'Perfect storm' scuttles Atlantic Coast Pipeline

With the cancellation last night of the Atlantic Coast Pipeline (ACP), the project becomes the northeast US’ infrastructure market’s third high-profile victim in the last six months.

Dominion and Duke Energy’s decision to pull the plug on ACP comes after the cancellation of the Constitution Pipeline in February and state water permit denial effectively scuppering the Northeast Supply Enhancement project in May.

Dulles Wang, director, North America gas, said Wood Mackenzie believes a perfect storm of factors contributed to the ACP decision:

• Uncertainty from ongoing legal challenges. Despite last month's favourable Supreme Court decision allowing it to cross underneath the Appalachian Trail, the 15 April Montana District Court ruling to vacate Nationwide Permit 12 (NWP) for the Keystone XL oil pipeline project provides continued uncertainty.
• Cost escalation. Recent public guidance of ACP project cost has increased to $8 billion from the original estimate of $4.5 billion to $5 billion since originally proposed in 2014 due to continued legal challenges.
• Current gas market conditions. The coronavirus pandemic is continuing to dampen gas demand as well as more measured midstream sector investor appetite.

The setbacks speak to the difficulties of building new pipeline projects in the northeast US, even when there is actual consumer demand that support these projects.

Wang said: "Furthermore, the Montana District Court ruling to vacate NWP 12 affects all new oil and gas pipeline projects that rely on this long-standing streamlined, blanket approval the Army Corps of Engineers can issue for waterbody and wetland crossings.

"Northeast pipeline projects such as Mountain Valley (MVP) and Penn East need to overcome NWP 12 hurdles but Permian projects such as Permian Highway Project (PHP) are not immune as well."

Gas production in the northeast has peaked since November last year. The cancellation is not likely to affect the Northeast in the near term as the region still has ample spare pipeline capacity, especially in the Southwest Marcellus and Utica. 

He added: "However longer-term to 2040, The Northeast is projected to grow over 10 billion cubic feet per day (cfd) from 2020 levels to meet growing North American gas market expansion.

"Without new longhaul takeaway pipelines, Northeast growth may be constrained and other more higher cost supply may be necessary to develop.

"The real losers with ACP’s cancellation will likely be the power consumers in the southeast US, who will need to look for alternative options to find gas supply to fuel the region’s coal-to-gas switching efforts." 

ACP shippers included:

• Duke Energy (725 million cfd)
  • Duke Energy Progress (452.75 million cfd) 
  • Duke Energy Carolinas (272.25 million cfd)
• Virginia Power Services Energy (300 million cfd)
• Piedmont Natural Gas (160 million cfd)
• Public Service Co. of North Carolina (100 million cfd)
• Virginia Natural Gas (75 million cfd)

Wood Mackenzie, recognizing these issues have previously published the following market insights:

• Challenges in the Northeast: will new gas pipelines fade away?
• How will limiting Northeast pipeline build-out impact the gas market in the long term?
• Could near-term Northeast pipeline delays create regional constraints?