A SHIFT TO MORE INTRASTATE NATURAL GAS PIPELINES

As Federal Energy Regulatory Commission (FERC) approval and certification processes become slower and slower under the Biden Administration (The Biden Administration is hostile towards hydrocarbon projects), there will likely be a significant shift towards building more intrastate natural gas pipelines instead of interstate natural gas pipelines in order to bypass the Biden Administration’s roadblocks on natural gas pipelines.     Intrastate natural gas pipelines are U.S. natural gas pipelines that are contained within a single state. Therefore, intrastate natural gas pipelines are not subject to the rules and regulations of FERC, but instead are subject to the rules and regulations determined by each individual state.  States such as Texas and Louisiana, which have a lot more intrastate natural gas pipelines and intrastate natural gas pipeline miles than most of the nation, are much friendlier towards natural gas pipeline projects and approve and certify them significantly faster than the federal government with the Biden Administration.

Therefore, expect to see a significant shift towards new intrastate natural gas pipelines, especially if Biden is reelected as president in 2024 (which according to the market oddsmaker websites is about a 50% chance of happening).  This will also geographically shift more natural gas production towards Texas and Louisiana because they are friendly towards natural gas pipeline projects and away from the Northeast, Western, and Midwestern states because they are unfriendly towards natural gas pipeline projects.  The other major factor towards having more natural gas production in Texas and Louisiana is that they can export their natural gas production into the strong international LNG market since they are on the coastline.  LNG liquefaction projects still require the approval of FERC, but so far, the Biden Administration has not been hostile towards those projects, especially since he must demonstrate that he is helping the Europeans with their chronic natural gas shortages related to the proxy war with Russia in the Ukraine.

Ramifications of More Intrastate Natural Gas Pipelines

It sounds great that US natural gas production can bypass the hostilities of the Biden Administration by building intrastate pipelines in Texas and Louisiana, expanding production in Texas and Louisiana, and then exporting their production into the international LNG market through new LNG projects (where Biden has not been a hinderance).  However, intrastate natural gas pipelines have two major drawbacks, lack of market flow information and the potential for significant market manipulation by the intrastate pipeline owners who own the transport and storage capacity.

Lack of Market Information Flow

The same state rules and regulations that allow for more new natural gas pipelines to be quickly approved and certified also tend to allow much more opaqueness in the marketplace.  This is because electronic bulletin boards (EBBs) of intrastate natural gas pipelines are not required to be open access to the public.  This will cause more and more of the natural gas pipeline grid to be an unknown in terms of what is going on with current natural gas supply and demand.  Pipeline flows have been the most important factor in determining the supply and demand for natural gas and ultimately the fair price of natural gas in each trading hub throughout the nation.  If those pipeline flows go more and more intrastate, where the market has no clue as to what is going on with supply and demand, it will cause more volatility and less liquidity in the natural gas market.  

Marketing and Trading Consequences

That lack of federal oversight also allows intrastate natural gas pipelines to hold back a portion of their system capacity to buy and sell gas in more of a merchant and trading function, where they may buy gas at the beginning of their pipe at index and sell it at the tail-end for index plus a premium.  They can also more actively trade in the forward basis and forward index markets where they would have a more significant edge with non-public information on the market area hubs.  Marketing and trading shops owned by intrastate natural gas pipeline companies will do extremely well in an environment where there is no public information on supply and demand for natural gas.  Public information on supply and demand for natural gas will have to shift a lot more towards private vendors such as Hyperion who monitor supply and demand factors on a real time basis.

Summary

The significantly increased delays of interstate natural gas pipeline projects by FERC and the Biden Administration will create an environment where more natural gas pipelines will become intrastate pipelines in order to bypass the hostilities of the federal government.  It will also shift more natural gas production towards Texas and Louisiana where they are friendly towards more production, more intrastate pipelines, and more LNG liquefaction projects where the excess production can find a home in the strong international LNG market.  The significant increase in intrastate natural gas pipelines will create a more volatile (as if natural gas isn’t already volatile enough!) market environment where there is significantly less information on real time supply and demand data since intrastate pipelines aren’t required to report their daily flow data to the public.  The increase in intrastate natural gas pipelines will also give more market power to intrastate pipeline companies with marketing and trading shops to potentially manipulate the natural gas market without any legal consequences.  Private vendors such as Hyperion will be utilized more to provide publicly available real time information on supply and demand for natural gas.