The Tip of the Drillbit: Two Natural Gas Pipelines Approved with More to Follow?

The Tip of the Drillbit: Two Natural Gas Pipelines Approved with More to Follow?

Media attention and public controversy continue to buzz around the Dakota Access Pipeline, proposed to service the Bakken shale oil reserves in North Dakota.[1] But two other pipelines were recently approved by the Federal Energy Regulatory Commission (FERC) and others are likely to be approved under the new Trump administration. [2] This increased natural gas supply across North America will result in the falling of natural gas prices—which could have global consequences.[3]


Background and Approval

On the 2016 campaign trail, then-candidate Donald Trump promised to expedite approval for natural gas pipelines and promote increased production.[4] But interestingly, two of the first pipelines approved by President Trump, the Atlantic Sunrise Pipeline and the Rover Pipeline, were seemingly unintended consequences of the sudden resignation of Norman Bay, one of the three FERC commissioners.[5] While the Atlantic Sunrise and Rover pipeline projects benefitted from expedited approval following the resignation announcement, other pipeline projects were less fortunate and face a lengthy delay until a replacement to the Commission can be named.[6]

The Atlantic Sunrise and Rover pipelines, which together form almost one third of U.S. natural gas production, would connect natural gas from the Marcellus and Utica shale basins of the Appalachian region with other regions across the U.S. and Canada.[7] The Atlantic Sunrise pipeline is planned to cost $3 billion and to run 200 miles connecting the shale basins with the Northeast United States.[8] The Rover pipeline is expected to cost $4.2 billion and transport 3.25 billion cubic feet per day from Pennsylvania to Ontario, Canada.[9] Both pipelines are scheduled to be fully operational by early 2018.[10]



Despite the unexpected cause of the Atlantic Sunrise and Rover approvals, they are consistent with President Trump’s campaign-trail rhetoric and provide producers and consumers of natural gas an early look at the type of energy policies and market trends to expect in coming years. Of course, the most immediate and direct beneficiaries of the pipeline approvals will be the builders of the pipelines and the regional producers.[11] In the long term, the biggest effect of the pipeline approvals will be the significant increase of the natural gas supply to North American markets outside of the Appalachian region.[12] This will create more competition among natural gas suppliers in the area, leading to lower prices for consumers.[13] Such effects will be felt globally. American-produced natural gas will be available for export, and less foreign oil will be demanded by the United States for domestic use.[14]

On the other hand, increased mobility and price competition outside of the Appalachian region may increase natural gas prices within the Appalachian region itself. Such a development would represent a radical departure from the recent situation, where older pipelines would carry oil into the Appalachian region and, with no means to move the excess supply, producers were forced to discount natural gas.[15] In fact, following approval of the Rover pipeline and in anticipation of its construction, benchmark price differentials in natural gas across the geographic region have already decreased.[16]

Another consequence of the imminent natural gas upsurge is the increase of competition between natural gas and other energy sources, including coal. [17] This will create a conflict with President Trump’s campaign promises of supporting for the coal industry.[18] The potential conflict is heightened given the fact that the supply of natural gas is arguably a greater detriment to the coal industry than the regulations President Trump promised to roll back during his campaign.[19] One potential avenue for mitigating damage to the coal industry would be to promote the exportation of more natural gas through plant construction. Still, the impact of such a measure is unclear.[20]

Also unclear is how an increase in the expedited approval of natural gas pipelines will complement other pro-energy measures contemplated by the Trump Administration. For example, the Administration’s proposal of a border tax on natural gas, which would raise the price on all imported natural gas.[21] Presumably, the impact of this tax would be lower domestic prices. But not all companies and geographic regions will be benefited, as not all parts of the country rely on natural gas exports to the same degree.[22]

[1] See Holly Yan et al., Dakota Access Pipeline: ‘Rogue’ Protesters Arrested, CNN (Feb. 2, 2017 12:23 PM)

[2] Liam Denning, Gas Bulls: Here Comes the Monster, Bloomberg (Feb. 6, 2017 11:55 AM)

[3] Denning, supra note 2.

[4] Timothy Cama, Trump: Clinton Wants a ‘War on Energy’, The Hill (Sept. 22, 2016 1:13 PM)

[5] Denning, supra note 2.

[6] Id.

[7] Id.

[8] Jonathan Crawford and Catherine Traywick, Williams Gets U.S. Approval for $3 Billion Shale Gas Line, Bloomberg (February‎ ‎3‎, ‎2017‎ ‎4‎:‎35‎ ‎PM)

[9] Scott DiSavino, U.S. FERC Approves ETP Rover Natgas Pipeline from Penn to Ontario, Reuters (Feb 3, 2017 1:23 PM)

[10] Denning, supra note 2.

[11] Id.

[12] Id.

[13] Id.

[14] Id.

[15] Id.

[16] DiSavino, supra note 9.

[17] Liam Denning, The Trump Energy Shock, Bloomberg (Jan 25, 2017 8:58 AM)

[18] Liam Denning, Trump Can’t Make Coal and Fracking Great Again, Bloomberg (May 27, 2016 10:38 AM)

[19] Id.

[20] See id.

[21] Denning, supra note 17.

[22] Id.