Pipeline capacity from the Marcellus/Utica shales is being overbuilt, according to a pro-renewable energy group that said in a new report the situation puts utility ratepayers, landowners and energy investors at risk. Pipeline interests disagreed and asserted a continuing need for more capacity from Appalachia.
The Institute for Energy Economics and Financial Analysis (IEEFA) singled out the Atlantic Coast Pipeline LLC (ACP) and Mountain Valley Pipeline LLC (MVP) projects in its report, "Risks Associated With Natural Gas Pipeline Expansion in Appalachia." IEEFA recommended that the project applications be suspended "until a regional planning process can be developed for pipeline infrastructure."
Additionally, IEEFA is calling on FERC to lower the allowed returns on equity for pipeline developers and said an investigation should "...be conducted into the relatively high failure rate of new pipelines." The report is to be filed in the ACP and MVP dockets at the Federal Energy Regulatory Commission.
IEEFA said on its website that its mission is "to accelerate the transition to a diverse, sustainable and profitable energy economy and to reduce dependence on coal and other non-renewable energy resources."
ACP is a joint venture of Dominion, Duke Energy, Piedmont Natural Gas and AGL Resources. The pipeline would cross rural counties in Virginia and West Virginia. Environmentalists and landowners have voiced opposition to the project (see Daily GPI, April 18). The MVP project is a joint venture of units of EQT Midstream Partners LP, NextEra Energy US Gas Assets LLC, WGL Midstream Inc., Vega Midstream MVP LLC, and RGC Midstream LLC (see Daily GPI, Oct. 23, 2015). It, too, has faced opposition.
Low-priced Marcellus/Utica gas is driving the regional pipeline buildout, IEEFA conceded but added that an overbuild is coming.
"The financial dynamics of the natural gas industry encourage overbuilding of natural gas pipelines, i.e., the construction of excess capacity," IEEFA's report said. "A weak regulatory process and a lack of coordinated planning for natural gas infrastructure facilitate this process."
IEEFA’s Tom Sanzillo, director of finance and a co-author of the study, said the projects are not being adequately scrutinized by regulators and their construction would put local landowners and towns at risk alongside electric ratepayers.
"Demand for natural gas will not keep pace with the level of capital investment currently going into pipeline infrastructure," he said. "Those affected, at bottom, are the communities through which the pipelines run and the consumers who pay the rate increases needed to underwrite pipeline development."
Cathy Kunkel, an IEEFA energy analyst and lead author of the report, said the projects show how developers, which are guaranteed a return on their investment by FERC, are rewarded for overbuilding.
"We found that the dynamics of the pipeline business tend toward building excess pipeline capacity," Kunkel said. "Major pipeline companies are competing with each other to build out the best, most well-connected pipeline networks. And utility companies are entering the pipeline space because much of the risk of overbuilding can be pushed off onto captive ratepayers.
"And natural gas production companies are entering the pipeline business because their core business of drilling is underperforming and they are looking for ways to boost revenue and investment value. These kinds of financial considerations on the part of individual companies do not add up to the kind of socially rational, long-term planning of natural gas infrastructure that we need."
A recent study released by the Interstate Natural Gas Association of America (INGAA) showed that billions of investment in natural gas infrastructure are needed from 2015 to 2035 (see Daily GPI, April 12). INGAA spokeswoman Catherine Landry said she had not yet reviewed the IEEFA findings but added that there clearly is a need for more pipeline capacity to carry Marcellus/Utica gas to market, contrary to what IEEFA asserts.
"...[T]he interstate natural gas transmission regulatory model is one in which a pipeline is only certificated by FERC if the sponsor can show there is an actual need for the pipeline," Landry said. "That means long-term contracts from shippers willing to commit to the project...
"I would also point out that while natural gas production is down because of low commodity prices, the Marcellus and Utica basins are the lowest-cost basins in the nation, and all the experts I know of see production growing sharply there once prices rebound."
MVP spokeswoman Natalie Cox cited a study by Wood Mackenzie, which is filed in the project docket at FERC, that supports the need for its planned capacity (see Daily GPI, April 20). "The Wood Mackenzie report makes clear that the Southeast market alone has more than enough natural gas demand to support the MVP's current capacity of 2.0 million Dth/d, and it's important to remember that the Southeast is only one of MVP's target markets," she said.
Aaron Ruby, a spokesman for ACP backer Dominion, said the project "...was developed in response to the real and demonstrated needs of public utilities in Virginia and North Carolina. According to a 2015 report by ICF International, one of the nation’s leading economic consulting firms, demand for natural gas in the region will increase nearly 165% from 2010 to 2035. Yet there is not enough infrastructure or supply in the region to meet this growing demand.
"In the Hampton Roads region of Virginia, for example, natural gas is in such short supply that service is already being curtailed for large industrial customers during high-demand periods. Without the Atlantic Coast Pipeline, the region simply won’t be able attract major new economic development. Eastern North Carolina faces similar constraints. The state is currently served by just one natural gas transmission pipeline, and it predominantly serves the western part of the state. That leaves many communities in eastern North Carolina without access to natural gas and places them at a severe economic disadvantage."