UPDATE 6-PennEast becomes the latest to scuttle a natural gas pipeline project

·3 min read

(Recasts 2nd paragraph, adds quote)

By Scott DiSavino

Sept 27 (Reuters) - PennEast Pipeline said on Monday it would stop developing a proposed pipeline from Pennsylvania to New Jersey, the latest in a series of natural gas lines to run aground due to legal and regulatory challenges.

The project was one of several started in recent years to draw gas from the fast-growing Appalachian region, only to run into local or environmental opposition to more fossil-fuel infrastructure. Gas prices have surged in Europe and Asia due to rising demand and lack of supply, and that has boosted U.S. gas prices to seven-year highs.

In the United States, natural gas is used for power generation and heating more than any other fuel, according to U.S. Energy Department figures. With the cancellation of PennEast and other pipelines, the industry is becoming more concerned that additional production from the key Marcellus/Utica shale in Pennsylvania, Ohio and West Virginia will become trapped in the basin.

PennEast was canceled, the company said, because it had not yet received all of its required permits, including a water quality certification in New Jersey. It was one of the last major pipeline projects in the works set to pull gas from the Marcellus/Utica formation, the biggest U.S. gas shale basin.

"The PennEast partners, following extensive evaluation and discussion, recently determined further development of the project no longer is supported," PennEast said in an email, noting it "has ceased all further development of the project."

The surge in U.S. production in the past decade turned the country from a gas importer into one of the world's biggest exporters. The United States exports about 10% of the gas it produces as liquefied natural gas (LNG).

"The Marcellus/Utica was the growth engine of natural gas production for many years and that has slowed considerably the past two years," said Luke Jackson, manager North America natural gas at S&P Global Platts, noting the region was already constrained by a lack of pipelines.

U.S. natural gas prices are at a seven-year high, boosted by overseas demand for U.S. LNG exports. In other markets, gas prices are trading at record levels due to low storage in Europe and insatiable demand in Asia.

Other East Coast gas pipes held up by regulators and legal battles include Williams Cos Inc's Northeast Supply Enhancement from Pennsylvania to New Jersey and New York, and Dominion Energy Inc's Atlantic Coast from West Virginia to Virginia and North Carolina. The latter was canceled in 2020.

PennEast decided to stop development even though the U.S. Supreme Court in June ruled in its favor in a lawsuit allowing the line to seize state-owned or controlled land in New Jersey.

The 120-mile (193-km) pipe was designed to deliver 1.1 billion cubic feet per day of gas from the Marcellus shale to customers in Pennsylvania and New Jersey. One billion cubic feet is enough gas for about five million U.S. homes for a day.

"The legal and regulatory roadblocks that led to the cancellation of the PennEast Pipeline – which would have been built with union labor – are putting energy affordability and reliability at risk in America," the Interstate Natural Gas Association of America said in a statement.

PennEast initially hoped to complete the project in 2019. As recently as August, PennEast said it still hoped to finish the first phase of the $1.2 billion pipe in Pennsylvania in 2022.

(Reporting by Scott DiSavino; Editing by Bill Berkrot, Mark Potter and Jonathan Oatis)

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