PennEast Pipeline Beats New Jersey at SCOTUS

Legal eagles might find today's Supreme Court decision, in PennEast Pipeline Co. v. New Jersey, compelling, contending as it does with a tension between the exercise of eminent domain on the one hand and a state's sovereign immunity as guaranteed by the 11th amendment on the other. For a layman like myself, one smart enough not to have attended law school, the discussion makes my eyes glaze over. However, the case might have some important ramifications in the ongoing dispute between the environmentalist movement and the oil and gas industry in the months and years ahead, and we would do well to be aware of it.

PennEast Pipeline Company LLC, a joint venture of energy producers including Enbridge Inc., South Jersey Industries Inc, and New Jersey Resources Corp, has been constructing a 116-mile pipeline that would transport as much as one billion cubic feet of natural gas per day from Pennsylvania's Marcellus Shale and serve customers in both Pennsylvania and New Jersey.

After having secured the Federal Energy Regulatory Commission's approval, the company began acquiring the land along the pipeline's planned route, making use, where necessary, of a provision in the U.S. Natural Gas Act which allow resource companies to utilize federal eminent domain authority. However, some of that land belonged to the state, and the administration of Governor Phil Murphy, a Democrat, refused to hand it over, contending that only privately owned land can be acquired in this way.

When PennEast took the state to court, the Murphy administration argued that the 11th amendment-guaranteed sovereign immunity protected it from being sued by a private entity. The majority, in an opinion written by Chief Justice Roberts (joined by Justices Breyer, Sotomayor, Alito, and Kavanaugh), disagreed, accepting PennEast's defense that their use of eminent domain flowed directly from the federal government.

Roberts argued that the right of the federal government to use eminent domain for the construction of essential infrastructure was well established, that there was nothing stopping it from delegating that power to a private company, and that "[a]lthough nonconsenting States are generally immune from suit, they surrendered their immunity from the exercise of the federal eminent domain power when they ratified the Constitution."

This doesn't mean that the pipeline will definitely be completed. As Greg Stohr points out in Bloomberg, PennEast "still must secure state-level permits, something that may prove difficult in [liberal] New Jersey." But this case is still has the potential to be significant, limiting as it does the ability of left-wing activists to kill major infrastructure projects they couldn't stop at the federal level simply by pumping money into local politics.

Will this precedent affect, for instance, Enbridge's other big pipeline project, which has seen Michigan holding all of eastern Canada hostage just to make a point? It's a hopeful sign.

Enbridge Line 5 Lives! (For Now)

Some unexpected good news: Michigan's Department of Environment, Great Lakes and Energy has approved construction of an underground tunnel to house a replacement for Enbridge Line 5 which transports roughly 540,000 barrels of petroleum products per day from Superior, Wis., to refineries in Sarnia, Ont.

This is surprising because the general expectation was that Joe Biden's decision to kill the Keystone XL pipeline extension is just an opening salvo in the new administration's war on energy. After all, there is no obvious limiting principle to Biden's rationale for killing Keystone. The pipeline had failed no environmental review, and TC Energy, which owns the pipeline, has satisfactorily responded to every legitimate concern of governments and environmentalist groups on both sides of the border.

What Keystone XL would do is facilitate the safe transport of fossil fuels, and that is what made it a target. This was clearly articulated in Biden's executive order, which offered no justification for revoking Keystone's construction permit beyond the necessity to "prioritize the development of a clean energy economy." If that's the governing logic, no pipelines are safe.

Enbridge Line 5 seemed the next theater of conflict because, as Joan Sammon discussed in a recent piece, there's already an ongoing crusade against it, spearheaded by Michigan governor Gretchen Whitmer. Here's the background, as described by Sammon:

Whitmer, a Democrat, took legal action against Canadian pipeline operator, Enbridge, revoking a 67-year old-easement to extend an approximately four mile underwater section of the pipeline that runs through the Straits of Mackinac.

Whitmer's argument is that the section of pipeline which runs underwater between Michigan and Ontario would endanger the Great Lakes should it leak, and thus she must act. The pipeline, which has been in operation since 1953, has never had a significant leak; indeed, Enbridge had already preemptively addressed this problem, planning a new section of pipe to be laid beneath the riverbed with the object of safeguarding the straits.

Construction approval has been slow, in part because of the change in administration in Michigan -- initial approval for the project had been granted by former governor Rick Snyder, a Republican. But following the 2018 election subsequent permits have to be granted by Whitmer appointees.

The Canadian position regarding Line 5 is that a shutdown would be disastrous. According to the National Post,

[It] would cut off nearly half of the crude oil it needs to make petroleum products such as gasoline. All of the jet fuel used at Toronto’s Pearson International Airport is made in Sarnia, and distributed through Line 5. It also carries propane used to heat homes in northern Michigan and Ontario, and supports thousands of jobs on both sides of the border.

Enbridge has refused to comply with Whitmer's order, arguing that the governor has no jurisdiction to shutdown a pipeline approved by the federal government.

The approval of Michigan's energy department -- which determined "the project would have 'minimal impact' on water quality and wetlands" -- is significant, but Line 5 isn't in the clear yet. The project still requires the approval of the Army Corps of Engineers, and the Michigan Public Service Commission, whose members have all been appointed by Whitmer, must grant approval for the pipeline to actually be put into the new tunnel.

Still, in the current hostile environment Enbridge will take any good news it can get.

In Michigan, the Left's New Attack on Pipelines

In a surprise maneuver on November 13, Michigan governor Gretchen Whitmer, a Democrat, took legal action against Canadian pipeline operator, Enbridge, revoking a 67-year old-easement to extend an approximately four mile underwater section of the pipeline that runs through the Straits of Mackinac. The revocation takes effect in May 2021, at which time Enbridge would be expected to cease operating the line. Line 5 is part of Enbridge's Lakehead network of pipelines.

The effect of closing Line 5 will be to shut the entire pipeline, which runs between Superior, Wisconsin and Sarnia, Ontario and carries about 23 million gallons of oil and natural gas liquids system-wide, daily. Line 5 moves about 540,000 barrels daily.

Curiously, Whitmer appears to be about two years late to the party. In 2018 Enbridge reached an agreement with then-Governor Rick Snyder to replace the underwater segment with a new pipe. It will be housed in a tunnel that is to be drilled through bedrock beneath the Straits of Mackinac. The company is seeking state and federal permits for the project, a process that is notoriously arduous and slow, but is ongoing. In this case these regulatory requirements are slowing the process that will mitigate the concern the state alleges in their order. Did you follow that?

What a good idea.

In short, Governor Whitmer is playing games -- asserting solutions to problems that do not exist and using taxpayer money to do it. She is two years too late and five paces out of step. Enbridge cannot begin drilling the replacement tunnel until the requisite permits and regulatory review is complete, a process that is currently underway on a timeline over which Enbridge has no specific control.

Through an understanding of supply and demand curves and the cost of inputs, the economic implications of shutting this pipeline are predictable. The price of propane and other products transported through this network will increase. This is plainly detrimental for the citizens of Michigan and the broader market. Pipelines are after all the safest and fastest way to move oil and gas from the field to refineries. Whitmer wants inexpensive fossil fuel for her state on one hand, while nixing the very transportation system that affords Michigan’s residents this inexpensive fuel supply.

While impeding construction of pipelines is not unto itself an unfamiliar tactic for the ‘green new deal’ lobby, there is something new at work here. This shot across the Enbridge bow should not be disregarded by other pipeline operators, nor the broader oil and gas industry because it portends challenges to the oil and gas industry without a decisive response.

Pipeline operations typically fall under federal jurisdiction. Governor Whitmer, however, is acting under the state’s public trust doctrine, which in this case requires state authorities to ‘protect' the Great Lakes. The implication is that pipelines are intrinsically unsafe. But this is not true. This obviously sets the stage for Enbridge’s legal challenge.

The pipeline has been in operation since the early 1950s. Until now, older pipelines had not been thought to be targets of the efforts of green zealots. While it is not clear that Whitmer’s legal strategy could easily be applied to other pipelines, it is clear that the hunt is on. Under a potential Biden administration there is no doubt that federal agencies will be willing participants in this legal strategy.

And it always looks much like this.

This tactic was used in Washington state to try to have hydro-electric dams along the Snake River removed. In that case green zealots attempted to use the plight of Salmon, Steelhead and Orca whales as the pretense to dismantle the dams that provide clean, inexpensive electricity to those in the west. That effort was only recently rebuffed after years in court. The green zealots in that case hailed from the Center for Biological Diversity.

Now, four months after that decision based on a review by the U.S. Army Corps of Engineers, a senior attorney with the same Center for Biological Diversity, Jared Margolis, explains the strategy around Line 5 and similar pipelines to the New York Times:

I think, at some point, we do need to turn to pipelines that are in the ground that are dangerous, that are posing a serious risk.

And so the games begin. Enbridge and other pipeline owners need to develop their own narrative in the face of this new strategic assault on their industry sector. While this battle may be in Michigan, the larger war is being waged against the entire fossil fuel industry. The industry is an essential element of American energy independence and essential for market access for Canadian product.