipeline certification approval rules will continue, resulting in further increases in capital costs and lengthening the overall lead time for pipeline certification. approval and construction of the pipeline. In regions of the country such as the northeast that have gas supply constraints, consumers of gas and electricity (from gas) may experience increased price volatility.