Revisiting the Debate over Natural Gas Pipeline Certifications 

The time is ripe for the Federal Energy Regulatory Commission (FERC) to undertake a new and careful review of its policy guidance regarding certification for new natural gas pipelines. In the nearly two decades since FERC issued its 1999 Policy Statement, conditions in the energy industry, in the markets for natural gas, and in the siting of pipelines and other gas infrastructure have changed significantly. In December 2017, FERC Chairman Kevin J. McIntyre announced that the Commission would move ahead and review its policies governing the certification process.

In its 1999 Policy Statement, FERC stated that its goals for the pipeline certification process were to “foster competitive markets, protect captive customers, and avoid unnecessary environmental and community impacts while serving increasing demands for natural gas. It should also provide appropriate incentives for the optimal level of construction and efficient customer choices.” By 2017, those goals remained valid, but their meaning and application evolved through a complex set of market, technology, and political changes.

These changes are documented in an independent report prepared by an Analysis Group team led by Senior Advisor Susan F. Tierney and supported by funding from the Natural Resources Defense Council (NRDC). Titled Natural Gas Pipeline Certification: Policy Considerations for a Changing Industry , the report examines the certification process and market economics for pipeline projects. These changes include:

• Substantial additions of pipeline capacity to transport natural gas
• Substantial growth in natural gas production (see figure)
• Major locational shifts in natural gas production and pipeline capacity additions relative to demand
• Changes in the price of natural gas
• Growth in and changes in the pattern of demand in different sectors
• Transformations in the character and levels of gas imports and exports

For example, the closer interaction of the U.S. gas and electric industries since the issuance of the 1999 Policy Statement suggests a need for integrated assessment of both markets. Significantly, the interaction of the potential demand for new gas transmission capacity by local gas distribution companies (LDCs) and power plants complicates the assessment of market need. For example, in the Northeast U.S., the nearly exclusive winter LDC demand for natural gas for heating occurs alongside a rapidly growing dependence on gas to meet electric system reliability needs in both summer and winter. There and elsewhere, the economic incentives of organized wholesale power markets have led to little demand for firm gas-transportation service by merchant power companies.

These and other changes discussed in Analysis Group’s report have increased the complexity of natural gas “market need” assessments and have opened the door for re-evaluations of economic alternatives to new interstate pipeline capacity. ■

U.S. Power Supply Capacity Additions by Fuel Type; Cumulative, 1995-2017

Notes & Sources

Update: In April 2018, FERC issued a Notice of Inquiry to consider changes to its 1999 Policy Statement. Dr. Tierney filed remarks on that topic - read about them here.