Takeaway: Energy Policy Update: Hurricane Harvey Delays & Expedites Decisions. Meanwhile, FERC approves first pipeline even ahead of Sept 20 meeting.

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Gulf refiners are on their backs due to Hurricane Harvey. As they struggle to get back online, we expect the Trump Administration to delay two key decisions that will further impact the refiners.

1. Venezuela energy sanctions still in the works but likely delayed due to Harvey. The Treasury Department last week banned US persons and entities from new trades in debt and equity with the Government of Venezuela and PDVSA. While the Administration order provided special carve-outs for CITGO and financial transactions for US refiners to continue to import Venezeula crude, we continue to believe the energy sanctions on Venezuela are still in the works.

However, now due to Hurricane Harvey impacts on Gulf refiners, we think a decision on further energy sanctions will be delayed by at least two weeks. The Administration knows these sanctions will hurt Gulf refiners at least temporarily, and therefore, they don’t want to add to refiners woes as they struggle to recover from the storm damage. We think any decision on further sanctions is now delayed until mid-September.

2. EPA probably delays point of obligation decision for RFS compliance. Another likely delay caused by Harvey is an expected EPA decision denying a petition by merchant refiners to move the point of obligation for compliance under the Renewable Fuel Standard (RFS). Bloomberg and other media outlets reported about two weeks ago that EPA would deny the petition and caused RINS prices to jump 10 cents on the news.  We agree with the media reports about the decision and plan to write a separate note on the topic. As you may recall, we thought EPA would support the refiners request so while we got this one initially wrong we don’t believe this will be the end of the issue. Nonetheless, EPA would be piling on if they issued the decision now and so we think it will also be delayed perhaps until late September.

3. EPA today approved environmental waivers for refiners in Gulf and East Coast states. EPA announced today it is providing relief to refiners in the form of emergency waivers from clean air rules on reformulated gasoline in Gulf and East Coast states to ensure adequate fuel supplies in these regions. The waivers are effective until September 15. The EPA announcement is available here.

4. Trump’s new FERC Commission gets to work on backlog and approves NEXUS pipeline. Meanwhile, FERC’s new majority wasted no time in getting started on the backlog of projects awaiting approval.  In a client note on August 10, we said that despite the first meeting of the new FERC quorum on September 20 “we believe that project approval announcements are likely even before the September 20 business meeting.”  We also said that “we believe the first project to get approved will be the NEXUS pipeline.”  Last Friday, FERC did just that and approved via a written order the $2 billion, 1.5 Bcf/d NEXUS natural gas transmission pipeline in Michigan and Ohio by joint developers Spectra Energy Partners (SEP) and DTE Energy (DTE). The project was slated for completion by the end of 2017 and is now looking at a 2018 in-service date as a result of the FERC delays.

We think FERC will continue expedited consideration of other projects in the immediate backlog awaiting approval including the following:

PennEast Natural Gas Pipeline - a $1 billion, 1 Bcf/d project in Pennsylvania and New Jersey by developers: Spectra Energy Partners (SEP), UGI Energy Services (UGI), Southern Gas Company (SO), SJI Midstream (SJI), and NJR Pipeline Company (NJR).

Atlantic Coast Pipeline – a $5.5 billion, 1.5 Bcf/d project in West Virginia, Virginia and North Carolina by developers: Dominion Energy (D), Duke (DUK), Southern Gas Company (SO) and Piedmont Natural Gas (PNY).

Mountain Valley Pipeline – a $3.5 billion, 2 Bcf/d project in West Virginia and Virginia by developers: EQT Midstream Partners (EQM) 45.5%, NextEra US Gas Assets (NEE) 31%, Con Edison Transmission (ED) 12.5%, WGL Midstream (WGL) 10% and RGC Midstream 1%.

Mountaineer Xpress – a $2 billion, 2.7 Bcf/d project by TransCanada (TRP) in West Virginia.