Timing of Restarts for Keystone, El Paso and Freeport and Some Good News for MVP

When we meet with our customers on specific projects or topics of interest to them, our team is often asked "What else should we be asking you about?" By asking that question, the customer is acknowledging that in this ever-expanding world of information, there are likely to be issues not currently on their radar that should be.

Today we discuss some topics that have been a priority for us and many of our customers over the last couple of months — about which we have issued push updates or responded to calls. If there is something you would like us to watch for you, we would love to hear what it is.

Shutdowns and Restarts – Each Is Unique

Whenever there is an unexpected incident on a pipeline or at an LNG facility, the only certainty is the likelihood that the incident will be unique. However, there usually are comparable situations that can be relied on to forecast what the recovery of service will look like. Three “recent” incidents provide some evidence for this.

El Paso Natural Gas Line 2000 Rupture

On August 15, 2021, El Paso Natural Gas (EPNG) sustained a rupture on its 30-inch Line 2000 that resulted in an explosion and fire. The fire destroyed a farmhouse, resulting in two fatalities and one injury requiring hospitalization. On August 19, 2021, the Pipeline and Hazardous Materials Administration (PHMSA) issued a corrective action order (CAO) which required EPNG to keep the pipeline shutdown until it complied with the various aspects of that order. EPNG has provided nineteen updates on its electronic bulletin board since the incident, but as of today the 745-mile pipeline still remains essentially shut-in.

A lengthy shutdown period was to be expected given the extensive work that was outlined in the CAO and the length of the pipeline that was impacted. In an update posted on January 12, EPNG stated that it expected to complete before the end of January the physical work required by the CAO and the remedial work plan it had been following. It then provided a further notice on January 25 that it submitted a request to PHMSA to lift the pressure restriction so that the line can return to commercial service. That notice acknowledged that PHMSA will need time to review the request and that EPNG will also need time to restore service to the line.

Following the January 12 posting, we notified our customers with an interest in this outage that we would expect that process for PHMSA review and restart to take about two weeks following the filing of the request for approval to restart commercial service. We presumed that an operator like EPNG would have been regularly updating PHMSA on any issues it was encountering. Thus, PHMSA would already know most of the results and would need to primarily verify its understanding of the situation. That two-week period will end on February 9.

Freeport LNG Incident

On June 8, 2022, Freeport LNG Development (Freeport) had an incident at its LNG export facility located at Quintana Island, Texas. On June 30, PHMSA issued a notice of a proposed safety order and noted that the explosion and associated fire occurred in a pipe rack located near the LNG storage tanks at Freeport’s LNG export facility, but that the cause of the incident was still under investigation. We first reported on the incident on June 15, 2022 in Freeport LNG is Offline For At Least 90 Days and Gas Will Need to Go Somewhere. We noted there that both FERC and PHMSA would be involved in approving the restart of the facility because of their shared design and safety roles for LNG facilities, which is different from pipelines where PHMSA is the only safety regulator. Freeport had originally stated that it expected to restart the facility in 21 days but had recently changed that to 90 days, which we viewed as certainly more reasonable but still optimistic given the extent of the incident.

PHMSA followed its notice with a consent order dated August 3, 2022 that essentially acted as a CAO and which identified a number of steps that would need to be taken before the facility could restart commercial operations. In a separate letter, FERC noted that it would need to approve in writing any restart of the facility’s commercial operations. On August 5, in Freeport LNG Enters Into Consent Order with PHMSA That Could Permit Initial Restart of Operations by Early October, we discussed the consent order, but questioned Freeport’s optimistic assessment that it could restart operations by early October. Based on our reading of the consent order, we estimated that a more likely estimate for the initial restart would be January 30, 2023.

The following chart shows how Freeport has changed its estimate for the date by which it anticipates the restart of commercial operations at the facility:

On December 12, FERC sent Freeport an extensive data request concerning various aspects of its investigation and plans to remedy the issues that had been identified to date. In the accompanying letter, FERC noted that authorization “for restart operations will only be granted following the review of filed responses, a determination that the facilities are fit for service and documentation that acceptable measures have been put into place to safely return the facilities to operation.” In an email we sent that day, we revised our estimate of the restart to at least early March given the extensive nature of the request. On January 26, FERC did give Freeport authority to “commence commissioning, including cooldown, of Loop 1 LNG transfer piping and commissioning and reinstate service of the boil off gas (BOG) management system.” However, FERC noted that additional authorization would be required “to reinstate service for Loop 1 LNG circulation to enable ship loading to Dock 1 and to cooldown, recommission, and reinstate service of the liquefaction trains, including rundown piping to tanks.” On January 30, Freeport requested additional authority from FERC for: (1) the nitrogen cooldown of the LNG rundown piping system and (2) the introduction of hydrocarbons to Unit 13 (Train 3) for LNG train commissioning and cooldown, and requested approval by today. Interestingly, Freeport has not provided an update on its expected commercial operation date, but we view any time in March to be a best case scenario at this point.

Keystone Pipeline Incident

On December 7, the Keystone pipeline suffered a leak that allowed approximately 14,000 barrels of crude oil to escape into the environment. On December 8, PHMSA issued a CAO to Keystone that required a shutdown of the impacted segment. The CAO issued to Keystone allowed for the restart of the facility at a reduced pressure following a much more limited review than that required of Freeport. Also given the age of the pipe involved, constructed in 2011, the review could be completed much more quickly than the one for EPNG, which had converted the line from use as a crude line in 2002 following purchase of the line from Plains All-American Pipeline.

The spill, however, did not go unnoticed and U.S. Senator Markey, Chair of the Senate Environment and Public Works Subcommittee on Clean Air, Climate, and Nuclear Safety, sent a letter dated December 15 to Keystone’s owner demanding answers to a list of questions by January 4, 2023. A similar letter was sent by Representative Pallone, Chair of the House Energy and Commerce Committee. The concern expressed by our customers was whether these congressional requests would need to be answered before PHMSA allowed resumption of service by Keystone. We responded that we did not think so and that PHMSA would follow its own processes and let the political process play out on its own timeline. That appears to be correct, because Keystone announced it had restarted the affected segment of its pipeline by December 29.

MVP Prospects Brighten Following Change in Chair at FERC and a Favorable Hearing Before Court of Appeals

Last week there were two developments that appear to have improved the prospects for Mountain Valley Pipeline, although we remain highly pessimistic about its chances without legislation that essentially mandates its approval and protects those approvals from court review.

The first bit of good news was an oral argument before the Fourth Circuit concerning the water quality certificate (WQC) that was issued by the Commonwealth of Virginia. The project must get a WQC from both Virginia and West Virginia. Following the oral argument about the West Virginia WQC, we wrote in Future of MVP May Be in Senator Manchin’s Hands, that we simply did not believe that “the current three-judge panel of the Fourth Circuit that is reviewing all of the required associated permits for the project will ever approve all of them.” We fully expect that panel to reverse West Virginia’s WQC and were expecting an equally hostile reception for Virginia’s WQC. But that was not the case and when the hearing concluded we promptly notified customers who had requested our updates that the panel seemed “to have a greater deference for Virginia than it has for the Federal Government and certainly more than it has for West Virginia. Overall, based on the argument, we would say that the court is likely to uphold the Virginia WQC and would put the odds of that at about 80%.”

The second bit of good news for the project is not directly related to that project but arises from an action taken by the new chair of FERC, Chairman Phillips, late last week. We wrote in Can Acting Chairman Phillips Return a Sense of Normalcy to FERC? that we would be watching to see whether he reversed former Chairman Glick’s decision to require the preparation of an environmental impact statement (EIS) for every pipeline expansion project. But late last week, “Action Chairman” Phillips took a step that even we didn’t anticipate. He allowed FERC staff to essentially reverse Chairman Glick’s directive to require an EIS for three projects, as detailed below:

As seen above, this has shortened the time period for the environmental review of these projects by an average of five months. The main benefit to MVP from this development is that it shows that Chairman Phillips may be returning FERC to a level of functioning we have not seen since 2017 and may indicate a willingness to rely more on the expertise of FERC’s professional staff rather than dictating the result to them. That bodes well for other projects like MVP that rely on an unbiased agency reviewing their projects.

Based on these developments, we have revised our odds chart for MVP. While we still think the odds of making it through the Fourth Circuit remain slim, these developments have more than doubled our view of that possibility.

Please click here to open a full-resolution PDF of the MVP Decision Path.