Jun 07, 2023
On June 2, The Capitol Forum’s Teddy Downey and Daniel Sherwood held a conference call to discuss the most pertinent issues impacting energy markets and policy. The full transcript, which has been modified slightly for accuracy, can be found below.
TEDDY DOWNEY: Thanks to everyone for joining us today. I’m Teddy Downey, Executive Editor here at The Capitol Forum. I’m joined, as always, by Daniel Sherwood, who heads up our Energy Reporting and our Upstream Platform. Daniel, it’s great to see you after a one week hiatus.
DANIEL SHERWOOD: Good to be seen and what a hiatus it’s been, Teddy.
TEDDY DOWNEY: I know. We have a lot to go over. So before we dive in, if you have questions, please email them to editorial@thecapitolforum.com. Or you can enter them into the chat question function of GotoWebinar. But with that, let’s get started.
We’ve got a lot going on. We had a last-minute inserting of just the—I think you call it, is it a dream scenario for Mountain Valley Pipeline? Where they basically just got rid of any kind of legal review, any kind of state oversight permitting. And they’re just like, this is good to go. If you want to fight in court, you’ve got to fight us in the D.C. Circuit. I want to get your take on just I think—we don’t need to spend a lot of time on how absurd of a process that happened here, that it wasn’t even part of permitting reform, that it was literally a separate handout for Manchin.
DANIEL SHERWOOD: Incredible.
TEDDY DOWNEY: But I do want to focus on all the things in there that are good. And then I want to talk about avenues for that litigation to continue. Because there’s just a central question of, well, you’re sort of weirdly creating a nonjudicial approval, but the process of approving these projects is actually kind of at a state‑by‑state level, not solely on a federal level. So I’m curious to dig into that and then any other logistical challenges beyond just the actual – all right, let’s assume that everything does go through from a permitting standpoint, how do they actually make this happen and how long will that take? So anyway, a lot to talk about. But let’s start with everything that is good in this bill for Equitrans and Mountain Valley Pipeline.
DANIEL SHERWOOD: Yeah, let’s. And due process concerns here are legitimate. This has been a huge week. You know, on my birthday, at midnight, the initial text was released. And I was texting my journalist friends who were waiting in the lobby of DCA as Congressional members landed from the holiday weekend to get their take on whether or not they’d vote on this in the House.
So it’s rare for us to follow the headlines from a Congressional perspective like I have this week and then to dive deeper to see if Senator Kaine’s amendment would be considered, for example. And all of this has had material impacts on the physical markets and the equity markets as the week has progressed and it will continue to. So it’s a very important natural gas artery and it’s exciting when everyone’s talking about it, when Congressional members, who otherwise never talk about the midstream sector, are stumping on this.
So yes, Equitrans’ dream scenario. I mean, they really got everything, Teddy. So, as we’ve been talking about since November, which is when Manchin started to talk about putting this text back in the mix. I’m conflicted on this. Is this a surprise deal or not? Since this wasn’t included in the IRA, this has been very openly discussed by both the White House and Manchin and the Republican delegation from West Virginia as what they wanted. And they’ve tried to kind of string this onto anything they could since it got axed from the IRA on the one hand.
On the other hand, all of the text, for instance, out of the Republican House leading up to this, was about oil pipelines and was about international permitting. It was much more messaging around Keystone. No or little discussion about natural gas. No discussion about Mountain Valley. So that’s why I think you see a lot of the sentiment this week of like, whoa, a surprise deal.
So the text of the bill gave Mountain Valley pretty much blanket authorization and a short timeline to get out from the Secretary of the Army and to resume construction. We could take this conversation in so many different directions. We wanted to focus on the judicial venue part because that’s something that caught our eye.
And I think initially, we suspected there might be some constitutional issues. So, we’ve looked at that. We’ve looked at the precedent. And I’ll say that Bloomberg beat us to the punch a little bit. Bloomberg did issue a good story on the legal precedent of this, in which they identified, through experts, a few other examples. Like Interstate 83 in Hawaii or, just last year, a similar provision was attached to award leases from the DOI’s public lands oil and gas drilling program.
So this does happen. We spoke with sources, some very close to this process, who described this judicial process as something that Congress can do. Congress created these courts. Now, that being said, a lot of the best legal experts have said, you know what? It’s not all over. Even the text in the bill, saying if you want to challenge this pipeline, including the text of this bill, go to the D.C. Circuit. So it’s almost like a tacit admission almost that there might be something out there to look at.
The best parallel, and multiple people highlighted this to me, is the TVA case. In the seventies, there was the Tellico Dam. It was put forward and had decades of delays. And the ESA, Endangered Species Act, triggered a review due to a snail darter, I believe. And avid readers of The Capitol Forum are familiar with the darter fish. The candy darter was something that stopped construction for the Mountain Valley Pipeline. It’s a small fish, indigenous to the eastern part of the United States.
And through Congressional action, they said, look, just build the dam. Build the damn dam. There was one legal challenge to that after that happened based on religious freedom grounds, a constitutional challenge that is, which was unsuccessful. And the dam is running. And for those of us worried about the endangered species, the snail darter is thriving. They found it in a couple of other streams.
So that’s the precedent. So there is precedent is what I’m saying. And this does happen. And will we see a constitutional challenge? Likely. Will it succeed? Maybe not. Will it delay the timeline? Yes. So, I think that’s where a lot of the focus is shifting now, is to this timeline. And I think, Teddy, too, this is where I’m reticent to continue covering that. Because, for anybody who watches these things, like look at Mariner East, or any New Fortress Energy project, the commissioning date gets moved up. The online date gets moved up. Is it commercially successful?
There’s a lot of language that you can use to make it look like you’ve gotten across the finish line. There are 429 stream crossings left. And as we spoke about two weeks ago when I visited the site, these are fragile, tiny streams that meander and deviate in steep lands that are remote and difficult to get construction crews to.
So I wish Equitrans the best of luck, of course. But I still think that it’s going to be difficult for them to complete, truly complete, the full segments that are not constructed yet by the end of this year.
TEDDY DOWNEY: Yeah, and I think it’s just kind of a thing where it’s like, all right, I think it’s not unprecedented to say, look, Congress is making this a priority. And maybe that dam had as many outstanding issues as MVP. I don’t know how many outstanding issues there were. The thing that really kind of jumps out to me is I guess it is an interstate pipeline. But the reviews are state reviews. It’s like what’s going on within the state? And that to me makes it pretty interesting, I think. I’m sure they put it in the D.C. Circuit because they feel comfortable that they’re going to win and that the Congress will win out.
But I do think that kind of jumps out at me as like we’ve seen some state rights cases win at the Supreme Court recently when it comes to can states regulate certain things? So I think it’ll be interesting. And to your point, we could get a delay if they put an injunction, I guess, on the implementation of this as it gets fought in court. So, it’s definitely interesting from a legal standpoint, but clearly a big, big win for sure the pipeline.
DANIEL SHERWOOD: Oh, it’s huge.
TEDDY DOWNEY: And I would say this. I think the thing is that you’ve taken all these things off the table potentially, the legal, dragging things out from a legal standpoint. But I think the things that we’ve always said are everyone seems to underestimate the amount of problems that come up when you’re building a pipeline and maintaining a pipeline on mountainous terrain with a lot of erosion. And I think from my standpoint, that’s what I’m kind of excited to get your thoughts on as this moves forward. It’s just that that’s why it probably will take a long time. It’s not just the permitting. The assumption was that it would get done at some point. And at that point, again, you can’t be too optimistic to do things quickly because these are not problems that can necessarily be solved quickly.
And then you get this other issue, which is like when you get kind of a blanket immunity by Congress, I’m curious what happens if there’s like some other violation of law. You know what I’m saying? Like, oh, well. It’s full speed ahead. We’re just going to build this pipeline. And then all of a sudden, corners are being cut or what have you. It sounds like it can become a little bit of a mess. So I think just from that standpoint, there’s the building of this. I mean, those problems don’t just magically go away once you get the permitting. Is that a fair way to describe this? Or that’s kind of how I’ve been thinking about this from how we’ve talked about it. So I’m curious to get your thoughts on that.
DANIEL SHERWOOD: That’s 100 percent correct. Williams Companies, a midstream peer of Equitrans, runs a plane across these Appalachian hills and runs LiDAR to detect subsidence because that’s how persistent and ever evolving the issue is. So it’s like this is, to your point, dirt will always move. Like these permitting issues are a nature of the project. The issue isn’t the permitting. The issue is where they’re trying to construct it and how they’re trying to.
And I think it’s brazen that the company is so willing to emphasize how quickly they can do this, when, in my opinion, that’s in contrast with, to your point, the care that they are saying in their documents to get the permits that they’re going to apply, again, with these 400 plus stream crossings.
On the legal component with states—and Teddy, I could wax poetic about the terrain of Appalachia for hours. It’s beautiful country and difficult for a number of reasons. The aspects of the limestone, the hilly nature, the water, it’s different than building in another mountainous region like the Rockies. And it’s certainly different than building in the plains. Of the many calls that we fielded this week on this issue, multiple people would say, well, you know, this is not a first of its kind construction project. And in ways it is. Unprecedented is a word that people love to use. But, as I’ve been saying to people, point to me—other than the Transco pipeline, which is a Williams pipe, which is in less hilly terrain—point to me a pipeline that mimics this route.
And so, Equitrans does not earn a gold star in its compliance. We’ve written extensively about their other assets as well. I mean, when they bought those Hornet assets, it was the least compliant pipeline system in the State of Ohio if my memory serves. Right now, they are combating this controversy with the Rager gas leak which has grown to such a level that Pennsylvania and the Feds don’t even know how to enforce it. So, Equitrans is making enforcement for storage assets move forward in a way that hasn’t been tested due to their inability to maintain their own assets.
So we’ll continue to watch that, of course. Unfortunately, I think, for the next eight months, Teddy, people are going to be very, very tuned into every headline that comes out of whether it’s the WVDEP issuing their state permit. And for the record, that state review process is happening pursuant to federal law, you know what I mean? It’s not a state Clean Water Act that they’re reviewing. They’re doing a review that’s a part of the Clean Water Act.
So it’s one of those things where it’s like that’s how the feds justified the law in the first place, is they give the state input. So there is a possible due process issue. I suspect, especially given how—the text in the bill was written tightly. I can tell that there were legitimate, you know, legal counsel was provided in this drafting process. And so I would be surprised if they moved before the West Virginia DEP issued their permit just because I think that that would open them up to legal challenge. But the WVDEP wants this pipe and it’s been rumored that they’re accelerating their process. And as we’ve reported, we’ve heard sources on the ground there say that they’ve been receiving pressure from federal congressional members, which obviously shouldn’t be a surprise given what legislators and lobbyists were able to do on the federal stage.
So that’s what’s going to be the next catalyst is that WVDEP permit. The only other point that I have, Teddy, on the legal side of things is on Friday, going into the weekend, another permit was successfully sent back to FERC by the D.C. Circuit. So that litigation is moot at this point due to the text of the bill. But it demonstrates again, to your point, Teddy, the foundational issues of building this pipe is – even in this venue that’s supposedly favorable to Mountain Valley Pipeline, they still are saying, hey, you need to explain why you didn’t issue a supplemental environmental impact statement, because we don’t understand why not. And why do you think FERC didn’t do that? Because it’d be tough. It’d be tough to issue something that would say, hey, everything is fine. Because again, this is a huge pipe, 42 inches. That’s a very large pipe going through very challenging terrain for a long route.
TEDDY DOWNEY: So anything else on Mountain Valley Pipeline? I don’t see any questions here. I just wanted to move onto our other topics because we’ve got a lot to cover. Just wanted to see if you had any last comments about that.
DANIEL SHERWOOD: My only question, Teddy, would be is how closely will we follow this pipeline as it continues to emphasize a commissioning date this year?
TEDDY DOWNEY: People really seem to care a lot about this pipeline and it seems to have a big impact on a lot of the other stuff that we do, like oil and gas production in Appalachia. So I think it’s worth covering this question. Also, it just sounds like there’s going to be a lot of hype.
DANIEL SHERWOOD: There is.
TEDDY DOWNEY: I mean, this thing passed into law. And then, all of a sudden, it’s like there’s just so much hype about it. And it’s definitely a huge win. But also, there’s just logistical challenges. And just based on the expertise that we have, it might be fun, not to follow it quite as closely necessarily because the legal stuff might become moot. If the legal stuff becomes moot, I think it will be fun to just periodically check in and say, all right. Here are the logistical challenges they continue to face. They’re kind of overcoming them, or not overcoming them. And then also, just because you get the permitting process done, I just think it’s like you said. If the company has a history of violations, there are other legal issues that can trip you up later, even if the permits are awarded.
So following that process as well, if that ends up happening. I’m also just interested in how, on a complicated project like this, how successful this almost like blanket immunity, like get out of jail free, will be. This is a national priority. How that plays out. How successful that is in translating to an operational success. Like how much of a get out of jail free card really is it later? And then are we seeing any shortcuts?
And, by the way, Virginia’s Senators were pretty unhappy with this too. So, I don’t know. I just think there’s some interesting stuff. It’s an important pipeline. I think it has all these implications for even other things we follow like LNG.
DANIEL SHERWOOD: Absolutely.
TEDDY DOWNEY: So anyway, I’m excited to maybe not talk about it every week but checking in on it and just be that voice of reason, a little bit of like, you know. Okay, here’s the hype. And are they meeting the hype? Are they not meeting the hype? And just kind of being a sensible kind of guide on this for people, as I think we’ve done all along. So I’m excited to do that.
DANIEL SHERWOOD: I’m ready. I think that answer does a great job of organizing the buckets of how we approach this. And people were surprised. The physical markets, the physical natural gas markets, a local hub where natural gas is traded in this area that’s most impacted by Mountain Valley Pipeline went down. So it’s like Equitrans skyrocketed but the local physical dipped and why is that? Do they not need that additional capacity?
TEDDY DOWNEY: It should go up if they really thought it was going to be done by the end of the year, I’ll tell you that much.
DANIEL SHERWOOD: So yeah, it’s going to impact drilling programs. It’s going to impact LNG exports. It’s going to impact coal consumption. It’s going to impact a lot of things. This is a very important supply chain aspect of our country. And I think one of the reasons that I will always be watching midstream is like if we’re going to do CO2, if we’re going to do hydrogen, pipelines are a way to move that economy. And we see the issues on rail. We’re not going to put it on a plane and you can’t put it on a truck. Anyway, it’s fascinating stuff.
The couple of points I wanted to say in response to your summary: the physical market went down, there will be more issues with the pipeline, I am predicting that there will be a legal challenge, that it won’t succeed and that the pipeline will not be completed by the end of this year. So we will—I will stand corrected if I’m wrong, but those are my predictions.
TEDDY DOWNEY: It might come up with some kind of semantic way of saying we finished it, but I don’t know how they would do that. Okay, let’s move on. We’ve still got a lot to cover here. Continued midstream divestitures in ESG. We’ve been doing our ESG kick here, which I’m very interested in. I want to get your take on how much—so here’s the question. Utilities are increasingly distancing themselves from certain midstream footprints. NextEra, Dominion, National Grid. How much are these moves truly representing a shift to more focus on renewables versus appeasing ESG screening metrics?
DANIEL SHERWOOD: Yeah. So we are in the midst of our ESG investigation. We’ve been having a lot of fun as a team applying these different screens that are used to determine what is green and then giving it a lot more review and rigor than, seemingly, the companies and funds that are supposed to be applying these screens themselves.
Pipelines, as evidenced by this week’s text in the bill, have this weird way of kind of sneaking themselves into being an aspect of the energy transition and/or renewable. NextEra’s own former CEO Jim Robo said this following quote, “Listen, when we did the original IPO, I guess more than five years ago, we said the focus was going to be on clean energy assets. And I view gas pipelines as clean energy.”
So compare that with now NextEra’s statement of saying, hey, we’re going to divest ourselves from pipelines. (a) It’s a slow divestiture with the last one planned in 2025. So we’ll see if it happens. And (b) they still have an equity interest in guess what? Mountain Valley Pipeline. I reached out for request for comment and they did not respond. But they’ve been mum so far as to what they’re going to do about their equity interest in the MVP. So we’ll take these things with a grain of salt.
Why are companies doing this? FirstEnergy, a company that we’re familiar with, Julia and Sharon have been applying these different ESG screens to it. And FirstEnergy, in their own investor relations presentations, has a slide deck of their improving ESG factors. Because these have market impacts. It has genuine impact on these companies. It has a change in percentage ownership by institutional investors, whether it’s applied through an index or whether it’s directly owned by an asset manager.
So, National Grid and Dominion, that announcement is a little bit more dated and they weren’t as clear as NextEra. NextEra is kind of, in my mind, the king of greenwashing. So next year—and again, this is another thing to be mindful of for anybody who’s following this closely. These announcements are normally not what they’re pitched as in like the major headlines and press releases. Like NextEra has been talking about this for a while. And then all of a sudden, it’s like NextEra makes this announcement to go totally green. And there’s NextEra Energy Partners, which is their limited partner. It’s a separate equity component. And there’s a lot to unpack there.
But just from the overarching theme of midstream industry is growing less green. That NextEra itself is saying these things publicly. And if entities, like the EU equivalent of the SEC basically, does make those investment terms, and does make those statutes, more strict, this is going to have to be addressed. And if NextEra divests its stake in Mountain Valley Pipeline, that’s more capital that Equitrans is going to have to come up with.
So yeah, to answer the question, is it complying with ESG? My answer is yes. I think that these entities are trying to get better ESG screening scores. Is it actually materially different on the ground level yet? No, I don’t think so. Because there’s not enough strict scrutiny. There’s not enough rigor. And even if NextEra, for instance, has exposure to an upstream oil and gas operations, that’s very explicitly not renewable.
Teddy, I can’t remember if I’ve told you this, but last week I had somebody who was refuting our thesis on ESG and described carbon sources as renewable because things will eventually die. Plant and other types of organisms will pass and then turn in to carbon again in the future, thus being renewable, which I thought was an incredible argument. And, from a scientific basis, I suppose, not false in the sense that that’s how fossil fuels are created. So yeah, that’s where we are. That’s where we are. We’re trying to define if natural gas is a renewable resource based on the future death of organic material. Kind of crazy.
TEDDY DOWNEY: Yeah, I think this just kind of gets at the whole thing. Is ESG going to be a complete joke? Or is it actually going to be something that has some rigorous rules and oversight and actually meaningfully distinguishes where money is going? Like, if everything is ESG, it’s just a joke and it’s just marketing. But if the SEC disclosures and Europe actually are like, hey, you can’t just lie about it. You actually have to back it up or put some legitimate oversight over it. It will become a really interesting question of whether or not you’re meeting these—whether or not you’re lying, whether or not you’re legitimately ESG based on some kind of enforceable or meaningful definition.
And so I think we need to—before, look, the companies are going to behave in a way that it’s, you know, they’re going to treat it like marketing until someone makes them actually—creates more transparency or more enforceability or oversight of whether or not they’re actually doing it.
Let’s move on. NextDecade Rio Grande LNG. NextDecade forecasts a midyear final investment decision for the Rio Grande LNG project without an update and we’re getting close to the midyear point. What are you watching for on the timeline there?
DANIEL SHERWOOD: Yeah. So June 15 is the new date that people are tuned into on this project. That’s where it should be based on its amended EPC contract. We’ve seen no announcement. We’re watching the FERC docket. That’s where everybody should be looking. That’s, I think, where any next material update will come. But yeah, it’s all quiet on the Western front, so to speak. You know, it’s an interesting project. It’s huge. Brownsville is a small border town. Fascinating place. But this town, this would be like a huge boon to the economy. And it’s a huge project. So there are a lot of people on the ground locally who are very invested. Just today, Nick Cunningham did a story about the different municipal proponents of this project on the docket for it and found that it was just sample language sent to them by NextDecade, which is unfortunately common. And from a community perspective, the jobs and the dollars to the town, I see why they would want this project.
So in that sense, they have the support. Environmentalists have been opposing this project vehemently. It’s huge, as I said. And that’s the most recent pressure on the project. There’s a Sierra Club challenge to the issuance. And I think what our call today is talking about is how much tension there is right now in these regulatory processes determining the greenhouse impact and whether or not these assets have a future in our economy. And so this one’s a good one to watch due to its scale. And similar to Tellurian, it’s kind of a single project company. It’s a relatively small entity. It’s not like Cheniere, for instance, that has commissioned assets and is sending molecules over to Europe and all over the place every day.
TEDDY DOWNEY: Is there anything else on permitting from the bill? I guess that was the last thing I wanted to touch on. Was that at all interesting to you? Or was it just totally underwhelming? I just wanted to get your take on the other permitting provisions in terms of how that changes any outlooks for anything?
DANIEL SHERWOOD: Yeah, I mean, NEPA is so much of our work here, so much of my time. The NextDecade is another example of permitting and FERC oversight. And this is what we watch. And so, yeah, the text, I’ve read that section repeatedly, It’s detailed. Again, in my opinion, well crafted. A few people said it was copy and paste from previous proposals, but that wasn’t consistent with my read line.
I won’t pretend to be as—did the Democrats get what they wanted as far as NEPA is related to transmission? No, no. Were there some tweaks to NEPA? Yes. Both the right and the left are saying that they want to revisit NEPA still and that there needs to be a lot more done. At its base, my interpretation of the NEPA changes, I think they’re relatively cosmetic. And I think that’s, again, what makes this MVP carve out so fascinating. Because it was kind of a brush up on NEPA and then like just a total green light, solely on Mountain Valley.
So yeah, this will continue to be an issue. Permitting reform is at the tip of everyone’s tongue on the Hill, especially in energy circles. And it seems to be an act of Congress they’re looking for. And this definitely is proving to be a bipartisan issue. In both instances, in the House and the Senate side, Republicans and Democrats both had differing views, were both either in opposition or support of both the NEPA aspects and MVP. So it gives us a lot of work to do and a lot of great things to focus on.
TEDDY DOWNEY: Yeah, we’ll see how that plays out when they do these budget bills, I suppose. But yeah, that helps a lot. I think there was kind of a lot of maybe a little bit of excitement about the permitting reform as well, which came in pretty modest.
Well. Daniel, thank you, as always. A lot to cover here. Like I said, I am interested to see how this actually plays out as the construction ramps up. Maybe we will need to take people down on a little fieldtrip at some point if they’re interested. I know I mentioned this last time, if you’re excited to go check this out and you want to see how progress is being made, maybe we could set that up. But thanks so much for taking the time today. And thanks to everyone for joining the call as well.
DANIEL SHERWOOD: Thank you. We’ll be monitoring union job postings like we used to two and a half years ago, Teddy. When it goes into construction, that’s what we do to figure out how successful they are in moving forward.
TEDDY DOWNEY: To this day, one of my favorite stories we did was the pictures of the sideways construction, like the tractors that were like slipping down when it was raining. And I was just like, to this day, I actually don’t understand how they went and got that. I mean, they must have had to wait for it to just get, I don’t know. I mean, how did they go back and get that? It was just like completely sideways. Anyway, that was a fun story, I think. And if anyone wants to go back into The Capitol Forum record books, go back and look at some of those, I think that’s kind of like a good story about the challenges that Mountain Valley Pipeline is just going to face from a logistical standpoint, not a permitting standpoint. All right. With that, thanks, Daniel. Thanks to everyone for joining us. And this concludes the call. Bye‑bye.
