Report: Mountain Valley Pipeline Faces Economic Challenges

The Mountain Valley Pipeline (MVP), which has been beset by permitting delays and legal challenges, may not be needed because of reduced demand projections and increased costs, a recent study determined.

The study by the Institute for Energy Economics and Financial Analysis found that the 303-mile transmission pipeline, which is being built from northern West Virginia to southern Virginia to carry gas from the Marcellus and Utica regions of Appalachia, faces several financial challenges as projections have changed during the seven years since it was proposed. The cost of the project, which is partially owned by Equitrans Midstream, has ballooned to between $5.8 and $6 billion from a $3.7 billion estimate in 2018. It is now expected to be completed late this year.

“Natural gas markets have changed since the Mountain Valley Pipeline was proposed,” Cathy Kunkel, co-author of the report, said in a press release. “The pipeline faces a significant risk that its capacity is no longer needed.” IEEFA conducts global research and analyses on financial and economic issues related to energy and the environment in order to accelerate the transition to a sustainable energy economy.

The IEEFA report found four primary reasons for the concern. Forecasts for natural gas demand in the southeast region are substantially lower than projections that pipeline sponsors used when justifying the need for the project to the Federal Energy Regulatory Commission (FERC), which regulates pipelines. The U.S. Energy Information Administration predicts natural gas demand will decline from 2019 to 2030 in the region.

The fate of the Southgate extension to the MVP from southern Virginia to North Carolina could also impact one of the companies that has contracted for capacity on the pipeline. The Southgate extension is tied up in federal court over North Carolina regulators rejection of a water quality permit. Without the extension the Public Service Co. of North Carolina has no reason for the contract.

In addition, other utilities that signed up for pipeline capacity could find that it won’t provide their customers with less-expensive gas. The report said two utilities won’t receive gas directly from the MVP, but would use the Transco pipeline to get it to their electric generation plants. However the price differential in Appalachian gas and gas purchased elsewhere on the Transco pipeline has narrowed, which may mean there will not be a price advantage.

Finally, Appalachian Basin pipeline capacity currently exceeds production as many companies have curtailed drilling new wells in the low-price atmosphere, and an increase will depend on a growing export market for liquid natural gas (LNG). However, demand for LNG in Asia is predicted to be lower, and other nations may be able to provide LNG at a lower cost.

While FERC’s policy has been to approve pipelines that demonstrate they have the contracts to fill their capacity, it has not taken into account the changing domestic gas market. That may change as the Biden administration plans to review the criteria for approving pipeline projects.