Regulatory changes are likely to make 2022 an inflection point for midstream
By Colette Breshears, Senior Research Manager, NA Infrastructure, Short-term Analytics, Natural Gas, Wood Mackenzie
Core US energy and environmental legislation has largely languished untouched since the 1970s. But that looks set to change in 2022: with public opinion shifting and legal challenges mounting, a series of assessments, reviews and rewrites could fundamentally alter these obsolescent laws, with important implications for US natural gas infrastructure.
Delays and cancellations as the focus turns to climate change and conservation
Over the past three years, US$10 billion of proposed natural gas pipeline projects have been cancelled in the north-eastern United States. Others, like the Mountain Valley Pipeline crucial to production growth in the Marcellus/Utica basin, have suffered years of delays. With significant momentum building behind the green transition, the longstanding tension between the need for energy development and environmental conservation is coming to a head. Last year saw a series of stiff legal challenges to energy and environmental laws which have barely evolved in the last half century. And while industry groups have always resisted further regulation, many firms recognise the tide is now against them.
Federal agencies look to tighten up the rules
A string of federal agencies are in the process of considering changes that would have wide-ranging impacts for US midstream developers and operators. The Federal Energy Regulatory Commission (FERC) is conducting a review which is likely to lead to much stricter criteria around justifying infrastructure project need, siting, pre-construction studies, and eventual buildout. The US Fish and Wildlife Service is considering changes to the Endangered Species Act (ESA) which could classify additional species as threatened or lower the bar for considering a species at risk of harm; that could significantly change the required avoidance/remediation strategies of a project or invalidate proposals entirely. The National Environmental Policy Act (NEPA) is considering reverting regulatory positions to pre-2020 changes, which would directly affect FERC procedures. And the Environmental Protection Agency (EPA) has also motioned towards enforcing more stringent environmental considerations, in relation to the Clean Water Act and Clean Air Act, before issuing permits and approvals. Finally, the Pipeline and Hazardous Materials Safety Administration (PHMSA) is readying the first rule to cover midstream on methane emissions, which will force operators to track and report any leaks along their systems.
Congressional acts aim to shift the focus to renewables
Meanwhile the Biden administration’s cornerstone legislative initiatives aim to turn a commitment to addressing climate change into substantive action. The Infrastructure Investment and Jobs Act, which came into law on 15 November 2021, highlights infrastructure as foundational to the future of the US. However, it is the Build Back Better Agenda that has the biggest implications for midstream. As well as proposed expansions and extensions of the tax credits for wind, solar and storage, it would establish an EPA-regulated methane fee for petroleum and natural gas facilities.
Midstream operators rise to the energy transition challenge
The good news is that midstream operators aren’t waiting to be pushed to make their operations greener; many are adapting both their strategies and their assets ahead of regulatory change. Measures on the ground include the installation of solar-powered pump stations and the replacement of gas-fired compressors with electric turbines. Meanwhile new industry standards are being established to showcase sustainable and renewable natural gas (RNG) contracts. Operators have cooperated with PHMSA to develop the new emissions rules, and many have adjusted system operations to run leaner and greener ahead of monitoring efforts. Midstream operators are in a unique position to combine the ‘old’ of fossil fuel transportation with the ‘new’ of cutting-edge green technology. Areas which could prove both environmentally and financially fruitful include carbon capture as well as hydrogen and CO2 markets.
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