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Comment by Dan McKay 4 hours ago

Spot on Willem, Why can't pipelines be built. 

Why America can’t build the natural gas pipelines it needs — my int...

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Alex Epstein:

All right. Senator Alan Armstrong, welcome to Power Hour.

Senator Alan Armstrong:

Thank you. Glad to be here today.

Alex Epstein:

Let’s jump right into this permitting issue. So let’s start off with, you’ve made a lot of your career in pipelines, specifically gas pipelines. Why are gas pipelines so crucial for our country?

Senator Alan Armstrong:

Yeah, it’s becoming more and more evident, I think, but we have such a great abundance of low-cost resource here in our nation and we desperately need to be using that to our advantage as a country, not just for obviously domestic purposes as well, but it’s also giving us a very powerful geopolitical tool as well via our exports.

But having all that abundant resource is one thing, but being able to get it to the place where it’s used and needed to be used for growth is the next thing. And so pretty obviously, we’ve got to be able to build that infrastructure. The cost of those bottlenecks is enormous. And if you think about any kind of linear big energy infrastructure, you’re building for peaks and you have to be able to build for peaks to accomplish that. And so that’s—

Alex Epstein:

As in peaks of demand?

Senator Alan Armstrong:

Peaks of demand. And that really is getting to be a bigger and bigger issue and one that’s not very well understood, I think, sometimes, in terms of what really the impact of having those constraints are and what that means for our energy system writ large.

So the good news is, I will tell you, people have kind of started to give up on the notion of, well, “we don’t really need fossil fuels for the future.” And I do see that people are really backing off of that at the moderate level. Obviously on the extremes, you’re going to have different perspectives. But I do think that people are understanding how incredibly important natural gas is to our country and for our allies as well.

Alex Epstein:

Yeah. I’ll just add for people, natural gas, whether you like it or not—and I do like it—is by far the number one source of electricity for our grid. And so you see in events particularly where the grid is strained, like during storm Fern, you see these skyrocketing natural gas prices. And guess what? If we had more pipeline infrastructure, then we could bring more gas to market and your electricity prices would be a lot cheaper.

So one thing I think it’s important for everyone of both parties to recognize is this is an affordability issue. If you cannot bring gas to market, your heating bills and your electricity bills are absolutely going up and it accomplishes nothing at all to make it—

Senator Alan Armstrong:

The last part of my tenure as CEO with probably some of the very best years ever in the pipeline—

Alex Epstein:

—CEO of Williams, just for people who don’t know.

Senator Alan Armstrong:

CEO of Williams. Thank you. Thank you, Alex. Were some of the best times ever because pipeline capacity is constrained. That’s a great thing if you’re in the pipeline industry and you have that capacity. It’s a terrible thing though for our country and for consumers.

And in fact, if politicians and regulators and even the NGOs actually understood the energy systems better, they would understand that what they ought to do is get the capacity overbuilt and completely eliminate those bottlenecks and let the market of supply and demand dictate what we’re using, not the constrained infrastructure in between.

But today that is truly what we’re managing off of. The lowest cost part of the entire value chain being the infrastructure, and it’s the part we’re letting constrain the ability of using our own natural resource on one hand and growing our economy on the other.

Alex Epstein:

This is a purely political preventable thing. And let’s talk about, given how crucial gas pipelines are, how difficult is it to build them? So having been CEO of Williams, witnessing this firsthand, what do people need to know about how difficult this is versus how relatively simple it would be to just build it if you didn’t have all these crazy barriers?

Senator Alan Armstrong:

Yeah. I think people really are shocked when they hear how little the actual construction time is on a 5, 6 year project, and the fact that most of that pipeline, the pipeline itself, not all the compressor stations that go with it, but the pipeline itself is sell to more than a 6-month-long construction window. The rest of that is all spent in very low value added efforts that originally were designed to protect the local environment that the pipeline was impacting.

Today, that’s not that hard to do. We know how to do that. To build a pipeline today that’s done in an environmentally sensitive way is not rocket science, it’s not complicated. We know how to do it. We know what the right standards for doing it are, but we’ve let it turn into a perfectly politicized process that is exactly where the handles are.

And it’s actually the litigation that causes the problem. It’s actually not, for the most part, it’s not the federal agencies that are the problem. It’s the litigation that the federal agencies face from the NGOs and from anybody else that wants to try to make money in the business of stopping infrastructure. The litigation is really where the problem is.

Yes, we could do a lot better job at an agency level and in coordination of our agencies, but until we fix the litigation problem, we’re going to continue to add tremendous amount of cost both in terms of time and uncertainty to the mix.

And so if you think about today, there’s a number of projects, including one of Williams projects, that got the certificate—after the pipeline was up and operating—a certificate from the FERC actually got vacated by a court, after a billion dollars had been spent, after the pipeline was up and running almost at full load already and a DC circuit actually pulled that certificate. Same thing happened to a next decade LNG project in Texas.

But that is, the amount of impact that that has on icing up capital and raising the cost of capital because who in the world wants to take that risk of being able to—I remember very crisply, I remember being in front of our board answering questions from the board like, “What do you mean we spent a billion dollars and we got our permit pulled? And why in the world would we ever do that again?”

And so those are the kind of things, those kind of tough questions that really frees up capital and just at the end of the day, raises the cost to the consumer when we have constrained infrastructure because nobody can afford to take that risk.

Alex Epstein:

I mean, just to recap some of this, I mean, just how crazy it is that, hey, we’ve got a natural gas driven grid, we’ve got natural gas driven heating, they’re constrained by pipelines which are fundamentally cheap to build and easy to build.

You’re saying you build them in six months. We’ll talk about how little of a threat they are if they’re built properly. And yet we’re talking about 5 plus years plus some of these things just get killed. And so it’s 5 five years to infinity. And then the infinity in particular drives away people.

So whereas, in a rational world, investors would just be immediately investing in this because it’s just such an obvious high ROI thing to unconstrain natural gas delivery in a country that needs it, in a world that wants our LNG desperately, particularly in the wake of the Iran war. It’s just so insane.

And just to add to that, let’s add, we’re going to talk about the Clean Water Act, but just on the face of it: a natural gas pipeline. How can that be that much of a threat to the water? It’s a gas. You think of the Clean Water Act, you talk about liquids and solids that in a certain concentration can affect the water, but this is the gas. What is it? The gas magically mixing with the water and poisoning everyone? I mean, what is going on here? What’s the actual threat profile?

Senator Alan Armstrong:

Yeah, I think natural gas via its name of “gas” and gas prices at the pump has suffered that issue for a long time that politicians do a pretty good job of confusing those two sometimes. Sometimes I’m convinced on purpose. But it’s a gas that’s lighter than air, but the public doesn’t appreciate that.

The real risk to the water quality issue is generally in the construction of the pipeline project, not in the actual operation of the pipeline project for a natural gas pipeline. And so the issue of how do you cross a river, what’s the best way to cross a stream, are the issues that need to be dealt with.

But again, we’ve had standards for this for a long time. We know the best way to do it. We know the safe way to do it. We know what to look out for. The Corps of Engineers has under—their NWP 12, their Nationwide Permit 12 has very good standards for how you cross a water body with a pipeline. Yet we have decided to make that politicized.

I’ll give you a great example. When Williams was crossing, or was permitting a project that looped an existing pipeline across the New York Harbor, the state of New York, their veto right existed in the 401 water quality certificate, which looks at the impact on water quality under the Clean Water, under their rights under the Clean Water Act.

Williams had to actually wait until the Corps of Engineers got done with their annual dredging process across the harbor. We had to wait for the water and the turbidity set to settle to take a water sample and then we were actually going to use silt containment sheets, in other words, curtains that we lay down for our dredging through the same area, even though the Corps on an annual basis does annual dress and the state stopped that project over water quality concerns with our controlled dredging versus the uncontrolled dredging in the exact same section of water across the New York Harbor. So clearly, was not a water quality concern. It was purely just a politicized issue.

And so good example, though, of what the actual water quality is supposed to look for. It’s supposed to look for things like turbidity and impacts that are uncontrolled when the construction’s going on, but it’s been used well beyond that in a number of cases. In fact, if you actually read all of these denials, you’ll see there’s 30 pages of greenhouse gas and climate concerns and a lot of things that the state actually doesn’t have any legal right to object to. And then there’s a couple of sentences on the water quality impact.

And the truth is it’s not really—very, very seldom is it actually a water quality issue that can’t be dealt with. And the Corps of Engineers—by the way, the Corps of Engineers has already signed off on this process with their own standards—and then the state takes another swipe at it.

Alex Epstein:

I want to get in a little more depth in that in a second, but I just want to highlight. So even when you’re talking about water quality, I think people equate—they think the Clean Water Act is drinking water, which it’s not. That’s the Safe Water Act.

And even these terms like “turbidity,” I think, get misleading because “turbidity” means the water gets temporarily muddy. If you’re talking about dredging and this kind of thing, now granted, you’re doing a lot less than was being done before, so that’s absurd.

We’re talking about, I mean, we’re moving around water and rocks and dirt, which by the way, we do with all sorts of other activities, and nature does all the time with a storm. And the number one casualty, as far as I can tell, of all of this is some unprovable, usually risk to fish populations. By the way, we kill billions of fish voluntarily every year through recreational fishing and commercial.

So it’s this is—a lot of my philosophy is a lot of the environmental movement is not at all about protecting humans and a human environment. It’s just about we shouldn’t impact anything. And this is just the absurd version of it.

We can’t move around any dirt and rocks, even if it’s going to help us all eat food with our fertilizer from natural gas and heat our homes and have electricity. We can’t move around water even though we’re doing sometimes less than beavers do or less than storms do. And it’s all in the name of these fish that nobody cares about, and that they’re trying to kill anyway through fishing.

It’s just so outrageous. And I don’t think people think, “Oh yeah, it’s going to damage the water,” and they think their drinking water has nothing to do with that at all. Yeah, that—

Senator Alan Armstrong:

Yeah. Don’t get me started on that, Alex. I could go on for hours.

Alex Epstein:

Well, yeah. I’ve gotten—so we’ve had a couple of conversations about this, and I myself have just gotten progressively outraged as I looked into this because people think, oh wow, we really better be—we really better have many, many, many different successive approvals.

And you’re thinking, this is not even like a refinery or a mining operation or something like this can actually dump something in the water. It’s a natural gas pipeline that can’t really do anything except as a construction project.

But it’s just like any other construction project that’s going to cross a waterway. It’s not that. It’s just like a transmission line, which, by the way, they’ll—people will use that to oppose transmission lines. Democrats should know.

But let’s just—I just want to make sure I understand the process. So what’s the current process and the sequence in terms of what the Army Corps does, what happens under NEPA, and then what happens with this issue of state certification that even many Republicans, I think, are trying to protect, and I just think is insane because I think the federal process is already way too long.

Senator Alan Armstrong:

Yeah.

Alex Epstein:

But yeah. Tell us how it goes.

Senator Alan Armstrong:

Yeah. Today, the way if you’ve got any kind of major project, a gas pipeline project, the FERC has oversight authority on that. And so they manage—under NEPA, they manage what is called the EIS or the environmental impact statement that has to be written for a project like this, and that effort takes into consideration the community’s concerns, the Corps of Engineers, 404 water quality concerns, Fish and Wildlife, any species that would be impacted, highway departments. You name it.

It is a very long list of agencies that historical preservation groups, tribal preservation, any people’s concerns that should be related to what is the best route for us to take to make the least amount of environmental impact associated with this route.

So that process has been in place for time. It is arduous, but at least it’s a defined process. The FERC, I would tell you, given the litigation risk around them, I think they do an actually a pretty good job of managing that today for what it is. But now the state says, “Well, sorry, but we’re not going to be subject to the FERC authority on this—

Alex Epstein:

And this is interstate—let’s just stress this interstate project, right.

Senator Alan Armstrong:

The interstate project, that’s right.

Alex Epstein:

Interstate commerce, so this is federal government.

Senator Alan Armstrong:

And even if you were building a gas pipeline project that was in addition to an existing interstate project, you likely would fall under that jurisdiction. But for this argument, let’s say it’s an interstate project and the state now says, “Well, whenever you get your EIS done, after you spend your 3 or 4 years getting your EIS done, come back and see us and we’ll tell you what we think you should do with your water quality—for to not impact water quality certificate.”

So you’ve had all of these parties, including the Corps of Engineers that has well-defined standards under the water quality certificate issues and the 404 permit. You go through that process, and then the state says, “Okay, now we’ll take our year to tell you what route we think you ought to take.”

And they don’t have to look at it with all these other complexities in mind. They can look at it purely for, we’re here to see that you protect our water quality in the area via your construction, and we can tell you whatever we want to. And if you don’t do that, if you don’t follow us, then we’re not going to give you your certificate, but if you do take our new route, you’re going to have to go back to square one through the EIS process.

And by the way, this group’s already looked at it once and said, “This is the best route.” And so now you’re telling whatever other issues were being debated, whether it was a species issue, a community, whatever the issue was, you’re telling them, “We don’t really care what you thought. This is the route you’re going to take.”

So immediately you’re into a do loop that one way or the other is going to cause court litigation because the EIS has already said this is the best route to take, and the states and the NGOs know that. So that is—it is a, once you hit that state’s abuse of the 401 water quality certificate, you are in a do loop that is almost impossible to clear.

If you sue the state, you say, hey, this was a denial that was wrongly delivered to us. The judicial standard today is “arbitrary and capricious.” So the court has to find that the state was acting in an arbitrary and capricious manner. Any general counsel of a Department of Environmental Quality for a state knows enough to write enough in there to say, for this one item for this water quality, here’s why we thought that they should change their route. And once—And that’s all a court has to hear, that there was some reason that they had for you changing your route.

And that’s almost like it’d be hard to screw that up that bad if you were the general counsel, to not be able to write it to meet such an incredibly low standard for denial on that.

So that’s how that process goes today, and what needs to happen really is that needs to be moved to be in parallel or in concert with the same permitting process as the EIS, not sequentially to the EIS.

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