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New York State Deals Another Setback to NatGas Infrastructure; Denies Northern Access Permits

In yet another signal of the potential roadblocks facing the natural gas industry in New York, the state Department of Environmental Conservation (DEC) late Friday denied National Fuel Gas Co. (NFG) subsidiaries water quality certification and other permits for the Northern Access expansion project.

NFG said National Fuel Gas Supply Corp. and Empire Pipeline Inc. received word at 11:22 p.m. EDT on Friday that the project would not be allowed to go forward. The decision came after nearly three years of review and just weeks after NFG's management anticipated the state's move by asking FERC to diminish the DEC's role in approving the project.

In a news release on Monday the company made no mention of legal action, but left the door open saying that NFG remains committed to the project. The company said it was still reviewing the agency's "rationale" for not approving the permits. DEC determined that construction would negatively affect the environment.

"These construction activities would certainly have less effect than either exploding an entire bridge structure and dropping it into the Cattaraugus Creek or developing and continuously operating a massive construction zone in the middle of the Hudson River for a minimum of five years," NFG CEO Ronald Tanski said of DEC-approved projects for Route 219 and the Tappan Zee Bridge.

The more than 490,000 Dth/d Northern Access project would expand the Empire and National Fuel systems to move gas from Seneca Resources Corp.-operated wells in Northwest Pennsylvania to markets in New York, Canada, the Northeast and the Midwest. Affiliate Seneca Resources was relying on the project to help alleviate capacity constraints. The project would consist of nearly 100 miles of new pipeline in McKean County, PA, and Allegheny, Cattaraugus, Niagara and Erie Counties NY.

"After an in-depth review of the proposed Northern Access pipeline project and following three public hearings and the consideration of over 5,700 comments, DEC has denied the permit due to the project's failure to avoid adverse impacts to wetlands, streams, fish and other wildlife habitat," the agency said in a statement. "We are confident that this decision supports our state's strict water quality standards that all New Yorkers depend on."

Friday's decision would seem to affirm the growing perception -- in the Appalachian Basin at least -- that the state, under Democratic Gov. Andrew M. Cuomo, is a less than hospitable place for shale gas and the infrastructure projects necessary for those volumes to reach more markets. Two years ago, the state banned high-volume hydraulic fracturing. Additionally, the DEC denied a water quality certification required by the federal Clean Water Act and other permits last year for the Constitution Pipeline after nearly three years of review.

As the agency continues to defend that decision in federal court, Millennium Pipeline Co. has filed a preemptive lawsuit to fight against what it argues are unnecessary permitting delays at the agency for an 8-mile lateral that would supply a natural gas-fired power plant under construction in the state.

On edge about those proceedings, NFG last month filed a request for rehearing at the Federal Energy Regulatory Commission asking it to reconsider the Feb. 3 order authorizing the project. The company claims that the Commission erred by not finding in its order that DEC stream crossing, water withdrawal and wetlands permits are preempted by the Natural Gas Act and not required to begin construction. In a procedural order posted last week, FERC said it would need more time to consider the arguments of NFG and the DEC, which asked the commission to reject the rehearing request in a strongly worded filing defending its role in the permitting process.

NFG said Monday that "voluminous" studies by its subsidiaries and their consultants contradict the DEC's decision and show that construction would have a "temporary and minor" impact on the environment.

"What is perhaps the most troubling aspect of this decision is that the NYSDEC waited literally until the eleventh hour to issue this denial, even though we had detailed discussions with NYSDEC staff over a 34-month period and undertook detailed engineering and environmental studies at the agency's request to support the stream-crossing techniques that now form the basis of their denial," Tanski said. He added that the agency's decision "attempts to set a new standard that cannot possibly be met by any infrastructure project in the state that crosses streams or wetlands, whether it is a road, bridge, water, or an energy infrastructure project."

Northern Access was initially scheduled to enter service in late 2016, but NFG said early last year that it would delay the project until late 2017 on reduced drilling activity caused by the commodities downturn. The company said in January that it expected to receive its New York state permits this month after DEC issued notices of complete applications for them. NFG's latest target in-service date for the project was 1Q2018.

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