COVERAGE AREA and macrothesis

Since the Trump Administration took office, environmental groups and, increasingly, landowners have broadened their attacks on federal permits for energy infrastructure. The results – more frequent court injunctions and invalidated permits – have materially delayed both oil and natural gas pipelines. While the Federal Energy Regulatory Commission (FERC) has succeeded in defending its environmental permits, courts have vacated and remanded permits issued by Interior Department agencies. The U.S. Army Corps of Engineers has had mixed results.

To date, landowner lawsuits challenging the FERC’s overall permit approach enshrined in its 1999 Certificate Policy Statement have failed, but the courts appear increasingly sympathetic; wins on this front may only be a matter of time. Landowner-litigants appear to be getting more sophisticated at the same time that FERC’s permitting decisions reflect increasingly partisan underpinnings. The Commission also moved forward with a key rulemaking to push the savings associated with lower corporate taxes through pipeline rates; implementation continues in 2019.

After two years of all-Republican leadership in Washington failed to materially accelerate infrastructure permitting, a Democrat-majority House makes legislative changes unlikely, in our view. Increased oversight and criticism of the Council on Environmental Quality by Democratic Party Committee leaders could slow and narrow the agency’s efforts to reform and streamline federal agency reviews under the National Environmental Policy Act.

Meanwhile, fundamentally, a sharp increase in Permian Basin oil and associated gas production during CY 2018 exceeded the pace of pipeline takeaway capacity additions. We expect bottlenecks to persist until 2H2019, resulting in wide price discounts for Permian producers relative to Gulf Coast markers. Additionally, we assess that oil pipeline take-away capacity bottlenecks in Western Canada and the Bakken Region could result in the need for increased crude by rail into CY 2020.

Our coverage combines ongoing assessments of rates of return with deep dives into critical issues, such as cross-border pipelines and federal permitting processes. Clients receive as-needed research notes, reports and flash blasts regarding all of these topics. In addition, our monthly Regulated Energy Playbook for investors outlines key themes, examines recent legislative, regulatory and judicial developments and presents forward-looking assessments of coming events.

Updated: December 24, 2018.