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Natural Gas & Liquefied Natural Gas (LNG)
- A Record Year for Natural Gas: Several notable milestones have been reached this year in the production and use of domestic natural gas, including the first time natural gas surpassed coal as a fuel source for electricity generation. Key natural gas milestones include:
- Total production set a new year-to-date record at 72 Bcf/d, which was up 4%;
- Power burn – the use of natural gas for electric power generation – surpassed the use of coal as a fuel source for the first time in April and again in July;
- The Northeast became a net exporter of natural gas for the first time this summer;
- U.S. exports to Mexico set a monthly record high in July, averaging 3.3 Bcf/d and averaged 35% higher in the first seven months of the year than in the same period last year; and
- Natural gas storage inventories may reach a record level of 4 Tcf by the end of the injection season.
- Pipeline Capacity to Transport Gas from the Northeast Expands: The Federal Energy Regulatory Commission (FERC) recently noted that pipeline projects designed to transport the growing supply of natural gas produced in the Northeast to markets west and south continue to expand. FERC explained that since 2014, 9 Bcf/d of capacity has been added to facilitate flows out of the Northeast, with an additional 2 Bcf/d of capacity expected by the end of 2015. FERC stated that “over 25 Bcfd of additional pipeline capacity by 2018 has been either approved by or filed with FERC.”
- DOE Authorized Export of Compressed Natural Gas (CNG) from Florida to Non-FTA Countries: On October 19, the U.S. Department of Energy issued final authorization for Emera CNG, LLC to export up to 0.008 Bcf/d of compressed natural gas (CNG) to non-FTA countries from a port to be located in the Port of Palm Beach in Florida. CNG is subject to export approval in the same manner as LNG under the Natural Gas Act. Accordingly, the DOE applies the same public interest review in evaluating CNG export applications as it does for LNG applications. The Emera CNG application was not subject to FERC approval. The latest LNG export authorization issued by the DOE was to American LNG Marketing, LLC in August 2015, approving the export of 0.008 Bcf/d of LNG from Florida to non-FTA countries. The DOE dockets for 2014 and 2015 CNG and LNG export applications are available online. The status of all Lower 48 LNG export applications before the DOE is available as of October 14, 2015. The FERC status of proposed North American LNG export terminals and approved North American LNG import/export terminals is available as of October 20, 2015.
- Updated International Data Reflects Qatar as Leading LNG Exporter: The EIA’s October 20th country data update reflects that in 2013 Qatar was the world’s fourth-largest dry natural gas producer, behind the U.S., Russia, and Iran, and the second-largest exporter of natural gas. According to the report, Qatar has been the world’s leading LNG exporter since 2006, having 31% of market share in 2014. The 2013 top 10 natural gas exporters were identified in the report as Russia, Qatar, Norway, Canada, Netherlands, Turkmenistan, U.S., Algeria, Malaysia, and Austria.
- Duke Energy to Buy Piedmont Natural Gas, Atlantic Coast Pipeline Seeks FERC Approval: On October 26, Duke Energy (Duke) and Piedmont Natural Gas (Piedmont) announced their Board approvals for Duke to purchase Piedmont for $4.9 billion in cash, plus the assumption of approximately $1.8 billion of Piedmont debt. The companies aim to close the deal by the end of next year. Duke and Piedmont are two major partners in the Atlantic Coast Pipeline project, which will transport natural gas from West Virginia through Virginia and into eastern North Carolina to secure additional reliable and cost-effective fuel for power generation. The Atlantic Coast Pipeline filed an application for authorization with FERC in September 2015. This deal between Duke, the largest electric power holding company in the U.S., and Piedmont exemplifies the increasing interdependencies of the electric and natural gas industries.
- PHMSA Proposes New Hazardous Liquid Pipeline Safety Regulations: In October, the U.S. Department of Transportation, Pipeline and Hazardous Materials Safety Administration (PHMSA) announced a proposal to modify safety regulations for pipelines that transport hazardous liquids, including crude oil. The proposal includes seven key modifications to the current hazardous liquid pipeline safety regulations, including (1) extending certain reporting requirements to gravity lines, which are pipelines that transport product using gravity and currently are exempt from PHMSA regulations; (2) extending certain reporting requirements to all hazardous liquid gathering lines, whether onshore, offshore, regulated, or unregulated; (3) requiring inspections of pipelines in areas affected by extreme weather, natural disasters, and other similar events; and (4) increasing the use of inline inspection tools by requiring that any pipeline that could affect a high consequence area be capable of accommodating the devices within 20 years, unless its basic construction will not permit the accommodation. PHMSA estimates that 421 hazardous liquid operators may incur costs to comply with the proposed rule, with aggregate costs reaching approximately $22.4 million. Written comments must be submitted by January 8, 2016.
- Budget Deal Includes Sale of Strategic Petroleum Reserves: The budget deal struck between the White House and members of Congress includes provisions for the sale of U.S. oil from the Strategic Petroleum Reserves (SPR) over the course of 2018-2025, with proceeds to be “deposited into the general fund of the Treasury.” The budget was signed into law by the President on November 2nd. In an early October hearing, Sen. Lisa Murkowski, Chair of the Senate Committee on Energy and Natural Resources, expressed her opposition to selling the SPR to raise cash for non-energy related purposes: “I believe it’s premature to be selling off portions of the reserve before we know the full impacts such a sale could have on our energy security…I believe looking at the reserve as nothing more than an ATM is wrong and irresponsible.” Energy Secretary Moniz expressed his view that selling the SPR would run counter to energy security interests: “Today’s low oil prices, increased domestic oil production and reduced U.S. oil import dependency have led some to conclude that selling large volumes of oil from the SPR for purposes not related to energy security will have no impact on its energy security benefits. This view fails to recognize that the SPR remains an extremely powerful and valuable energy security tool.”
- State Budget Brings Changes to N.C. Agency for Environmental & Energy Policy: The 2015-2016 North Carolina state budget ushered in changes to the agency formerly known as the Department of Environment and Natural Resources (NCDENR). Effective September 18, 2015, the name of the NCDENR was changed to the Department of Environmental Quality (NCDEQ). Consistent with the name change, the agency’s priorities were reorganized to shift responsibility for natural resource attractions and two programs to the newly named Department of Natural and Cultural Resources (previously the Department of Cultural Resources). The NCDEQ expressed that the change will permit it “to focus its efforts on environmental protection, regulation and energy policy.”
Federal Energy Regulatory Commission (FERC)
- FERC Issues Final Rule Modifying Market-Based Rate Program for Wholesale Electricity, Capacity and Ancillary Services: On October 16, FERC issued Order No. 816 reflecting the draft final rule, Refinements to Policies and Procedures for Market-Based Rates for Wholesale Sales of Electric Energy, Capacity and Ancillary Services by Public Utilities. The rule was initiated in June 2014 to streamline and clarify certain aspects of the market-based rate program for sales of electric energy, capacity, and ancillary services with the goals of reducing the burden on market-based rate sellers and the agency, and increasing transparency. The final rule adopted several of the agency’s original proposals – a FERC staff summary of the final rule’s key provisions can be found here. Ultimately, the final rule did not remove the requirement that market-based rate sellers in RTO and ISO markets must submit the indicative screens used by FERC to conduct horizontal market power analysis. The final rule proposes to transfer this issue to a separate docket for further consideration as deemed appropriate. The final rule becomes effective 90 days after publication in the Federal Register.
- FERC Issues Order Exempting Natural Gas Supply AMAs from Buy/Sell Prohibition: At its October 15th Commission Meeting, FERC issued an order clarifying that its established buy/sell prohibition adopted in Order No. 636 does not apply to supply asset management agreements (AMAs). The buy/sell prohibition was established to prevent the circumvention of FERC’s natural gas pipeline capacity release requirements, but FERC exempted delivery AMAs from the buy/sell prohibition in Order No. 712. In this most recent order, FERC clarifies that (1) Order No. 712 only established an exemption from the buy/sell prohibition with respect to delivery AMAs; and (2) Order No. 712’s rationale for holding that the buy/sell prohibition adopted in Order No. 636 is not applicable to delivery AMAs is equally applicable to supply AMAs. FERC found that “buy/sell transactions in which the releasing shipper in a supply AMA sells its natural gas to its asset manager, the asset manager transports the gas over the released capacity, and the asset manager then resells the natural gas to the releasing shipper are not buy/sell transactions of the type prohibited by Order No. 636.”
U.S. Department of Energy (DOE)
- DOE Quadrennial Technology Review Supports Agency Investment in Energy Infrastructure Cybersecurity: The DOE recently released its Quadrennial Technology Review 2015, which analyzes the science and technology underpinning our energy system and opportunities to advance them. Energy security is identified as one of three foundational strategic objectives, with cybersecurity presenting significant challenges due to expanding risks arising from increased reliance on technology to manage energy systems. On October 9, the DOE announced that it awarded $34 million to two projects spearheaded by the University of Arkansas and the University of Illinois that are focused on girding up the U.S. electric grid and oil and gas infrastructure against cyber threats. In collaboration with other partners, the Universities will lead efforts to develop new technologies to protect the delivery of reliable energy.
U.S. Environmental Protection Agency (EPA)
- EPA Tightens Ozone Standards: On October 1, the EPA issued a final rule tightening the primary and secondary National Ambient Air Quality Standards (NAAQS) for ground-level ozone to 70 parts per billion (ppb) from 75 ppb, with the stated goal of protecting public health and welfare. The rule was published in the Federal Register on October 26, and becomes effective December 28, 2015. Additional details regarding the rule are available here.
- EPA Sets 1st Limits on Toxic Metals Released into Waste Water by Power Plants: The EPA recently finalized its 2015 Steam Electric Power Generating Effluent Guidelines, which establish the first federal limits on the amounts of toxic metals and other pollutants (e.g., arsenic, mercury, selenium) that can be released into waste water by power plants. The EPA identified impacted facilities as certain coal-fired steam electric power plants, anticipating that approximately 12% of steam electric power plants will incur costs of compliance. Under the rule, each plant will have to comply between 2018 and 2023 depending on renewal of its Clean Water Act permit.
U.S. Department of the Interior (DOI)
- BLM Proposed Rule for Measurement and Reporting of Gas from Federal and Indian Leases: According to DOI data, approximately 10% of the U.S. natural gas supply and 7% of domestic oil supply is produced from Federal and Indian onshore oil and gas leases. In October, the BLM issued a proposed rule to “establish the minimum standards for accurate measurement and proper reporting of all gas removed or sold from Federal and Indian leases (except the Osage Tribe), units, unit participating areas, and areas subject to communitization agreements….” The current rules were issued in 1989 and BLM seeks to modernize the rules in keeping with developments in federal law and modernization of the industry. DOI ascribes a market value upwards of $30 billion to the oil and gas produced from Federal and Indian leases in 2014, which resulted in more than $4 billion in royalties. A discussion of the proposed rule and substantive changes is available in the Federal Register. Comments must be submitted by December 14, 2015.
- U.S. Supreme Court Will Hear Challenge to Maryland Gas-Fired Power Plant Incentive Program: Given the ongoing shift to natural gas fueled electric power generation, the state of Maryland determined a need for an additional gas-fired power plant and designed an incentive to garner the investments necessary from developers to construct the plant. As described, the Maryland Public Service Commission offered “contracts of difference” to developers whereby the developer would agree to construct and operate the power plant and sell the capacity through federal auction. “The local utilities would pay the developer the difference between the developer’s auction sales revenue and its bid price to build and operate the plant. If the developer’s auction sales revenue exceeded the bid price, the developer would rebate the difference to the utilities. The local utilities would, in turn, recover their costs from (or rebate surpluses to) their retail customers.” The Fourth Circuit Court of Appeals invalidated Maryland’s program on the basis that it exceeded the state’s authority to regulate electricity rates and impinged upon FERC’s authority to regulate wholesale electricity sales. On October 19, the Supreme Court granted two questions for review regarding whether the program was “field preempted” and “conflict preempted.” A petition to review a case based on the Third Circuit’s similar rejection of a New Jersey program also is pending before the Supreme Court.
- U.S. Supreme Court Questions FERC Authority to Regulate Electricity Market Demand Response to Bolster Grid Reliability: Balancing the supply of electricity with fluctuating demand takes place in the wholesale electricity markets on a real-time and day-ahead basis, using supply-side initiatives as well as demand-side initiatives. “Demand response” is a demand-side initiative under which electricity users are paid to reduce their usage of power at particular times, instead of increasing the supply of electricity to meet increasing demand. On October 14, the U.S. Supreme Court heard oral argument in two consolidated cases that call into question the FERC’s authority to regulate the methodology for determining the compensation paid to demand response participants in the wholesale electricity markets and the viability of the methodology that FERC did establish, assuming the agency does have jurisdiction. Read our full post for additional details.
- Federal Court Hits Pause on BLM Fracking Rule Nationwide: The final federal rule regulating hydraulic fracturing (fracking) on federal and Indian lands was issued by the U.S. Bureau of Land Management (BLM) in March 2015 and was met with swift opposition from several states, an Indian tribe, and industry participants. The petitioners are challenging the BLM’s authority to issue the rule and the agency’s underlying justification for the rule. They were successful in preliminarily stalling enforcement of the BLM’s rule, which originally was supposed to take effect in June 2015. The Wyoming federal District Court found that petitioners were likely to succeed in their challenge for multiple reasons, including (1) Congressional intent expressed in the Energy Policy Act of 2005 to remove fracking from the purview of federal agencies, unless it involves the use of diesel fuels; (2) a lack of sufficient justification for issuing the rule, given ongoing state and tribal regulation and no evidence of a risk posed to ground water; and (3) the agency’s failure to consult adequately with the Ute Indian Tribe. The court opined that the rule “creates an overlapping federal regime, in the absence of Congressional authority to do so, which interferes with the States’ sovereign interests in, and public policies related to, regulation of hydraulic fracturing.” The court also found that industry petitioners faced potential irreparable harm due to potential revelation of trade secrets and costs required to comply with the rule. “At this point, the Court does not believe Congress has granted or delegated to the BLM authority to regulate fracking.” Accordingly, the court issued a preliminary injunction preventing the BLM from enforcing the rule nationwide.
- U.S. House Casts Bi-Partisan Vote to Lift Restrictions on Export of U.S. Crude Oil: H.R. 702 – To adapt to changing crude oil market conditions, which seeks to lift the current restrictions on the export of domestic crude oil, was introduced in the U.S. House in February of this year. The Act was passed with amendment by the House Energy & Commerce Committee and sent to the full House in September, finding its way to the House calendar for consideration this month. The White House has expressed the administration’s opposition to Congressional efforts to lift the restrictions on oil exports, issuing an October 6 statement declaring that “[l]egislation to remove crude export restrictions is not needed at this time. Rather, Congress should be focusing its efforts on supporting our transition to a low-carbon economy.” If presented with H.R. 702, the President’s advisors “would recommend that he veto the bill,” the statement concluded. Nonetheless, on October 9, the full U.S. House of Representatives considered and decided in a 261/159 bi-partisan vote to pass H.R. 702 with additional amendments to the Act. For more information read our full post.
- Senators Introduce Legislation to Prohibit Offshore Drilling off Coasts of CA, OR, WA: On October 7, Democratic U.S. Senator Barbara Boxer was joined by Senator Maria Cantwell, Ranking Member of the Senate Energy and Natural Resources Committee, as well as Senators Dianne Feinstein, Patty Murray, Ron Wyden and Jeff Merkley, in introducing S.2155 – The West Coast Ocean Protection Act. The Act aims to impose a permanent prohibition on oil and natural gas offshore drilling activities on the outer continental shelf of California, Oregon, and Washington.
- Comprehensive Energy Legislation Advances in House and Senate: In September, the comprehensive energy bills introduced by House and Senate energy committees advanced out of committee for consideration by the full House and Senate. H.R. 8: North American Energy Security and Infrastructure Act of 2015, introduced by Rep. Fred Upton, focuses on four overarching issues: modernizing and protecting infrastructure, energy and manufacturing workforce development, energy security and diplomacy, and energy efficiency and accountability. S. 2012: Energy Policy Modernization Act of 2015, introduced by Sen. Lisa Murkowski, has five key components focusing on efficiency, infrastructure, supply, accountability, and conservation. Among other key provisions, the Acts as approved out of committee include provisions to establish deadlines for DOE approval of LNG export applications.
In our dynamic global energy market, data is king and leading-edge information is a critical input for the development of sound policy and business strategies. We highlight several resources that recently have been made available and reflect up-to-date insight into industry data and market fluctuations:
Federal Energy Regulatory Commission (FERC)
- Office of Enforcement 2015-16 Winter Energy Market Assessment: On October 15, the FERC Office of Enforcement presented its 2015-16 Winter Energy Market Assessment, expressing “expectations that energy markets are well positioned to manage potential challenges this winter.” The report noted several indicators of market stability and identified areas presenting challenges. Indicators of stability include low natural gas and electric prices, abundant natural gas production and storage, moderate weather in the Midwest, Northwest, and Northeast, and robust fuel stockpiles (including gas, coal, and propane). However, remaining challenges identified include low natural gas and oil rig counts, colder weather in the South, potential demand increases from natural gas industrial and liquefied natural gas (LNG) exports, and New England price volatility. The report noted the increasing correlation of electricity and natural gas prices, as gas-fired generation increases. While natural gas pipeline capacity additions will aid in the flow of gas to markets where needed, including reverse flows from the Northeast, the assessment noted that no such capacity additions had been made in New England. The report also provides an update on regional initiatives to ensure reliability, including gas-electric coordination efforts.
U.S. Energy Information Administration (EIA)
- Energy-Related Carbon Dioxide Emissions at the State Level, 2000-2013: The U.S. Environmental Protection Agency’s final Clean Power Plan was published in the Federal Register on October 23, 2015. Shortly thereafter, the EIA released its Energy-Related Carbon Dioxide Emissions at the State Level, 2000-2013 report reflecting state emissions data by fuel and sector. The report indicates that CO2 emissions fell in 37 states, but rose in 13 states during the report period. According to the EIA data, North Carolina emissions declined by 17.8% or 26.6 million metric tons of CO2 during that time. The next report will be published October 2016.
- 2015 Short-Term Energy and Winter Fuels Outlook: The EIA winter fuels outlook projects a decrease in average U.S. household fuel expenditures this winter for homes heated with natural gas (10% lower), oil (25% lower), propane (18% lower), and electricity (3% lower). The EIA’s winter outlook slideshow provides additional details regarding the agency’s projections.
- Interactive Map of Lower 48 Oil & Shale Gas Plays: The EIA maintains an interactive map of the major tight oil and shale gas plays in the Lower 48 states, including related oil and gas infrastructure.
International Energy Agency (IEA)
- Medium-Term Renewable Energy Market Report 2015: The IEA recently released its Medium-Term Renewable Energy Market Report 2015, which reflects the expectation that renewables will take the lead as the largest single source of electricity growth in the next five years. The report projects that renewable energy will rise to over 26% of global power generation by 2020 and “the amount of global electricity generation coming from renewable energy will be higher than today’s combined electricity demand of China, India and Brazil.”