Movin' On Up - Will the SCOTUS Ruling Save the PennEast Natural Gas Pipeline?

The developers of the embattled PennEast Pipeline project this week caught a big break: over the objections of the state of New Jersey and in contradiction to a prior lower court ruling, the Supreme Court said in a 5-4 decision on Tuesday that the project could exercise eminent domain in order to seize state-owned land necessary for building its 1.1-Bcf/d Appalachia takeaway pipeline. The ruling, while not a slam dunk for the pipeline’s completion, offers a ray of hope to a project that was all but dead for the past couple of years and that many had written off. It also represents an increasingly rare victory for the frequently vilified gas industry in the Northeast. The pipeline represents more capacity and greater optionality for producers in the northeastern Pennsylvania region who currently have limited takeaway options and are facing worsening pipeline constraints even as prices and downstream demand are taking off. Today, we provide an update on the PennEast project and its implications for the Appalachian gas market.

As much as Marcellus/Utica producers have dealt with pipeline takeaway constraints in recent years, pipeline developers in the Northeast have battled environmental opposition and regulatory hurdles for building greenfield pipeline capacity there. PennEast is among the greenfield projects that have faced some of the staunchest opposition. It’s also one of few still left in the fight to cross the finish line.

PennEast — a joint venture of five companies including Enbridge, Southern Company Gas, NJR Pipeline Co., SJI Midstream, and UGI Energy Services — first joined the fray of Appalachian gas takeaway projects in 2014, proposing to build a ~120-mile, 36-inch-diameter mainline (dashed black line in Figure 1 map) that would move ~1.1-Bcf/d from Luzerne County, PA, southeast across the Delaware River into New Jersey, with a termination point at an interconnect with Transco Pipeline (blue line) in Mercer County, NJ. The project would help provide incremental takeaway out of the northeastern Pennsylvania area of the Marcellus, which, as we noted in Headed for Heartbreak Part 2, remains something of an island within the Northeast production region because of its more limited takeaway options and overall tighter egress (as compared to the southwestern Pennsylvania, West Virginia, and eastern Ohio producing areas). PennEast received a favorable environmental impact statement (EIS) from the Federal Energy Regulatory Commission (FERC) in April 2017 and its FERC certificate in January 2018. Since then, the project has been modified, including rerouting portions of the mainline in Pennsylvania and New Jersey to address landowner concerns. The developers also decided last year to split the project into Phase 1 (dashed yellow-and-black portion) and Phase 2 (dashed brown-and-black section) in order to progress with the parts of the pipeline that were not dependent on the New Jersey permits (more on the phased project details a little later).

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