Why Pipeline Construction Is Hard

SL Advisors Talks Markets
SL Advisors Talks Markets
Why Pipeline Construction Is Hard



Loading





/

Mountain Valley Pipeline (MVP) will soon move 2 Billion Cubic Feet per Day (BCF) of natural gas from West Virginia to southern Virginia. It will allow increased takeaway capacity from the Marcellus and Utica shale plays in Appalachia. By connecting to Transco (owned by Williams Companies) it will allow for natgas to be transported south, in some cases reaching Cheniere’s LNG export terminals in Sabine Pass, LA or Corpus Christi, TX.

MVP will play a small but important role in getting US natural gas to our friends and allies around the world. It will enable buyers to reduce their dependence on coal for power generation, lowering GreenHouse Gas (GHG) emissions and local pollution. It will offer improved energy security to its buyers. If you’re a strategic environmentalist or climate advocate – and few are – MVP is part of the solution to how we reduce CO2 emissions.

Instead, MVP will probably be the last greenfield natgas pipeline attempted in the US. This is mostly because we have the network we need, but also because navigating the US permitting process is more torturous than being stranded on a desert island indefinitely with that wretched little girl Greta.

Planning for MVP began in 2014. RBNEnergy.com, which publishes regular informative blog posts on US energy, has 19 articles dedicated to MVP and mentioned it in at least 37 different posts this year alone. MVP became a victim of climate extremists who learned how to weaponize the judicial system to insert uncertainty and delay into any project they dislike.

While Equitrans was pressing on with MVP, several other projects to move Appalachian natural gas to the US east coast were dropped. These included Enbridge’s Access Northeast expansion of its Algonquin Gas Transmission pipeline, which had already obtained FERC approval. Kinder Morgan’s Northeast Energy Direct expansion of Tennessee Gas Pipeline is another. These and other pipeline companies concluded that permits didn’t assure completion, perhaps anticipating the travails of MVP.

By May 2021 the 303-mile pipeline was 90% completed. The last thirty miles would average less than one mile per month. MVP required permits from numerous government agencies, including FERC, the US Bureau of Land Management (BLM), the US Army Corp of Engineers and the Virginia State Water Control Board. To cite just two examples, in 2018 a judge on the 4th Circuit struck down Nationwide Permit 12, which had been granted in 2017 by the Army Corp of Engineers and reissued in 2018.  The court acted because stream crossings need to built within 72 hours to limit environmental damage, and it was believed MVP was not complying. The court also annulled MVP’s right of way through Federal lands that had been previously granted by the BLM.

Constructing infrastructure projects is often disruptive to the local community, and society is unlikely to accept unquestioned Federal permits allowing work to move forward. But under the current system, a company can acquire all the needed approvals and move forward in good faith, only to find work halted by a court. In effect, a permit issued by a government agency can’t be relied upon.

Equitrans (ETRN), which owns MVP as part of a consortium, has been struggling to complete the late, overdue project for years. They finally reached the goal line when Senator Joe Manchin (D-WV) insisted on Congress by-passing any remaining challenges as part of the increase in the debt ceiling in the summer. MVP was deemed by Congress to be in the national interest (see A Pipeline Win From The Debt Ceiling).

Even then the Court of Appeals for the 4th Circuit blocked construction to allow the Department of the Interior to assess construction through Jefferson National Forest. In August the Supreme Court finally weighed in and progress resumed. In an October 17 SEC filing, ETRN warned of further added costs because, “The ramp up of MVP’s contractor workforce has been slower and more challenging than expected, due to multiple crews electing not to work on the project based on the history of court-related construction stops…”

The permitting uncertainty isn’t limited to fossil fuels. The SunZia Wind and Transmission project filed for permits in 2006 and is only now starting construction. Navigator CO2 Ventures recently canceled a proposed pipeline aimed at supporting carbon capture because of “unpredictable state regulatory processes”.

Every infrastructure project faces opposition, and climate extremists are far from a homogeneous group with a coherent set of strategic objectives. Communities on the Jersey shore, where we have a summer home, are the red part of a blue state and their opposition to Orsted’s proposed offshore wind turbines helped scupper that project (see Windpower Faces A Tempest).

We concluded years ago that the impossibility of building new pipelines in the US would improve Free Cash Flow (FCF), because with less capex companies would return more cash to shareholders. This is what’s happening. As climate extremists learned how to use legal challenges to further their aims, “Hug a climate protester and drive them to their next protest” began to make sense.

But the tool of limitless court challenges knows no political ideology, and it’s being used against projects that seek to build more intermittent energy (solar and wind) as well as carbon capture. It no longer affects the midstream energy infrastructure sector – the present pipeline network is going to have to be adequate, because there’s little industry appetite to endure another MVP. Ironically, liberals convinced the planet is burning up should be the most vocal supporters of the permitting reform that MVP shows is so sorely needed.

Last week ETRN said they were considering selling themselves, and the stock duly rose. MVP should go into service next quarter, years late and at more than double the initial estimated cost. According to analysts at Citibank, the list of potential buyers includes Williams Companies, Kinder Morgan and Energy Transfer. Some potential acquirers dropped plans years ago to build pipelines adding natural gas takeaway capacity out of the Marcellus. One of them will likely conclude that it’s better to buy a finished project and avoid the painful construction process.

Last year NextEra Energy, an owner of the MVP JV, wrote down their interest in the pipeline. Earlier this year, ETRN’s market cap ascribed zero value to MVP. Consensus among investors was that the project would never be completed. Now that it is, there will be multiple suitors. It shows that climate extremists don’t just support the pipeline sector’s FCF, they also make existing infrastructure more valuable.

We have three have funds that seek to profit from this environment:

Energy Mutual Fund

Energy ETF

Real Assets Fund

 

Print Friendly, PDF & Email
SL Advisors Talks Markets
SL Advisors Talks Markets
Why Pipeline Construction Is Hard
Loading
/

Important Disclosures

The information provided is for informational purposes only and investors should determine for themselves whether a particular service, security or product is suitable for their investment needs. The information contained herein is not complete, may not be current, is subject to change, and is subject to, and qualified in its entirety by, the more complete disclosures, risk factors and other terms that are contained in the disclosure, prospectus, and offering. Certain information herein has been obtained from third party sources and, although believed to be reliable, has not been independently verified and its accuracy or completeness cannot be guaranteed. No representation is made with respect to the accuracy,  completeness or timeliness of this information. Nothing provided on this site constitutes tax advice. Individuals should seek the advice of their own tax advisor for specific information regarding tax consequences of investments.  Investments in securities entail risk and are not suitable for all investors. This site is not a recommendation nor an offer to sell (or solicitation of an offer to buy) securities in the United States or in any other jurisdiction.

References to indexes and benchmarks are hypothetical illustrations of aggregate returns and do not reflect the performance of any actual investment. Investors cannot invest in an index and do not reflect the deduction of the advisor’s fees or other trading expenses. There can be no assurance that current investments will be profitable. Actual realized returns will depend on, among other factors, the value of assets and market conditions at the time of disposition, any related transaction costs, and the timing of the purchase. Indexes and benchmarks may not directly correlate or only partially relate to portfolios managed by SL Advisors as they have different underlying investments and may use different strategies or have different objectives than portfolios managed by SL Advisors (e.g. The Alerian index is a group MLP securities in the oil and gas industries. Portfolios may not include the same investments that are included in the Alerian Index. The S & P Index does not directly relate to investment strategies managed by SL Advisers.)

This site may contain forward-looking statements relating to the objectives, opportunities, and the future performance of the U.S. market generally. Forward-looking statements may be identified by the use of such words as; “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, but are not limited to, estimates with respect to financial condition, results of operations, and success or lack of success of any particular investment strategy. All are subject to various factors, including, but not limited to general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting a portfolio’s operations that could cause actual results to differ materially from projected results. Such statements are forward-looking in nature and involves a number of known and unknown risks, uncertainties and other factors, and accordingly, actual results may differ materially from those reflected or contemplated in such forward-looking statements. Prospective investors are cautioned not to place undue reliance on any forward-looking statements or examples. None of SL Advisors LLC or any of its affiliates or principals nor any other individual or entity assumes any obligation to update any forward-looking statements as a result of new information, subsequent events or any other circumstances. All statements made herein speak only as of the date that they were made. r

Certain hyperlinks or referenced websites on the Site, if any, are for your convenience and forward you to third parties’ websites, which generally are recognized by their top level domain name. Any descriptions of, references to, or links to other products, publications or services does not constitute an endorsement, authorization, sponsorship by or affiliation with SL Advisors LLC with respect to any linked site or its sponsor, unless expressly stated by SL Advisors LLC. Any such information, products or sites have not necessarily been reviewed by SL Advisors LLC and are provided or maintained by third parties over whom SL Advisors LLC exercise no control. SL Advisors LLC expressly disclaim any responsibility for the content, the accuracy of the information, and/or quality of products or services provided by or advertised on these third-party sites.

All investment strategies have the potential for profit or loss. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be suitable or profitable for a client’s investment portfolio.

Past performance of the American Energy Independence Index is not indicative of future returns.

Print Friendly, PDF & Email
0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.