Lessons learned from a pipeline cancellation
Britney Spears has been back in the news recently and PennEast, a company that had hoped to build a gas pipeline from Pennsylvania to New Jersey, seems to be channeling her. If the pipeline industry could sing, its signature song might be “Oops … I Did It Again.”
For the second year in a row, a major pipeline company canceled a project shortly after winning a case at the U.S. Supreme Court. It looks like winning isn’t all it’s cracked up to be.
Last year, the developers of the Atlantic Coast Pipeline walked away from a project in which they had invested $3.4 billion just 20 days after winning a case at the Supreme Court on a 7-2 vote. The Atlantic Coast developers determined that the economics — and prospect of ongoing opposition — made the project a loser.
It’s likely that the partners in PennEast lost less than $3.4 billion, but we know that just one of the partners in the almost $1 billion project lost at least $90 million and that the partners collectively lost at least $354 million.
PennEast seems to be following a similar course, even if it took a little longer to call it quits after its Supreme Court victory. Less than three months after a 5-4 victory at the court, the company announced the cancellation.
Opponents long realized that the destructive nature of the project made it extremely unlikely that the project developer would ever be issued the Clean Water Act permit it needed from New Jersey. It took PennEast’s developers a bit longer, but they finally announced that they have “ceased all further development of the Project.”
While PennEast itself is not a wellknown company, it’s a joint venture of several companies with parent corporations that include Spectra Energy, which has a market capitalization of $175 billion; Enbridge, which has a market capitalization of more than $80 billion; and the Southern Company, which has a market capitalization of more than $65 billion.
You have to wonder whether their shareholders — and investors looking at oil, gas and petrochemical projects more broadly — will start to question the judgment of those running these companies. After all, they’ve watched the demise of the Atlantic Coast and Keystone XL pipelines. They’ve seen that other fossil fuel and petrochemical projects, such as the Mountain Valley Pipeline planned for West Virginia and Virginia and the Formosa Plastics plant planned for St. James Parish in Louisiana, face an uphill battle to clear legal and regulatory obstacles.
Cancellation of the PennEast project must be welcome news to shareholders, but investors can’t be thrilled that management threw good money after bad for such a long time.
There are several lessons here for climate and environmental advocates as well as for investors. Most of them have already learned these lessons, but it’s not a bad thing to see them reinforced.
First, get into the fight early. The New Jersey Conservation Foundation and its allies got in and stayed in. Good for them.
Second, fight in every venue you can. PennEast opponents lost in the Supreme Court on what many might consider an arcane issue related to the 11th Amendment of the U.S. Constitution. That was too bad, but it didn’t really matter in the end. The pipeline developers needed lots of approvals from lots of government agencies.
Even though the Supreme Court determined that the company could take land owned by the state of New Jersey and set aside by the state for conservation purposes, the companies’ leaders finally realized that their odds of receiving every permit they needed for the project to go forward were vanishingly small.
Finally, never give up. The legal system doesn’t always work. And it’s often slow. But often it eventually works and those who depend on it need to keep on keeping on.
Britney Spears appears to have finally escaped from the clutches of her father. And the people of Pennsylvania and New Jersey have escaped from PennEast.