Environmental Roadblocks
Strategies aim to derail natural gas infrastructure projects
Kirstin Gibbs and Lowell Rothschild, Bracewell & Giuliani LLP, Washington, DC
Ty Johnson, Bracewell & Giuliani LLP, Seattle
The Unconventional gas revolution has precipitated numerous infrastructure projects to move and process previously unanticipated natural gas supplies. Those projects, in turn, have caused opponents to embrace new and innovative strategies designed to derail these projects. Many of these strategies are environmental, and they could be successful if pipeline companies, foundation shippers, and LNG project sponsors do not adapt their approach to project development.
Exponential increase in new natural gas infrastructure projects
An increase in unconventional natural gas production has spurred development of new midstream projects. These new projects are mainly located near shale gas plays and can include both greenfield development and other projects that consist of line reversals and conversions. A growing number of LNG export projects are planned, some of which require new facilities and pipelines.
These projects are spurred by growing supply and demand. The Energy Information Administration estimates that recoverable shale gas reserves are 665 trillion cubic feet and non-shale gas reserves are 1,766 tcf, a 38% increase over estimates from several years ago. Recent reports indicate we have only scratched the surface of supply resources. Production areas previously abandoned as non-commercial are providing new interest, and production curves are expected to increase for the US. For example, in the Marcellus Shale region, natural gas production in Pennsylvania increased nearly 72% in spite of a significant drop in the number of new gas wells started during the year.
On the demand side, total gas consumption rose 7% between 1997 and 2011. And, although the power generation sector has overtaken the industrial sector as the biggest natural gas consumer, lower natural gas prices have also incentivized an increase in use of natural gas by industrials (according to the EIA, a 3% or 0.6 billion cubic feet per day increase in the first half of 2013, as compared to the corresponding period from 2012). Residential use of natural gas is also increasing as homes switch from oil-based heat to gas-fired heat.
Environmental, regulatory challenges
To slow the development of natural gas resources, challengers have broadened their efforts by opposing both upstream development and the corresponding midstream/downstream projects. These new challenges have been successful in a number of situations and show no signs of stopping. In part, this is because project opponents can achieve success just by creating significant delay. Pipeline executives have suggested that the new delays can double the time needed to complete a project.
NEPA
The National Environmental Policy Act was the first major US environmental law. It is purely procedural, requiring only that a federal agency, before undertaking a major action that may significantly affect the environment, analyze the impacts of, and the alternatives to, its proposed action. As a result, NEPA requires significant process, which involves a very thorough analysis of project impacts and alternatives.
Trends in NEPA compliance-related challenges
For both interstate natural gas pipeline projects and onshore LNG terminal projects, FERC is the lead agency responsible for conducting the appropriate environmental review. Challengers have raised an array of issues to FERC's NEPA compliance, starting with its analysis of the indirect impacts of the projects. Several project opponents have argued that FERC must consider the impacts of natural gas production activities when reviewing a project because upstream development is made possible by the midstream and downstream projects. FERC and one appellate court have thus far rejected this argument but challengers continue to raise it.
A similar argument relates to NEPA's cumulative impact analysis — the impacts of the past, present, and reasonably foreseeable future projects. Here, opponents have argued that FERC wrongly uses a causal relationship instead of the "reasonably foreseeable" standard in examining whether upstream impacts should be included in the cumulative impact analysis.
Other challenges relate to the alleged segmentation of pipeline projects, which have so far failed given that each project has independent utility, or to the analysis of specific environmental impacts, like those from radon. Cultural resources challenges are also being raised to many development projects. These can cause delays because each state has its own requirements and the standards are fairly subjective. In addition, some historic artifacts are tribal; working with the individual tribal historic preservation officials adds another layer of complexity to project permitting.
The environmental challenges raised in several recent significant pipeline projects are outlined in the table above.
Endangered Species Act
The Endangered Species Act prevents the "take" of listed species, which includes harming or harassing them. Private activities that will cause a take of a species may be authorized by permit under Section 10 of the act. Conversely, when a federal agency authorizes the private action, the agency is required under Section 7 of the act to ensure compliance. It does so by confirming that the actions it will be authorizing will neither (1) jeopardize the continued existence of a listed species, nor (2) destroy or adversely modify habitat which has been designated as critical to the recovery of the species.
The US Fish and Wildlife Service is required under the ESA to publish lists of species endangered or threatened with extinction "throughout all or a significant portion of their range." FWS also has to review the status of each listed species every five years. These tasks — identifying species in danger of extinction throughout the world, identifying the best available science regarding their status and reviewing and re-reviewing it every five years, is a very time-intensive process.
Compounding FWS's workload is the existence of a citizen petition process, which authorizes the public to seek the listing of a specific species. FWS has 90 days after receiving a petition to determine if it has substantial information supporting a listing. If it does, FWS then has 12 months to decide on listing it.
What this all means is that project opponents have the ability to set a significant portion of FWS's listing agenda. By submitting enough petitions, they can keep FWS busy on the species that interest them, rather than the species on which FWS would like to focus. And that is precisely what they have done.
Third parties have solicited the listing of species that they are concerned about, either because they are concerned about the species itself or, more often, concerned about the harm caused to the species or their habitat by categories of activities — including gas extraction and movement. Thus, today, FWS's listing decisions are more likely than not to be directed at ceasing categories of industrial or commercial activity. Several recent projects have been slowed down by species issues, including Transco's Northeast Supply Link (Bog Turtle), Marc 1 (Indiana Bat) and Ruby (Sage Grouse).
In February, FWS published a workplan establishing the actions it will take every year for the next five years for 455 different species. The plan was the result of third-party litigation and is directed at numerous sensitive areas throughout the country. It is a guidepost to the regulated community of where and when FWS will be taking action to protect species and their habitat and therefore mandatory reading for any entity hoping to undertake project development in areas which may contain potentially covered species or their habitat.
Not all challenges are environmental
In times of fundamental market shifts, regulatory agencies may be uncertain as to how to proceed. Such was the case with the US Department of Energy when it received a slew of applications to export LNG to non-free trade agreement countries. After granting one entity authorization to export LNG, DOE decided to undertake several studies to evaluate the impacts of significant LNG exports on the US. Those studies took nearly two years, and while the studies ultimately concluded that LNG exports would result in a net positive benefit to the US, the topic has remained controversial and politically-charged, causing DOE to issue additional approvals slowly.
The resulting two-year delay has caused some to speculate that the US will miss an opportunity participate in the global LNG market. Since completing the studies, DOE has recently returned to approving LNG export applications, but uncertainty remains, since DOE has reserved the right to modify, condition, and rescind authorizations should the public interest so warrant, although DOE has declined thus far to specify under what conditions such action may occur.
Legislative attempts to streamline the process
On May 3, Congress introduced the Pipeline Reform Act, HR 1900, intended to facilitate faster approval of natural gas pipeline projects by imposing deadlines on FERC and coordinating agencies to issue or deny permit applications. The bill would require FERC to act within 12 months of receipt of an application for pipeline project. However, some industry proponents fear that, even if the bill is passed, the result of the tighter deadlines will be the rejection of more, not fewer projects. For example, projects that might have been approved in 14 or 15 months with the required environment review would be rejected automatically if review is not completed in 12 months. At present, the bill has been reported out of its House subcommittee but appears unlikely to pass out of Congress or be signed into law.
In summary, the bloom of infrastructure projects has created more opportunities for environmental challenges that employ new, innovative strategies, and successful project development will require advanced consideration and forethought.
About the authors
Kirstin Gibbs is a partner in Bracewell & Giuliani's Washington, DC office. She represents natural gas pipelines, traders, marketers, local distribution companies, and end-users in matters related to natural gas and oil transportation and storage issues. She advises clients on FERC compliance and enforcement issues, as well as rate, policy, and legislative matters involving natural gas and oil.
Lowell Rothschild is a senior counsel in the firm's DC office and advises clients on environmental compliance, enforcement, public policy, and government relations issues. With a strong background in natural resources and land development, he guides clients through the challenges of energy development and infrastructure projects.
Ty Johnson is an associate in the firm's Seattle office and advises clients in matters involving natural gas transportation, including representing shippers in FERC regulatory and transactional matters. He has also advised clients in tariff and certificate proceedings and in natural gas storage project development.