US fracking companies fear the impact of President Biden’s plan to lower the number of drilling leases on federal land. Analysts see no near-term effect on volumes or prices until 2022, but warn a complete halt on new production would effectively zero out the Gulf of Mexico, much of the Permian’s section in New Mexico and a large chunk of Wyoming.
Today, there are still enough approved and valid permits in place to underpin production well into the second half of 2022. But beyond next year, however, and certainly by 2024, the new production that would have come from federal lands will need to be replaced.
Much of the industry’s fear is caused by uncertainty given that the Biden administration has not yet fully clarified its new energy policy. The lack of transparency has caused doubt as to whether existing permits will be renewed beyond their standard two-year expiry, or if federal offshore permits be treated differently.
Analysts at the London-based consultancy Energy Aspects stressed overall thrust of Biden’s environmental policy shift “points to potential supply problems in a few years.” Concerns about future shortages are already starting to be reflected in Henry Hub prices, a few years down the curve.
FERC toughens gas pipeline oversight
Under the Biden Administration, the Federal Energy Regulatory Commission (FERC) is moving towards toughening certification of new interstate natural gas pipelines, now likely to face permit hurdles such as satisfying “environmental justice” issues and answering the question of why gas-fired power is needed if renewables are available.
The FERC has issued a supplemental Notice of Inquiry seeking additional comments on whether and how it should revise its approach under its permit process for new interstate natural gas pipelines. US lawyers say the move indicates that the FERC is considering sweeping changes to its natural gas pipeline certification process. Now, the FERC has broadened the questioning of natural gas pipeline projects from the already comprehensive list issued in April 2018.
With the February 2021 notice, the FERC reopens the comment process. The parameters changed with regards to the National Environmental Policy Act (NEPA) regulations, requiring agencies to review their processes and streamline environmental reviews. Secondly, President Biden recently signed an Executive Order, number 14008, which creates a “whole government” approach to tackling climate change.
Pipeline projects at risk
Moving swiftly to reconfigure US energy policy, the new US President cancelled the Keystone XL oil pipeline in his first week in office and announced emissions costs would now be factored into project reviews. Analysts warned this could put key gas interconnectors at risk, notably the 2.0 Bcf per day Mountain Valley Pipeline meant to alleviate take-away constraints from the Appalachian.
A timely start-up of the 2 Bcf/d interstate pipeline would help dent growing demand for natural gas in the U.S. Southeast. Set to transport shale gas produced at the prolific Marcellus and Utica Basins, it will provide up to two million dekatherms per day of firm transmission capacity to markets in the Mid- and South Atlantic regions.
Construction on a disputed stretch of the pipeline has been proceeding since September 2018, after FERC lifted a stop-work order. However, the regulator’s recent vote on Equitrans’ request to bore under streams in West Virginia, necessary to complete preparatory work for the pipeline, resulted in a deadlock 2-2 vote. Construction now cannot move ahead on even the first 77 miles of the total 303 mile pipeline.
Analysts at Energy Aspects say “FERC’s recent stalemate vote will delay Mountain Valley Pipeline beyond its currently stated in-service date in the fourth quarter of 2021, likely to the second half of 2022.” Considering FERC did not reject the developer’s request outright Equitrans still hopes the decision on cross-streaming will be revisited in the coming months.
Equitrans, the anchor shipper on the Mountain Valley Pipeline, holds 65% or 1.3 Bcf/d of total capacity. The company has made plans to sell down its capacity on the pipeline as it expects to hold production flat y-o-y in 2021.