February 2022, Vol. 249, No. 2
Features
Prospects for Midstream in Wake of Biden’s Infrastructure Bill
By Richard Nemec, Contributing Editor
Entering the New Year, energy sector representatives tracking developments in our nation’s capital may suffer some whiplash in working with Congress, following the Biden administration’s two multi-trillion-dollar bills, the Infrastructure Investment and Jobs Act and the Build Back Better (BBB) legislation.
In the spirit of the year-end holiday season, the former giveth and the latter taketh away, according to oil and natural gas observers. The infrastructure package, however, is receiving some rave notices from various sources.
Sen. Kyrsten Sinema (D-Ariz.) touted the bipartisan effort supporting the infrastructure package, noting the legislation contains “creative solutions and common-sense compromises.” Most industry observers view it as an historic investment in the nation’s backbone from roads and bridges to transportation and the energy grid. Others are calling the new funding package “a road to stronger economic growth.”
“This infrastructure package will expand our industry’s ability to make sure all customers continue to have access to safe, reliable, affordable energy while reducing emissions,” said Karen Harbert, CEO at the American Gas Association (AGA), noting that AGA supported a number of the federal bill’s provisions, including efficiency funds and hydrogen research and development (R&D).
Following the bill signing, U.S. Chamber of Commerce CEO Suzanne Clark said, “All Americans won in the enactment of the infrastructure package that will help connect 14 million Americans to broadband, provide clean drinking water for 10 million families, upgrade our energy grid and grow our economy. It is the single largest investment in bridges since construction of the Interstate Highway System [in the 1950s] and the single largest investment in innovation, efficiency and resiliency to address climate change in U.S. history.”
In contrast, the more politically controversial BBB, or reconciliation measure, still unresolved in late 2021 has drawn criticism from major industry groups such as the American Petroleum Institute (API). There are two main issues concerning API officials with the reconciliation bill. One is focused on a series of provisions that would restrict access to leasing and development on federal lands and waters.
API and other trade organizations sent a letter to Sen. Joe Manchin (D-W. Va.) outlining how these provisions, if passed in the Senate, “could serve to stifle U.S. production and result in further inflationary pressures on those U.S. citizens that can least afford it.” A second issue is the “methane fee,” which critics contend is nothing more than a natural gas tax.
“We support the direct regulation of methane by the U.S. Environmental Protection Agency [EPA] as the most impactful way to build on the downward trend of methane emission rates in key producing regions rather than a duplicative and punitive natural gas tax that would only hurt American consumers and undermine the economic recovery,” said API’s Frank Macchiarola, senior vice president for policy, economics and regulatory affairs.
AGA and other regional and state industry associations expressed strong concerns to congressional leaders about the proposed EPA “methane fee,” noting that “through numerous programs and initiatives, our companies are at the forefront of reducing greenhouse gas (GHG) emissions, including methane.”
Moreover, they added that “natural gas is responsible for 61% of cumulative carbon dioxide emission savings due to changes in the electricity generation fuel mix.”
Even with the infrastructure law, some clean energy advocates are disappointed with the $5 billion authorization to enhance and modernize the national power transmission grid. They point to a modeling analysis in 2020 by Princeton University researchers, the Net-Zero America study, which concluded that to meet President Joe Biden’s 2050 goal for net-zero carbon across the U.S. economy, the current national electric transmission capacity would have to triple.
Other studies indicate more than $33 billion is needed to build out 22 major transmission projects that have been identified as needed to reach net-zero carbon.
On the brighter side, the infrastructure act is chucked full of good news for the oil and gas sector depending on how companies respond, setting aside BBB’s perceived drawbacks.
While principally focused on roads, bridges and transportation, there are investment opportunities in the infrastructure packet related to idle/abandoned well remediation, cybersecurity throughout the industry, gathering pipelines on federal and Native American lands, U.S. Department of Energy (DOE) programs, clean transportation (school buses and ferries) incentives, hydrogen/carbon capture utilization and storage (CCUS) and assessing the Keystone XL Pipeline negative decision’s impact on jobs.
Last June, Canadian-based TC Energy terminated the Keystone project’s northern segment that would have moved oil sands crude supplies from Alberta to Nebraska. Earlier, Richard Price, CEO of the pipeline project, said 1,000 jobs would be eliminated as a result of the U.S. presidential rejection.
At California Resources Corp. (CRC), the state’s largest oil and gas producer, spokesperson Richard Venn said CRC expects the infrastructure law to help it expand its environmental-social-governance (ESG) programs, which include CCUS projects for injecting carbon dioxide (CO2) from various oilfield processes into underground storage. Eventually, CRC hopes to inject more than 1 mtpa of CO2.
“It can have immediate and long-lasting environmental, economic and employment benefits, so we hope the infrastructure bill helps industry adopt CCUS technologies to make infrastructure more resilient, environmentally friendly and cost-effective,” Venn said.
According to analyses of the Biden legislation, the fledgling hydrogen, CCUS and direct air capture segments should all gain traction in the years ahead. DOE is tasked with overseeing the development of several regional hubs for demonstration projects. About $8 billion would go toward producing, transporting and storing lower-carbon forms of hydrogen, including types made from natural gas. Direct air capture hubs would get a separate $3.5 billion.
Officials in North Dakota with its burgeoning Bakken shale in the Williston Basin, which also includes smaller plays in parts of Montana and South Dakota, are bullish about what Infrastructure Act funds can do for the state’s orphan and abandoned wells.
Part of the broader legislation is what is known as the Regrow Act, a bipartisan section devoted to closing all idle wells and reclaiming the landscape in each case. Sens. Kevin Cramer (R-N.D.) and Ben Lujan (D-N.M.) agreed that North Dakota had provided a “national model based on what the state did with earlier CARES Act money” aimed at recovering from the pandemic’s economic malaise in 2020.
The nation’s 31 oil and gas-producing states estimate that there are close to 60,000 known documented orphan wells nationwide, and three times that number that are undocumented, according to Lynn Helms, director of the North Dakota Department of Mineral Resources.
He cites the example of Pennsylvania going 125 years with no regulation of depleted wells. “There are lots of well bores that have no documentation,” Helms said. Pennsylvania has activated drones attached with special well-identifying equipment to fly over areas suspected to have orphan wells.
“This legislation is going to provide up to $25 million annually for each state through 2030 to locate, document, plug and reclaim idle and orphan wells. It has funding for a federal program under the Bureau of Land Management [BLM] with funding for tribes to get their own grants and funding for states to take care of wells on state and private lands.”
As a result, North Dakota and other states in the late part of 2021 were preparing to apply for formula grants, the annual stipends running through 2030. There are also separate performance grants to implement improvements in bonding and enforcement of wells as a preventive measure against a backlog of future idle and abandoned wells.
“This is money for states to raise the bar on their [regulation] programs,” Helms said. “There are $5 million grants for states without a well plugging fund,” he said. And there also are $25 million grants to get states through the first year before the performance grants can begin.
“Overall, there is $4.6 billion to tackle this problem nationwide and to improve state and federal regulations so the problem does not continue to expand,” Helms said. “There is a big focus on making sure what is done reduces overall methane emissions and takes care of any environmental situations.”
Helms said North Dakota played a “big part” of helping write the legislation. North Dakota plans to apply for a $25 million initial grant to cover 2022 work, formula grants extending through 2030, and it is looking hard at the performance improvement grant.
The state has an estimated 575 abandoned wells, and at least half are idle or orphaned, and it has 120 sites needing reclamation under the ongoing CARES Act-funded program begun in 2020. “We’ll take our time and do it right,” Helms said.
A sub-part of the well plugging has identified 32 wells that can be partially cleaned up and then turned into water sources for grazing or a private rancher’s use. Helms estimates the cost at $200,000 per well compared to $260,000 for full plugging and reclamation of a wellsite.
To guide the overall distribution of the infrastructure funding, President Biden issued an executive order outlining the administration’s priorities and establishing a task force to coordinate the law’s implementation among federal agencies and state, local and tribal governments.
The task force is jointly headed by former New Orleans Mayor Mitch Landrieu and Brian Deese, director of the President’s National Economic Council, and was to include the heads of the Office of Management and Budget, the Domestic Policy Council, the White House Climate Policy Office, and Cabinet members from the affected federal agencies, including the Departments of Transportation and Interior, DOE, and EPA.
Within the infrastructure package, there is a clear bias toward electrification in terms of bolstering the power transmission grid, electric vehicles (EVs) and clean transportation, but roles for natural gas and its infrastructure are also called out. In the section of the law dealing with EVs, a role for natural gas vehicles (NGV) is recognized.
The infrastructure law authorizes $7.5 billion over five years to build out a national EV charging infrastructure. Grant funding for other alternative fueling infrastructure is also available, including for hydrogen, propane and NGVs.
The law establishes a new competitive grant program to support building a network of 500,000 EV chargers along highway corridors and within communities, similar to what already exists for NGVs in many regions of the nation. EV charging and NGV and other fueling are eligible for funding through existing Surface Transportation Block Grant Programs and allows for the purchase of zero-emission vehicles in the Congestion Mitigation and Air Quality Improvement Programs.
State and local government entities can apply directly to the Department of Transportation to carry out eligible projects. Fifty percent of total program funds will be distributed annually through community grants for the installation of EV and alternative fueling infrastructure on public roads, schools and in other publicly accessible locations.
Rural areas, low- and middle-income neighborhoods, and communities with either limited parking or a high number of multiunit housing will be prioritized for awards.
In the transportation sector, there is a Clean School Bus Program, providing $1 billion for the electrification of school buses. The program will be implemented through grants and rebates and administered by the EPA.
Eligible recipients of grant funding include state or local governments, eligible contractors, nonprofit school transportation associations, Indian tribes, and entities that provide school bus service or purchase school buses for Bureau of Indian Affairs-funded schools. Billions of dollars more are targeted for smartening the power grid, various renewable energy and carbon capture demonstration projects, and advances in battery storage.
There are $65 billion to upgrade the electric transmission grid infrastructure to improve system reliability and resiliency, and to facilitate the expansion of renewables and clean energy. It is not clear if gas transmission infrastructure to specifically support the power grid will be eligible for funding.
Funds will come in the form of grants to eligible entities, including states and Indian tribes, to harden the transmission grid to reduce risks caused by wildfires, hurricanes and other disruptive events, and to build out thousands of miles of new transmission lines.
Another $5 billion in financial assistance over four years is available to demonstrate innovative approaches to transmission, storage and distribution infrastructure to harden and enhance resilience and reliability, including enhancing regional grid resilience on a cost-shared basis.
These conceivably can include natural gas infrastructure. “Eligible recipients include individual states or combinations of states, Indian tribes, local governments and public utility commissions,” according to analytical work by the National Law Review. “Applicants will need to demonstrate how the financial assistance will be used, the expected beneficiaries, and, if the applicant is a combination of states, how the proposal will improve regional energy infrastructure.”
Under renewable energy, the new federal law provides $500 million for five clean energy demonstration projects that use technologies such as solar, microgrids, geothermal, direct air capture, storage and advanced nuclear.
The DOE, in consultation with the Departments of Interior and Labor, and EPA, will solicit proposals for clean project funding.
“To be eligible, projects must propose the use of a commercially viable technology at a current or former mine site that provides a net impact in reducing greenhouse gas emissions and providing new job creation and economic development. Projects proposed for economically distressed areas, or areas with dislocated workers previously employed in the fossil fuel industry, will be prioritized,” Law Review analysts note.
Working through DOE, there are $6 billion for battery storage projects over 5 years, including $3 billion in grants for processing and refining raw products into constituent materials used in advanced battery manufacturing, and $3 billion in grants to bring portions of the battery supply chain, particularly manufacturing and recycling, to the United States through research, development and demonstration projects.
Powers of Interior
Analysts from Washington, D.C.-based consulting firm Bracewell LLP point out that the 2021 Surface Transportation Reauthorization Act, as part of the infrastructure law, reemphasizes powers of the Interior Secretary regarding gathering pipelines and the fast-tracking provisions for permitting in the federal Permitting Reform and Jobs Act (S. 2324), lifting the sunset provision for FAST-41 that was due to expire at the end of 2022.
The head of Interior has the discretion to establish “categorical exclusions” for certain gathering pipelines that would reduce vented, flared or avoidably lost natural gas for vehicular traffic serving onshore oil and gas wells on federal land, and with tribal consent, Native American land.
Going back to 2015, the bipartisan federal Permitting Improvement Act was passed as part of the Fixing America’s Surface Transportation (FAST) Act.
“FAST-41 significantly reformed the federal infrastructure permitting process, while leaving environmental protections in place,” the analysts note. It created a permitting steering council to bring together all relevant agencies at the start of permitting on “some of the largest, most complicated projects.” The council helps draft a permitting process plan across all relevant agencies.
For covered projects only, FAST-41 reduced the statute of limitations for National Environmental Policy Act (NEPA) challenges from 6 years to 2 years.
“Since FAST-41 became law, the permitting council has helped more than 50 projects with their permitting processes, saved projects more than a billion dollars, reduced permitting timelines substantially, helped project sponsors create more than a hundred thousand jobs and resolved numerous interagency conflicts,” Bracewell’s analysts note.
They emphasize that the infrastructure law’s permitting provisions will make FAST-41 permanent, expand FAST-41 benefits to tribal projects, set a two-year goal for permitting covered projects, encourage federal agencies to use one document to track permitting decisions and improve the permitting council’s day-to-day operations.
On the political side, Republican members of Congress pushed hard to include a provision mandating that the DOE Secretary conduct a study and report on job losses and impacts on consumer energy costs due to the revocation of the permit for the Keystone XL oil pipeline.
Other congressional members wanted methane emissions remediation for the oil and gas sector leading to the above-mentioned program for wellsite “plugging, remediation and restoration.” This section authorizes programs to plug, remediate and reclaim orphaned wells on federal, state and Tribal lands.
In the enhanced grid security section of the legislation, help with cybersecurity applications and technologies covers the whole energy sector, including a program to increase the functional preservation of power grid and gas and oil operations in the face of threats and hazards. This part carries $250 million is funding for fiscal years 2022 through 2026 for operational support for cyber-resilience and modeling and assessing energy infrastructure risk.
There are allocations for major investments in cybersecurity in both the energy sector and the federal government, with the Federal Energy Regulatory Commission (FERC) playing a key role. Since 2020, FERC has been examining cybersecurity with the publication of a white paper and the notice of proposed rulemaking.
Federal regulators are in the process now of reviewing the comments submitted in the rulemaking proposal. Under the infrastructure law, rural and municipal utilities also would be eligible for grant and assistance programs from a $250 million pool of funds.
Funding won’t be a problem, but strategic identification, design and implementation of transformative projects won’t be easy, so it looks like the Biden administration, industry and the infrastructure task force have a big job ahead.
Where the Funding Goes …
Administration officials place the new spending in the infrastructure law at nearly $550 billion over the next five years, broken into 15 program categories:
Roads, Bridges, and major projects, $110 billion; Passenger and Freight Rail, $66 billion; Safety, $11 billion; Public Transit, $39.2 billion; Broadband, $65 billion; Ports and Waterways, $16.6 billion; Airports, $25 billion; Water Infrastructure, $55 billion; Power and Grid, $65 billion; Resiliency, $47.2 billion; Clean School Buses and Ferries, $7.5 billion; Electric Vehicle Charging, $7.5 billion; Reconnecting Communities, $1 billion; Addressing Legacy Pollution, $21 billion; Western Water Infrastructure, $8.3 billion.
Offsetting these charges are another $480 billion in existing federal funds, including $210 billion of unused COVID-19 funding. Another $191 billion comes from four other sources – delaying the Medicare Part D rebate rule ($51 billion); state returns of unused enhanced federal unemployment supplements ($53 billion); sales at future broadband auctions ($20 billion); and proceeds from a February 2021 e-band auction ($67 billion).
Richard Nemec is a regular P&GJ contributing editor in Los Angeles. He can be reached at rnemec@ca.rr.com.
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