A court ruling is putting a major natural gas pipeline in jeopardy

Thomson Reuters

U.S. natural gas enjoyed an “eclipse rally” this week. With NYMEX prices jumping nearly 7 cents per MMBtu after the blackout impacted an estimated 12 GW of solar power across America.

But elsewhere the news for natgas developers was less rosy. With U.S. courts handing down a critical decision yesterday, that could jeopardize the future for pipeline projects across the country.

That came from a Washington D.C. Circuit court. Which ruled that the U.S. Federal Energy Regulatory Commission (FERC) must redo its approval of a major natgas pipeline — to consider what happens after the gas arrives at its destination.

The case hinges on FERC’s approval of the $3.5 billion Sabal Trail natgas pipeline, running 515 miles from Alabama to Florida.

Environmental groups challenged the approval of the project. Arguing that FERC had not considered greenhouse gas impacts from the burning of gas that would take place at power plants in Florida, once the supply had been delivered.

FERC counter-argued that it has no control over what happens to the gas after delivery through the pipeline. Thus removing the agency from the duty to consider end-use environmental effects as part of its approval.

But the court sided with the environmental groups. With two of three judges ruling that FERC does have the power to mitigate harmful greenhouse effects — by blocking the pipeline, and cutting off power plants at the source.

If this decision stands on appeal, it’s going to make it notably more difficult to build natgas pipelines in America. Giving challengers a powerful weapon to strike down regulatory approvals — and leaving bodies like FERC in the difficult position of having to quantify downstream emissions impacts.

Most problematic is the fact the Sabal Trail pipeline is already built and operating — having been commissioned in July after the initial FERC approval.

Representatives for the pipeline operating company said flows have not yet been disrupted. But the court ruling raises the unsettling possibility that the project may be forced to shut down — after billions were spent putting it in into service.

Those kind of loses could spook pipeline developers, and impede growth of new lines needed in places like the Permian Basin of Texas to move rapidly-rising natgas production. Watch for similar legal challenges to other pipeline projects, and for signs of a slowdown in project construction.

Here’s to looking down the line.

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