State Regulation – The New Arbiter of Pipeline Market Development?

Financials Natural Gas
May 31, 2017

The development of inter and intrastate natural gas pipelines, whether entirely new systems or expansions of existing systems, requires a thorough study of market fundamentals, some known, but many others unknown or misunderstood. With more and more choke points involved with permitting pipelines at the federal level, determining the feasibility of interstate pipeline development is becoming increasingly complicated. In order to avoid the encumbrances of uncooperative permitting agencies and courtroom entanglements, pipeline developers may  increasingly opt to forgo interstate growth opportunities in risky areas. Developers have not sat idly by, waiting for Washington to weigh in. Instead, a trend to deploy capital within stateboundaries is emerging.

It is possible to both move natural gas to interstate markets and deliver gas to new customers by way of intrastate pipes. These pipelines, whether “Hinshaw” or “311s” (as defined by the Natural Gas Act), are geographically intrastate in nature, but act in interstate service as we discussed in Intrastate Pipes – Another Drop in the Data Well. As a result, their approval and construction is not within the jurisdiction of the Federal Energy Regulatory Commission. Rather, these intrastate pipelines are approved by and subject to the environmental conditions and permitting regimes of the states in which they are located. As a result, such pipelines may be permitted and constructed much more expeditiously than interstate pipelines, although the state regulatory processes vary widely.

Some states, such as Texas, have very limited regulation of pipeline project approval and construction. As a result, intrastate pipeline development in lightly regulated states may be more ripe for development than, for example, such development in New York, which has engaged in a staunch and highly publicized offensive against pipeline development. With continued exponential growth in the Permian basin and favorable conditions for growth in the Eagle Ford, coupled with an existing network of intrastate and interstate pipelines, Texas is witnessing this kind of development. In addition, the growing number of liquefaction facilities and export pipelines in the state offer further opportunities for pipeline developers.

Assuming the permitting process is not a significant constraint, how can developers and other stakeholders scope out the intrastate pipeline fundamentals to determine whether a project is viable? And given the current hyper competitive environment to obtain anchor shippers, speed can be critical, so quick access to data and analytics is crucial. As of the fourth quarter of 2016, 35% of intrastate pipelines engaged in interstate service in the U.S. were located in Texas. Eleven percent of such intrastate pipelines were located in Louisiana and largely engaged in transportation service, as well. Providing interstate service on intrastate pipelines is not exclusive to Texas and Louisiana. In fact, our data set includes over one-hundred pipelines, including those in other energy rich states, such as in Pennsylvania and Oklahoma, and many others.

For many of our customers, aggregating intrastate pipeline fundamentals into state-level or basin-level provides the next step towards transparency into a previously unknown segment of the supply chain. LawIQ provides insight into this large and growing area of interest, with historical coverage of the companies that have operated intrastate pipelines in interstate service.    

Intrastate Pipeline Operations in Interstate Service (Q4 2016)