Last week’s come-from-behind presidential victory of Donald Trump may result in unanticipated advantages for the oil and gas pipeline industry. Although Mr. Trump’s campaign generally focused on subjects more controversial than energy regulation, industry observers anticipate significant presidential support for the oil and gas pipeline sector. Mr. Trump never weighed in on many specific issues important to the oil and gas sector during his campaign, but many of his pronouncements, though short on detail, are encouraging for the industry. Given the number of questions that we have received about this topic generally, below is a summary of our thoughts regarding topics — from pipeline permitting and legislative action to environmental activism — that are most pressing to you, our customers.
Personnel is Policy
In Washington, it is often said that “personnel is policy”; if that is the case, then the industry should be heartened by Mr. Trump’s rumoured choice for Secretary of Energy, Harold Hamm. Mr. Hamm is the Chief Executive Officer of Continental Resources, a top 10 oil producer in the United States. If chosen, Mr. Hamm, sometimes described as an Oklahoma oil tycoon, would be the first ever Secretary of Energy to come from the energy industry. Mr. Hamm would undoubtedly work to advance Mr. Trump’s stated goal of “unleashing America’s $50 trillion in untapped shale, oil, and natural gas reserves, plus hundreds of years in clean coal reserves.” The advancement of this goal, one of several broad policy goals in Mr. Trump’s “America First Energy Plan,” will no doubt please the industry, while simultaneously discouraging alternative fuels enthusiasts and other opponents of fossil fuels.
Mr. Trump may also select two new Commissioners for the Federal Energy Regulatory Commission (FERC), which he is likely to do as both appointments must be Republicans. The FERC has been operating with just three Commissioners, all Democrats, for the last two months. By law, FERC has five Commissioners, but no more than three Commissioners may be of the same political party. So, Mr. Trump will need to select two Republicans after he takes office who must be approved by the Republican controlled Senate. Partisan considerations are not typically important at FERC, but adding the two new Commissioners will return the Commission to bipartisan representation and make it easier for the Commission to form a quorum, which is especially important when it comes to some of the pending and prospective controversial rulemakings.
Controversial Pipeline Revivals
Other features of the America First Energy Plan that Mr. Trump has advanced at various times during his campaign include “encouraging the use of natural gas and other American energy resources that will both reduce emissions but also reduce the price of energy and increase our economic output” and “reducing and eliminating all barriers to responsible energy production, while creating at least a half million jobs a year, $30 billion in higher wages, and cheaper energy.” Mr. Trump has yet to flesh out the details of these aspirational policies, but it is believed in some quarters that he could advance these goals by acting to overrule the Obama administration’s actions in two pipeline projects that continue to make headlines: the Keystone XL Pipeline and the Dakota Access Pipeline.
About a year ago, TransCanada’s Keystone XL Pipeline failed to obtain a determination by President Obama that the project was in the national interest, effectively scuttling the project. But the day after Mr. Trump’s election victory, TransCanada announced that it hoped to persuade the Trump administration to revive the pipeline project, and noted that it was “evaluating ways to convince the new administration on the benefits, the jobs and the tax revenues this project brings to the table.”
Energy Transfer Partners’ (ETP) Dakota Access Pipeline project has been stalled for months, awaiting the issuance by the U.S. Army Corps of Engineers of an easement to allow final construction under Lake Oahe. But on Tuesday, the Obama Administration announced that it had “determined that additional discussion and analysis are warranted” and that any further construction of the pipeline on or under federal land bordering Lake Oahe is prohibited, explaining, somewhat disingenuously, that the “Army has not made a final decision on whether to grant an easement.” The very next day, ETP filed a motion in the District Court for the District of Columbia (where the Sioux Rock Tribe has pressed its legal claims against the pipeline), requesting the Court to expedite its consideration of the claims at issue in order to avoid irreparable harm to ETP. ETP noted that the government’s delay in granting the easement has cost it more than $450 million. ETP also stated that the “very survival” of the pipeline was at issue, explaining that ETP has long-term contracts with various prospective shIppers and that the contracts call for the pipeline be completed, tested, and in service by January 1, 2017. The prospective shippers have the right to terminate those contracts if the pipeline is not in service by January 1, 2017. In view of these considerations, ETP requested that the Court expedite its review and schedule a hearing on January 3, 2017 to consider ETP’s claim that the government must issue the easement that will allow ETP to complete construction of the pipeline.
It’s unclear how the court will respond to ETP’s motion, and when it might rule, even if it grants the requested hearing. ETP may have to be content to wait for practical, if not legal, relief by the new Trump administration. Mr. Trump has not indicated his position on the pipeline, but he has generally denounced burdensome federal regulations, and he has particularly targeted onerous environmental regulations. Congressman Kevin Cramer (R-ND) has served as an energy advisor to Mr. Trump, and he has stated that Mr. Trump will particularly target the Clean Water Act, one of the statutes that gives the federal government jurisdiction over the Dakota Access Pipeline. The Clean Water Act, specifically Section 401, has also been the source of significant controversy in delegated state reviews for the permitting of natural gas pipelines.
Congressional and Executive Actions
Perhaps the most help that the Trump administration can provide to the oil and gas pipeline and related sectors will be the relative ease of enacting long delayed legislation, given that Mr. Trump will govern with Republican majorities in both chambers of Congress. For example, the Natural Gas Pipeline Permitting Reform Act, which has been stalled since January 2015 after being passed in the House, was designed to amend the Natural Gas Act to direct the FERC to approve or deny a certificate of public convenience and necessity (Certificate) for a prefiled project within 12 months after receiving the application. Further, the Act would provide that if FERC fails to approve or deny a Certificate within 12 months, the Certificate would automatically be approved 30 days later. A significant issue with this Bill, as proposed, is that it fails to address what many believe to be the root cause of delays; that is, the complement of state and federal cooperating agencies that must sign off before the start of construction. Republicans in Congress have sought to pass other energy related bills in recent years, but have failed. Perhaps a President Trump, who wants to unleash America’s untapped oil and gas reserves, can assist in getting this and similar legislation to his desk.
President Obama’s Council on Environmental Quality recently issued its “Greenhouse Gas Guidance.” This policy guidance, which does not have the force of law, directs federal agencies to quantify and evaluate the impact of greenhouse gases, including the effect on climate change, prior to taking any action where the National Environmental Policy Act applies. It’s unknown how this guidance will be acted on by the various affected agencies, but it may very well prove to be onerous. In one recent matter involving TransCanada’s Leach and Rayne XPress natural gas pipeline projects, the Environmental Protection Agency reviewed a Final Environmental Impact Statement relating to a federal permit, and expressed its concern that there was insufficient information to conduct a review of climate change impacts, as required, in its view, by the new Greenhouse Gas Guidance. This action, not grounded in statute, might be the type of executive policy that the new Administration may choose to discard.
The Obama administration has often acted through rulemaking and unreviewable executive policy decisions and guidance to effect its goals. For example, the FERC recently issued an Advance Notice of Proposed Rulemaking, Revisions to Indexing Policies and Page 700 of FERC Form No. 6. As the title of this rulemaking suggests, its subject is very particular and nuanced, but the pipeline operators that it will affect are naturally wary of its potential consequences. The proposed rule indicates that FERC is “considering a series of reforms” to improve its ability to “ensure that oil pipeline rates are just and reasonable.” These reforms include FERC’s denial of rate increases for any pipeline whose revenues exceed reported costs by 15 percent for the prior two years, and the denial of rate increases that exceed reported cost increases by five percent. Pipeline operators are no doubt hoping that the Trump administration will view these proposed rules as adding to the burdensome regulations that Mr. Trump has criticized throughout his campaign.
Early Environmental Response
Of course, Mr. Trump will not be able to act in a vacuum. The energy industry’s traditional opponents have been quick to announce their opposition to Mr. Trump’s energy initiatives. The Natural Resources Defense Council announced this week that if the new Administration attempts to “reverse climate progress,” then the new Administration “will feel the heat from NRDC.” The NRDC also promised that they “will be there at every turn to hold the new President accountable.” Further, the NRDC promised that there would be “a steep price to pay if Trump attempts to undermine the Clean Power Plan, or throw open more public lands to fossil fuel leasing.” Other like-minded groups have been quick to announce their opposition to the new Administration. The president of the League of Conservation Voters acknowledged that the election was “clearly a disappointing night” for environmental activists, but he vowed that his group will “continue to organize, litigate and pressure both companies and the government on environmental issues.”
It’s unclear how successful Mr. Trump’s opponents will be. Certainly Mr. Trump can quickly undo presidential policy decisions, such as those at issue with the Keystone XL Pipeline and the Dakota Access Pipeline. Issuing regulations that are helpful to industry will take many months, if not years. And of course, new legislation will need to be negotiated in both chambers of the Congress, and the Administration will generally need 60 votes to overcome any Democratic filibuster in the Senate. Though it’s not crystal clear what a President Trump will do for the oil and gas pipeline sector, the industry has reason to be optimistic. LawIQ will follow and report on these issues in the coming months, including continuing to offer data analytics and modeling to better inform the critical decisions you make on these and other impactful topics.