It’s understandable for politicians to want energy markets to bend to their will — especially when it comes to gasoline prices. No one likes spending $60, $70 or $80 to fill up their car, SUV or pickup and, well, drivers are voters. The problem is, there’s no simple way to bring down gas prices, and that puts politicians in a quandary. Faced with public outrage, they feel pressured to respond and, with no easy fix at hand, they strain to develop legislative or regulatory “solutions” that in the end may not solve anything. In today’s RBN blog, we discuss the various efforts in the U.S. and overseas to monkey with market mechanisms and rein in the cost of motor fuel.
Europe is trying to wean itself off Russian natural gas, and few things would help it more than an expansion of U.S. LNG export capacity. But LNG projects don't just need long-term commitments for their output, they also need pipelines to transport natural gas from the Marcellus/Utica and other distant production areas to their coastal liquefaction plants. And, in case you hadn't noticed, new interstate gas pipelines face a lot of hurdles during the regulatory review process these days — getting a pipeline approved is tougher than snagging a Saturday morning tee time. Which brings us to, of all things, an important court ruling. In today's RBN blog, we discuss the implications of the DC Circuit's decision in City of Oberlin v. FERC.
In its landmark West Virginia v. EPA decision, the Supreme Court on Thursday scaled back the powers of the Environmental Protection Agency — and, it would seem, other federal administrative agencies — to implement regulations that extend beyond what Congress specifically directed in its authorizing legislation, in this case the Clean Air Act. The ruling didn’t go as far as throwing out the long-standing deference of courts to federal agencies’ interpretations when it comes to acting under statutory law where there’s any ambiguity — the so-called “Chevron Deference” doctrine. But it does impose a threshold roadblock to the use of the doctrine, based on the “Major Question” doctrine. Yep, we have a duel of the doctrines here. The end result here is to hamstring the EPA and the Biden administration from reinstating emissions-limiting rules similar to the ones the Obama EPA put forth a few years ago in the “Clean Power Plan,” at least not without legislative approval. Most of the oil and gas industry and a lot of the power industry are likely to welcome the check on this particular regulatory authority, and certainly most of the oil and gas industry welcomes some restraint on the EPA in general. However, the broader implications of the ruling could make life more difficult in the near-term for industries like oil and gas that rely on a stable, or at least semi-predictable, regulatory environment for making long-term plans. In today’s RBN blog, we explain what was at stake in this case and what the decision could mean for the oil and gas industry.
In the aftermath of the massive Winter Storm Uri in February of last year and its impact on the natural gas industry, there has been a blizzard of civil and regulatory litigation. Whether it’s someone not providing contracted gas supply, not taking expensive must-take gas supply, or saying “not that contract, but this contract” where there was a big difference in pricing between the two, lawyers are having a field day with the meaning of two words: force majeure. To what extent was one party to an agreement protected from being in breach of contract because their deal said some things could be force majeure, or beyond their control? The purchase and sale of natural gas at issue in these contracts is overwhelmingly done through a standard base contract produced by the North American Energy Standards Board, or NAESB (pronounced “Nays-be,” not “Nazz-be”). In today’s RBN blog, we discuss the standard contract used for the vast majority of natural gas supply deals in the U.S. and how its provisions relate to the issues raised by last February’s Deep Freeze.
Oil and gas pipeline regulation have two things in common: They’re both regulated by the Federal Energy Regulatory Commission (FERC), and they were both brought under regulatory oversight in the first place by a Roosevelt — oil pipelines by Teddy Roosevelt and gas pipelines by Franklin Roosevelt. However, that’s where the similarities end. They’re regulated under different statutes, with wildly different histories that have led to very different types of oversight and rate structures. These rules tend to offer oil pipelines a higher degree of flexibility, but in doing so, they also make their rate structures less predictable. Today, we wrap up our review of oil and gas pipelines, and how their separate histories led to the current differences in pipeline rate structures, this time with a focus on oil pipeline ratemaking.
The uninitiated might be forgiven for thinking that oil and gas pipeline operations are similar. After all, they’re just long steel tubes that move hydrocarbons from one point to another, right? Well, that’s about where the similarity ends. While the oil and gas pipeline sectors are interlinked, they developed in quite distinctly different ways and that’s led to a vast chasm in both the way the two are regulated and how their transportation rates are determined. Bridging that gap between oil and gas can be a perilous and chaotic endeavor because you’ve got to consider how each sector evolved over time and the separate sets of rules that have been established to form today’s competitive marketplace. In today’s blog, we continue our review of oil and gas pipelines and how their separate histories led to the current differences in pipeline rate structures.
Here at RBN, we’ve built our analytics around the concept that hydrocarbon commodity markets — crude oil, natural gas, and NGLs — are fundamentally and closely linked. That’s why in all that we do, we emphasize that, in order to have an understanding of one market, you must also be competent in the others. That can be difficult at times when not only the market structure, but the very rules governing the upstream, midstream, and downstream sectors of oil and natural gas transportation are so different from each other. For example, consider the many contrasts between how oil and natural gas pipelines are regulated. Today, we look at how federal oversight of pipelines has evolved and why it matters for folks trying to move a barrel of crude oil or an Mcf of natural gas from Point A to Point B.
The demand destruction caused by COVID-19 hasn’t only hurt producers and refiners; it’s also slowed the development of a number of planned midstream projects. In fact, the only multibillion-dollar crude-related project to reach a final investment decision (FID) during the pandemic is TC Energy’s Keystone XL, which in late March won financial backing from Alberta’s provincial government. But Keystone XL soon hit another snag, this time in the form of U.S. district and appellate court rulings that vacated the project’s Nationwide Permit 12 for construction in and around hundreds of streams and wetlands along the U.S. portion of the pipeline’s route in the U.S. More important, the courts also put on ice — at least for now — the use of the general water-crossing permit for other new oil and natural gas pipelines as well. As we discuss in today’s blog, that could result in delays and legal challenges to dozens of projects that midstreamers and their counterparties have been counting on.
On Thursday, June 18, the Federal Energy Regulatory Commission (FERC) issued a Notice of Inquiry (NOI) to reset the index that’s used to make annual changes to the rate ceilings for interstate pipelines that transport crude oil, refined products, and other hydrocarbon liquids. Every year, the highest rate an indexed oil pipeline can charge goes up or down — almost always up — using the FERC index. The commission’s new proposal, which would become effective in July 2021, follows an already-approved index adjustment that will take effect a week from Wednesday, on July 1. Taken together, the two changes would reduce the maximum annual increase in the rate ceiling from more than 4% now to less than 1%, which could have a major impact on liquids pipeline owners. Today, we discuss the NOI, the meaning of the pipeline index, where it came from, and where it might be headed.
The trade war between the U.S. and China continues to intensify — and now the rhetoric is shifting from steel and soybeans to oil and gas. What started as just an exchange of escalating bluster has developed into real tariffs that will be enacted beginning August 23 — which will include petroleum-based products like LPG and refined products. The commodities that would have the biggest impacts on global trade flows, liquefied natural gas and crude oil, were under tariff threat as well. LNG is still on a list of potential commodities to receive tariffs in the future, while crude has since been removed. But, keep in mind that today’s state of affairs could change tomorrow, so tariffs on those two commodities should be considered very much on the table. Today, we examine the potential trade war fallout for growing exports of U.S. LNG and crude oil.
Back on March 15, the Federal Energy Regulatory Commission shook up master limited partnerships (MLPs) and their investors by deciding that income taxes would no longer be factored into the cost-of-service-based tariff rates of MLP-owned pipelines. We said then that there was no need to panic. In part, this was based on the view the FERC policy wouldn’t affect as much of the industry as some worried it would. But more importantly, our soothing message was tied to the fact it would take a long time for this to play out. It looks like we were right to have some confidence. Today, we explain why the commission’s July 18 vote on a topic as nerdy as “accumulated deferred income taxes” can warm the hearts of MLP investors.
There has been a lot of acrimony and polarization among the natural gas industry, the environmental community, various consumer advocates, industrial energy users, organized power markets and renewables developers in recent years. However, the ongoing government efforts to prop up the power sector’s coal-fired and nuclear generators have succeeded in uniting all those disparate interests into a single voice saying a single word: No! Today, we discuss the history of the administration’s planned support of coal and nuclear, the unusually unified reaction to it from groups that are more often at odds with each other, and some underlying assumptions about natural gas that aren’t — well — how the gas industry says it works.
Two months ago, the Federal Energy Regulatory Commission shook up master limited partnerships (MLPs) and their investors by deciding that income taxes would no longer be factored into the cost-based tariff rates of MLP-owned pipelines. We said then that there was no need to panic — that all this will take time to play out, and that the end results may not be as widespread or dire as some feared. Today, we provide an update, dig into FERC’s other actions on changes in income taxes, and discuss the phenomenon known as “FERC Time.”
The aftershocks are still being felt from last Thursday’s decision by the Federal Energy Regulatory Commission (FERC) that interstate gas and liquids pipelines’ cost-based tariff rates can’t include anything for income taxes if the pipelines are owned by master limited partnerships (MLPs) — and most are. Many investors did freak out — no other phrase sums it up better — when they heard that news. Share prices for midstream companies plummeted in midday trading, and we imagine that many angry calls were made by investors to their financial advisers. “Why didn’t we know about this?!” In fact, although this proceeding had been simmering for a while, FERC’s action was harsher than expected by most experts. But the impact of the change is likely to be less far-reaching than the Wall Street frenzy would have you believe, at least for most MLPs. And, by the way, the issue at hand — whether and how to factor in taxes in calculating MLPs’ cost-of-service-based rates for interstate pipelines –– has been around for decades. Today, we discuss FERC’s new policy statement on the treatment of income taxes and what it means for natural gas, crude oil, natural gas liquid (NGL) and refined product pipeline rates; and for investors in MLPs that own and operate the systems.
Last Wednesday, November 22, the Federal Energy Regulatory Commission acted on a Petition for Declaratory Order (PDO) by Magellan Midstream Partners in which the midstreamer asked for FERC’s blessing to establish a marketing affiliate to “buy, sell and ship” crude oil on pipelines owned by Magellan as well as pipes owned by other companies. Today Magellan does not have such an affiliate, although many of its competitors do. Most of those competitors use their affiliates to generate incremental throughput on their pipelines, sometimes by doing transactions that result in losses for the marketing affiliate, but that are still profitable for the overall company because the marketing arm pays its affiliated pipeline the published tariff transportation rate. FERC denied Magellan’s request, coming down hard on such transactions as “rebates” specifically prohibited by the law governing interstate oil pipelines. In today’s blog, we take a preliminary look at FERC’s Magellan order and what it could mean for U.S. crude oil markets.