2019 Energy Infrastructure Council Conference Recap: Talking Energy Policy, Trade, and More

Summary

• Recent deregulatory actions have been beneficial in reducing uncertainty for project permitting at the federal level.
• Pipeline projects blocked at the state level can result in increased reliance on foreign sources of energy and higher emissions.
• FERC has taken steps this year to expedite its approval process for major energy infrastructure projects such as LNG terminals.

With Congress in session and an impeachment inquiry creating buzz on Capitol Hill, the recently renamed Energy Infrastructure Council (formerly the Master Limited Partnership Association) convened its annual meeting and conference in Washington D.C. last week. This year’s conference emphasized regulatory, political, and macro issues affecting the energy infrastructure space. Today, we’ll focus on the key takeaways from the conference, such as analysis on energy policy and ongoing trade issues, that are impactful for midstream investors.

Trump administration remains focused on attaining energy independence.
One frequent topic of discussion was the Trump administration’s emphasis on energy policy as a means of both economic growth and foreign policy. As we discussed recently, the combination of growing domestic production of oil and natural gas and rising exports has created a constructive fundamental backdrop for midstream companies and has put the US on the doorstep of energy independence. Recent deregulatory actions have proven beneficial in reducing uncertainty for project permitting at the federal level. The administration has issued approvals for multiple pipelines, including the Keystone XL Pipeline and the Dakota Access Pipeline. While some of the executive orders signed by the president are mostly symbolic in nature, the administration has focused on cutting through some of the bureaucratic processes energy companies face in getting approval to construct infrastructure. Citing inconsistent implementation of Clean Water Act rules, President Trump also signed an executive order making it more difficult to block pipelines and other infrastructure on the basis of Clean Water Act provisions.

Rise of natural gas in energy mix produces environmental benefits.
In discussions of environmental issues at the conference, government officials and policy analysts acknowledged that energy policy would benefit from a more facts-driven approach to legislation that focuses on the practical benefits of utilizing the abundant supply of domestic natural gas and ensuring that regulations do not harm economic growth. As an example of some of the counterproductive energy policies in place in parts of the US, speakers cited state governments along the West Coast and Northeast that are concerned with reducing emissions but have wielded state powers to block gas pipeline projects. Blocking energy infrastructure projects has made it more difficult for these regions to source gas during times of peak demand. Additionally, these states are more likely to require imported energy from foreign sources that can unintentionally result in higher emissions from ship transportation, greater dependence on foreign governments, and higher prices for consumers.

Update on trade issues: Japan agreement a small step in the right direction.
Trade issues have created some uncertainty for midstream companies focused on exporting growing amounts of domestically produced crude and natural gas. The US-China trade war in particular is making it tougher for exporters trying to obtain purchase agreements from Chinese buyers of LNG, even as the long-term thesis for LNG remains intact. Regarding a potential US-China trade deal, optimism among presenters was relatively low that an agreement can be reached in the short term. While trade analysts believe tariffs have created economic pressure on China, the long-term perspective of the Chinese means a deal (especially a comprehensive one) is unlikely before the US presidential election in 2020.

The US and Japan announced a partial trade deal on Wednesday, creating some buzz among the attendees. Reception to the deal was mixed, with some panelists arguing that it is not comprehensive enough. In short, analysts at the conference argue that negotiating individual deals with Japan and other countries has proven less beneficial than staying in a broad, multilateral agreement like the Trans-Pacific Partnership. Regardless, the agreement with Japan may be a step toward reaching pacts with the EU and other allies, which would be constructive in reducing trade-related uncertainty for the energy infrastructure space. A string of broad trade deals would also potentially increase pressure on China and the pace of negotiations.

FERC ramps up initiatives to expedite energy infrastructure project approvals.
Staff members from the Federal Energy Regulatory Commission (FERC) provided an update on the current issues and trends facing the agency. One frequent topic of conversation surrounding FERC recently has been the number of empty seats on the five-member commission. This week, President Trump appointed Republican James Danly to one of the two open seats on the panel, where Republicans currently hold a 2-1 majority. Pending confirmation by the Senate, Danly would increase the Republican advantage at FERC until a replacement is submitted for recently retired Commissioner Cheryl LaFleur.

In conjunction with its announcement that it had approved Venture Global’s Calcasieu Pass LNG project, FERC announced a streamlined approval process for LNG projects in February that should expedite the amount of time it takes for FERC to issue a certificate of approval for these projects. One initiative FERC staffers highlighted was One Federal Decision, a program designed to increase cooperation between federal agencies in processing environmental reviews and authorization decisions for major infrastructure projects. The agency has also increased its headcount, restructured its Office of Energy Projects to include a new LNG division, and opened a satellite office in Houston. With the US already the third-largest LNG exporter in the world and more growth expected over the next decade, any process improvements made by FERC to speed up LNG project approvals are welcome.

Bottom Line
Although regulatory and macro headlines in the energy space have been somewhat noisy lately, these trends alone do not tell the full story for midstream as the fundamentals of growing production and exports remain positive. A constructive fundamental outlook means additional energy infrastructure will continue to be required in North America, with midstream companies standing to benefit. Resolution of current trade disputes and further deregulation of the energy industry would be incrementally beneficial for midstream companies.