Pipeline Issues Have Real World Consequences
- May 29, 2018
- Posted by: Daniel Markind
- Category: Marcellus Shale Updates, News
The on again, off again saga of Mariner East 2 is off-again. On Thursday, a Pennsylvania State Public Utility Commission judge again suspended construction of Mariner East 2 and 2X and the use of Mariner East 1 following a petition by State Senator Andy Dinniman. Despite the pipeline being 98% complete, PUC Judge Elizabeth Barnes wrote that the pipeline constitutes an “emergency situation which presents a clear and present danger to life or property.” She added “(t)he rupture of a hazardous liquid pipeline at the welds of an 8-inch pipe in a (high consequence area) such as West Whiteland (Township) and the ignition of such a potential vapor cloud could have catastrophic results.”
In the end, it is doubtful that Mariner East 2 and 2X will be stopped. However, the long term effects of this process are truly harmful to the industry and all concerned. Serious questions have been raised both about the pipeline route and the construction, and Sunoco Logistics, the owner of the pipeline, often has simply ignored the rules for construction. This has raised community suspicion about the project and the PUC process. It also has made a hero of Senator Dinniman, who is not a friend of the industry. Critics who seek to fight other pipeline projects point to Mariner East 2 of an example where the industry cannot be trusted, and they have lots of ammunition.
Despite all of these issues, pipeline buildout in 2018 in the Northeast will exceed all previous construction. The Energy Information Agency expects an additional 20Bcf/day to be added to capacity. Unfortunately, that buildout is spotty geographically. In the I-95 corridor, where it is needed the most, we likely will see the least. Winter 2018-9 could see the most extreme geographic variations yet in terms of natural gas price.
In contrast to Mariner East 2, Trans Mountain in Northwestern Canada presents the opposite situation. The pipeline owner, Kinder Morgan, continues to win in court and generally follow the rules, while the provinces squabble with each other and hurt themselves. The latest was the British Columbia Supreme Court throwing out a challenge by the City of Vancouver and the Squamish National indigenous tribe claiming that BC did not act reasonably earlier when it gave Kinder Morgan an environmental assessment certificate. The Court also ordered Vancouver – which is fighting so hard against the pipeline but depends on coal for much of its economic wellbeing – to pay Kinder Morgan’s legal fees.
Kinder Morgan’s self-imposed deadline of May 31 still looms, and the company now is facing major cost overruns. Both Alberta and the Canadian Federal Government have promised to assist in the financing of Trans Mountain, and Alberta needs the revenues from the pipeline to balance its budget, but neither has been able to make it happen.
Like Mariner East, the long term ramifications may be significant. In Mariner East 2 it’s the suspicion engendered by the pipeline company, in Trans Mountain it’s the lack of trust in the Canadian business climate. At this point I would guess that both pipelines get built, but each will result in long term residual yet needless damage.
Finally, construction continues on the Nord Stream 2 pipeline that will take gas from Russia to Germany through the Baltic while bypassing the traditional transit route through the Ukraine. The Trump Administration is going all out to try to block its construction, even threatening our European allies with potential economic ramification should the pipeline be finished.
Germany, which is almost entirely dependent on Russian gas (notice how quiet it’s been on Russia matters over the last few years), is furious with the American position. The United States is wary of increased Russian expansion of influence in Western Europe and sees this as a tool to isolate European nations such as Ukraine, the Czech Republic, Slovakia, Poland and the Baltic States. All of these nations have faced energy price and supply manipulation in the past from Russia. Not coincidentally, the Germans, who are held up as environmental paragons, are now so dependent on Russian gas that they have raised no environmental objection to a pipeline being built in the Baltic Sea being used to transport Russian gas produced in the Arctic.
There are three lessons here. First, be wary of those who wrap themselves in the banner of environmentalism. They tend to forget about that when their economic security is threatened. Second, understand that the current German hostility to the Trump Administration is not just about ripping up the Iran Nuclear Deal or moving the American Embassy in Israel to Jerusalem. Nord Stream 2 is far more significant. Finally, notice that, contrary to claims that he is being soft on Russia, the Trump Administration is fighting far harder against Russian economic interests in Western Europe than did the Obama Administration.
I am neither a Trump hater nor supporter. I want all American Presidents to succeed. I do think though that Nord Stream 2 is more important than many of the stories we hear on the evening news. We would be much better informed as a citizenry if CNN and its ilk took time out from Stormy Daniels’s lawyer and talked about the ramifications of what really matters to people.
Happy Memorial Day.
Daniel B. Markind is the Chair of the Business Group at Weir & Partners LLP. Mr. Markind has represented individuals and companies in the energy industry for over 20 years. Mr. Markind is asked frequently to speak at conferences, in the media and at other venues regarding energy issues and their legal and political implications.