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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--The $8 billion Atlantic Coast Pipeline, which was terminated over the weekend, may be the first of many pipeline projects to fall.
Despite a recent favorable U.S. Supreme Court ruling on another aspect of the pipeline, two of the owners representing a majority of the Atlantic Coast Pipeline (ACP) pointed to a ruling earlier this year by a federal district court in Montana that the U.S. Army Corps of Engineers violated the federal Endangered Species Act (ESA) when it used its Nationwide Permit 12 authority to expedite the construction of pipelines in the face of ESA challenges.
That court vacated the Corps' nationwide ability to approve "construction of new oil and gas pipelines pending completion of the consultation process and compliance with all environmental statutes and regulations." On May 28, the Montana court's decision was upheld by the U.S. Court of Appeals for the 9th Circuit, which noted that appellants had little chance of overturning the Montana court's decision.
The Montana court's ruling applies across the nation. It is unclear if the 9th Circuit's decision can or will be appealed to the U.S. Supreme Court. It also is unclear how the Trump administration's executive order last month to expedite permitting of energy infrastructure would apply in this case. For more on that, see June 16, 2020, article - Clean Water Act Changes Aim to Speed Energy Projects, but May Delay Them Instead.
But Dominion Energy Incorporated (NYSE:D) (Richmond, Virginia), the project's operator, and Duke Energy Corporation (NYSE:DUK) (Charlotte, North Carolina), decided they had had enough delays and uncertainties and abandoned the project on July 5. Dominion Energy, the operator, owns 48% of the project and Duke Energy owns 47%. A third company, Southern Company (NYSE:SO) (Atlanta, Georgia), owns the remaining 5%.
In a statement on their abandonment of the proposed $8 billion, 600-mile pipeline to bring gas to markets in North Carolina, Virginia and West Virginia, Dominion Energy and Duke Energy, in a joint statement, said "recent developments have created an unacceptable layer of uncertainty and anticipated delays. The potential for a Supreme Court stay of the district court's injunction would not ultimately change the judicial venue for appeal nor decrease the uncertainty associated with an eventual ruling. The Montana district court decision is also likely to prompt similar challenges in other Circuits related to permits issued under the nationwide program including for ACP."
When initially announced in 2014, the ACP project was budgeted at between $4.5 billion and $5 billion. It was scheduled to begin operating in early 2022. But a series of legal challenges "has caused significant project cost increases and timing delays," the companies' statement continued. "These lawsuits and decisions have sought to dramatically rewrite decades of permitting and legal precedent including as implemented by presidential administrations of both political parties." These legal challenges and delays caused the cost of the project to swell to an estimated $8 billion, and it was not clear that a legal or financial end was in sight.
"We regret that we will be unable to complete the Atlantic Coast Pipeline," Dominion Energy's Chairman, President and Chief Executive Thomas Farrell II and Duke Energy Corporation's Chairman, President and Chief Executive Lynn Good said in the joint statement. "For almost six years we have worked diligently and invested billions of dollars to complete the project and deliver the much-needed infrastructure to our customers and communities. This announcement reflects the increasing legal uncertainty that overhangs large-scale energy and industrial infrastructure development in the United States. Until these issues are resolved, the ability to satisfy the country's energy needs will be significantly challenged."
A good bit of the economic rationale for the project was to bring natural gas from the Marcellus Shale to proposed power plants in North Carolina, Virginia and West Virginia, as well as potentially to plants beyond that tri-state area. It is not clear how the loss of up to 1.5 billion cubic feet per day (Bcf/d) of pipeline capacity will affect those other projects.
The proposed pipeline was about 90% subscribed, the leaders of Dominion Energy and Duke Energy said. They noted the "robust demand for the project is driven by the regional retirement of coal-fired electric generation in favor of environmentally superior, lower cost natural gas-fired generation combined with widespread growing demand for residential, commercial, defense, and industrial applications of low-cost and low-emitting natural gas. Those needs are as real today as they were at project inception."
Th same day that Dominion and Duke abandoned the ACP project, Dominion said it would sell substantially all of its gas transmission and storage unit, except for ACP and 50% of its share in the Cove Point liquefied natural gas (LNG) terminal, to a unit of Warren Buffet's Berkshire Hathaway Incorporated (NYSE:BRK.A) (Omaha, Nebraska) for $4 billion in cash and the assumption of about $5.7 billion in debt. The deal is expected to close by yearend.
In an effort to make lemonade out of lemons, Dominion Energy officials told investors that the transaction would accelerate its "strategic repositioning towards a 'pure play' state regulated utility; highlighting its clean energy profile." This narrowed business focus is expected to enhance consistency and transparency, it added.
By selling most of its gas transmission and storage business, Dominion Energy would have 85% to 90% of its business conducted under state regulation, up from about 65% in 2018. The deal also would remove about $5.7 billion of debt off its balance sheet, and three-quarters of the cash the company received in the deal would go to shareholders when the transaction closed.
"Today's announcement further reflects Dominion Energy's focus on its premier state-regulated, sustainability-focused utilities that operate in some of the most attractive regions in the country," Farrell said in a statement Monday.
"We offer an industry-leading clean-energy profile, which includes a comprehensive net zero target by 2050 for both carbon and methane emissions as well as one of the nation's largest zero-carbon electric generation and storage investment programs," he continued. "Over the next 15 years we plan to invest up to $55 billion in emissions reduction technologies including zero-carbon generation and energy storage, gas distribution line replacement, and renewable natural gas. In addition, between 2018 and 2025 we expect to retire more than four gigawatts of coal- and oil-fired electric generation."
Still, investors weren't buying it. In trading Monday, Dominion Energy's stock fell about 10%, much more than Duke's which was down about 3%.
"The Montana court's ruling throws a cloud of uncertainty over tens of billions of dollars of proposed oil and gas pipelines projects across the U.S.," commented Jesus Davis, Industrial Info's North American specialist for the Oil & Gas Production, Pipelines and Terminals industries. "The Army Corps of Engineers' Nationwide Permit 12 program has been widely used in pipeline permits. We don't expect the Atlantic Coast Pipeline will be the only project that is suspended or terminated because of the Montana court's decision."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook-Twitter-LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com/.
Despite a recent favorable U.S. Supreme Court ruling on another aspect of the pipeline, two of the owners representing a majority of the Atlantic Coast Pipeline (ACP) pointed to a ruling earlier this year by a federal district court in Montana that the U.S. Army Corps of Engineers violated the federal Endangered Species Act (ESA) when it used its Nationwide Permit 12 authority to expedite the construction of pipelines in the face of ESA challenges.
That court vacated the Corps' nationwide ability to approve "construction of new oil and gas pipelines pending completion of the consultation process and compliance with all environmental statutes and regulations." On May 28, the Montana court's decision was upheld by the U.S. Court of Appeals for the 9th Circuit, which noted that appellants had little chance of overturning the Montana court's decision.
The Montana court's ruling applies across the nation. It is unclear if the 9th Circuit's decision can or will be appealed to the U.S. Supreme Court. It also is unclear how the Trump administration's executive order last month to expedite permitting of energy infrastructure would apply in this case. For more on that, see June 16, 2020, article - Clean Water Act Changes Aim to Speed Energy Projects, but May Delay Them Instead.
But Dominion Energy Incorporated (NYSE:D) (Richmond, Virginia), the project's operator, and Duke Energy Corporation (NYSE:DUK) (Charlotte, North Carolina), decided they had had enough delays and uncertainties and abandoned the project on July 5. Dominion Energy, the operator, owns 48% of the project and Duke Energy owns 47%. A third company, Southern Company (NYSE:SO) (Atlanta, Georgia), owns the remaining 5%.
In a statement on their abandonment of the proposed $8 billion, 600-mile pipeline to bring gas to markets in North Carolina, Virginia and West Virginia, Dominion Energy and Duke Energy, in a joint statement, said "recent developments have created an unacceptable layer of uncertainty and anticipated delays. The potential for a Supreme Court stay of the district court's injunction would not ultimately change the judicial venue for appeal nor decrease the uncertainty associated with an eventual ruling. The Montana district court decision is also likely to prompt similar challenges in other Circuits related to permits issued under the nationwide program including for ACP."
When initially announced in 2014, the ACP project was budgeted at between $4.5 billion and $5 billion. It was scheduled to begin operating in early 2022. But a series of legal challenges "has caused significant project cost increases and timing delays," the companies' statement continued. "These lawsuits and decisions have sought to dramatically rewrite decades of permitting and legal precedent including as implemented by presidential administrations of both political parties." These legal challenges and delays caused the cost of the project to swell to an estimated $8 billion, and it was not clear that a legal or financial end was in sight.
"We regret that we will be unable to complete the Atlantic Coast Pipeline," Dominion Energy's Chairman, President and Chief Executive Thomas Farrell II and Duke Energy Corporation's Chairman, President and Chief Executive Lynn Good said in the joint statement. "For almost six years we have worked diligently and invested billions of dollars to complete the project and deliver the much-needed infrastructure to our customers and communities. This announcement reflects the increasing legal uncertainty that overhangs large-scale energy and industrial infrastructure development in the United States. Until these issues are resolved, the ability to satisfy the country's energy needs will be significantly challenged."
A good bit of the economic rationale for the project was to bring natural gas from the Marcellus Shale to proposed power plants in North Carolina, Virginia and West Virginia, as well as potentially to plants beyond that tri-state area. It is not clear how the loss of up to 1.5 billion cubic feet per day (Bcf/d) of pipeline capacity will affect those other projects.
The proposed pipeline was about 90% subscribed, the leaders of Dominion Energy and Duke Energy said. They noted the "robust demand for the project is driven by the regional retirement of coal-fired electric generation in favor of environmentally superior, lower cost natural gas-fired generation combined with widespread growing demand for residential, commercial, defense, and industrial applications of low-cost and low-emitting natural gas. Those needs are as real today as they were at project inception."
Th same day that Dominion and Duke abandoned the ACP project, Dominion said it would sell substantially all of its gas transmission and storage unit, except for ACP and 50% of its share in the Cove Point liquefied natural gas (LNG) terminal, to a unit of Warren Buffet's Berkshire Hathaway Incorporated (NYSE:BRK.A) (Omaha, Nebraska) for $4 billion in cash and the assumption of about $5.7 billion in debt. The deal is expected to close by yearend.
In an effort to make lemonade out of lemons, Dominion Energy officials told investors that the transaction would accelerate its "strategic repositioning towards a 'pure play' state regulated utility; highlighting its clean energy profile." This narrowed business focus is expected to enhance consistency and transparency, it added.
By selling most of its gas transmission and storage business, Dominion Energy would have 85% to 90% of its business conducted under state regulation, up from about 65% in 2018. The deal also would remove about $5.7 billion of debt off its balance sheet, and three-quarters of the cash the company received in the deal would go to shareholders when the transaction closed.
"Today's announcement further reflects Dominion Energy's focus on its premier state-regulated, sustainability-focused utilities that operate in some of the most attractive regions in the country," Farrell said in a statement Monday.
"We offer an industry-leading clean-energy profile, which includes a comprehensive net zero target by 2050 for both carbon and methane emissions as well as one of the nation's largest zero-carbon electric generation and storage investment programs," he continued. "Over the next 15 years we plan to invest up to $55 billion in emissions reduction technologies including zero-carbon generation and energy storage, gas distribution line replacement, and renewable natural gas. In addition, between 2018 and 2025 we expect to retire more than four gigawatts of coal- and oil-fired electric generation."
Still, investors weren't buying it. In trading Monday, Dominion Energy's stock fell about 10%, much more than Duke's which was down about 3%.
"The Montana court's ruling throws a cloud of uncertainty over tens of billions of dollars of proposed oil and gas pipelines projects across the U.S.," commented Jesus Davis, Industrial Info's North American specialist for the Oil & Gas Production, Pipelines and Terminals industries. "The Army Corps of Engineers' Nationwide Permit 12 program has been widely used in pipeline permits. We don't expect the Atlantic Coast Pipeline will be the only project that is suspended or terminated because of the Montana court's decision."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook-Twitter-LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com/.
