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Sierra Club Revives Familiar Argument to Fight Spectra's Valley Crossing

The Sierra Club is challenging another U.S.-based Mexico-focused natural gas pipeline project with the argument that not just the U.S-Mexico border crossing facilities should be FERC jurisdictional -- the entire project should be scrutinized by the Commission because it is an interstate system.

Sierra Club told the Federal Energy Regulatory Commission recently that Spectra Energy Corp.'s entire Valley Crossing Pipeline LLC should be reviewed under the National Environmental Policy Act and not just the 1,000-foot border crossing [CP17-19]. The environmental group has used a similar argument in the case of the Trans-Pecos Pipeline LLC project, which also would carry U.S. natural gas to a Mexico border crossing.

In its November application to the Commission for the border crossing, Valley Crossing said the border crossing will be a segment of 42-inch diameter pipeline running 1,000 feet in the Gulf of Mexico in Texas waters to the international boundary with Mexico.

Overall, the "...Valley Crossing System will consist of the Nueces Header and approximately 165 miles of 42-inch and 48-inch diameter pipeline, two compressor stations, multiple meter stations, and ancillary facilities, extending from the Nueces Header in Nueces County, TX, to a point in the Gulf of Mexico in Texas state waters at the International Boundary between the United States and Mexico," the company told FERC.

"The Valley Crossing System will be available to CFE [Mexico's Comision Federal de Electricidad] and to other shippers on an interruptible basis to deliver natural gas to other delivery points in Texas, providing access to vital natural gas supplies to promote economic development in the south Texas region."

After intrastate service begins, Valley Crossing told FERC it intends to offer interstate service as well and will seek Commission approval of rates under Natural Gas Policy Act Section 311.

In its protest, Sierra Club argues that, in fact, Valley Crossing will be offering interstate service right from the start "...as many of the proposed interconnects are with existing interstate pipelines...[A]nd because Valley Crossing admits that the pipeline will eventually be placed into interstate service in any event, FERC must exercise jurisdiction over the entire pipeline under Natural Gas Act Section 7, and FERC's review of [the] border crossing project must be consolidated with review of the broader pipeline."

Valley Crossing is slated to connect with the Sur de Texas-Tuxpan pipeline, making it a portion of a system that enables the transport of Texas natural gas to power generation plants in Mexico. CFE about six months ago awarded the contract for the Sur de Texas-Tuxpan pipeline to a joint venture of TransCanada Corp. and Sempra Energy.

Plans for Valley Crossing, Trans-Pecos, and other pipelines to increase natural gas exports all come amid a period of declining natural gas production in Texas. Since peaking at 22.4 Bcf/d in July 2015, marketed gas production in the state was down 16%, to 18.8 Bcf/d last September. Lower associated gas production because of falling oil prices is only partly to blame. According to Energy Information Administration figures, natural gas production in the Eagle Ford Shale fell by roughly 1.2 Bcf/d during those 14 months, but that was countered by a roughly 0.6 Bcf/d increase in Permian Basin gas output over the same period.

The decrease in Texas production is no doubt the result of a dramatic decrease in drilling in recent months. Using Baker Hughes data, NGI calculates that Texas averaged 55 gas-focused rigs in July 2015, but that was down to an average of just 14 gas-focused rigs in September 2016.

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