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PennEast line permit denial continues trend

29 Jun 2017 21:12 (+01:00 GMT)
PennEast line permit denial continues trend

Houston, 29 June (Argus) — The 1 Bcf/d (28mn m³/d) PennEast natural gas pipeline project this week was denied a wetlands crossing permit from the state of New Jersey, underscoring a growing trend of regulatory agencies adding hurdles to largescale US northeast gas expansion.

The New Jersey Department of Environmental Protection's rejection yesterday of PennEast's application is the latest development in an increasingly challenging regulatory environment for northeast pipeline expansions amid mounting public opposition. Nearly 11 Bcf/d of takeaway capacity is planned for the Appalachian shale region through 2019. But roadblocks from state and federal regulators have put in-service dates for multiple projects into doubt.

The US Federal Energy Regulatory Commission (FERC) lost its ability to approve pipeline expansion applications when it lost its quorum status in February. President Donald Trump last month appointed two republicans to fill the vacancies, but the confirmation process historically takes several months.

PennEast has yet to receive a FERC approval, and has garnered thousands of public comments in the meantime, earning it the nickname of "public enemy number one" from BTU Analytics. The pipeline would deliver gas from the Marcellus and Utica shales in Appalachia to points in Mercer County, New Jersey, and is scheduled to begin service in the second half of 2018.

FERC early this year was expected to approve the 1.5 Bcf/d Nexus project, which would increase flows to the Dawn Hub in Ontario. But that project will have to wait until new members are confirmed, likely putting its November in-service date in jeopardy.

The Atlantic Sunrise project received a FERC approval in February. The 1.7 Bcf/d project that would alleviate bottlenecks in the state of Pennsylvania is expected to be a boon to a growing customer base along Transcontinental Gas pipeline's (Transco) mainline as well as to producers seeking to sell gas in more profitable south Atlantic markets. Argus natural gas forwards show prices at Transco zone 5 holding as much as a $2.71/mmBtu premium to the Henry Hub over the next five years. Zone 5 includes Transco's mainline from the Virginia-Maryland border to the Georgia-South Carolina border.

But some projects that have already achieved a FERC approval still end up in legal limbo after being denied state environmental permits. The New York Department of Environmental Conservation (DEC) denied a water certificate to the 628mn cf/d Constitution Pipeline in 2016 and to National Fuel Gas' 500mn cf/d Northern Access project earlier this year. Constitution Pipeline has since filed a lawsuit against the DEC, and National Fuel Gas has asked the Trump administration to override New York's authority.

Transco's Atlantic Sunrise project needs a water certificate and other permits from Pennsylvania before it can begin construction in the third quarter as planned. The state held four public hearings on the project earlier this month, attracting hundreds of people, with more than 120 people registering to speak. Atlantic Sunrise has already been delayed once, and is currently scheduled to begin partial flows in the second half of this year.

The Virginia Department of Environmental Quality last month said it was developing additional requirements to ensure that water quality standards are maintained. That change could directly affect pending permit applications for the 1.5 Bcf/d Atlantic Coast pipeline and the 2 Bcf/d Mountain Valley Pipeline.

In one case, a project that received all necessary federal and state approvals and had already begun construction is now facing unexpected regulatory delays. FERC halted construction on Energy Transfer's 3.25 Bcf/d Rover project after its crews spilled drilling fluids while working on a segment under a river in Ohio, likely resulting in a delay of its November in-service date.

A Rover delay likely would not result in gas market tightness to the west. Gas demand in the midcontinent is expected to increase by only 1.5 Bcf/d from 2015-22, BTU Analytics said, and Rover would deliver inexpensive Appalachia gas to various points in the midcontinent and to the Dawn Hub.

But the Rockies Express pipeline (Rex) Zone 3 Enhancement project in January has already increased westward flows by 44pc to 2.6 Bcf/d, meaning that Rover could end up flooding the market. Argus forwards show Chicago Citygates falling to a steep discount to Henry Hub by summer 2018 and remaining lower than the US benchmark thereafter.

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Transco zone 5 vs Henry Hub forwards $/mmBtu