Executive Orders More Symbolic Than Material for Pipelines
We're not changing our outlook for our midstream coverage.
President Donald Trump has issued two executive orders addressing state-driven delays in oil and gas pipeline approvals. We believe the impact of these orders will be more symbolic than material for the midstream energy companies we cover, so we’re not changing our fair value estimates or economic moat ratings.
Executive orders are more limited than actual laws, as they are only binding for employees of federal agencies, whereas laws are ratified by Congress and apply to all U.S. citizens, private companies, and nonfederal agencies. The distinction is important, because Trump is trying to expedite pipeline approvals that are being blocked by the states via permit denials and delays, resulting in a variety of court battles. High-profile pipelines affected by permit delays include Williams’ (WMB) Constitution, TransCanada’s (TRP) Keystone XL, Enbridge’s (ENB) Line 3, and Dominion (D) and Duke’s (DUK) Atlantic Coast pipeline.
Trump’s executive orders direct federal agencies to streamline reviews of interstate pipelines. Specifically, the action focuses on Section 401 of the Clean Water Act and describes federal guidance as “outdated” and “causing confusion and uncertainty.” This particular section has been used by the states to block pipelines, mainly in the Northeast, so the orders are trying to shift more power to the federal agencies from the states. For example, Section 401 certifications are supposed to be approved within a year of the project application, but states are asking for revisions to the project application and then restarting the clock.
The executive orders are limited, though, since only Congress can restrict states’ authority under the Clean Water Act by passing a new law. This makes Trump’s action more political and symbolic and unlikely to force material changes to expedite pipeline approvals. The executive orders also do little to speed up or resolve the court cases over various pipeline permits and delays. Unsurprisingly, the initial response from the states has been negative. Gov. Andrew Cuomo of New York, where several pipelines have been blocked to the extent that Consolidated Edison has imposed a moratorium on new gas connections in certain counties, said that the executive orders were a “gross overreach of federal authority.”
Other parts of the orders give the president exclusive responsibility for permits crossing international boundaries, which we think is mainly focused on the Keystone XL project, for which Trump recently reissued a presidential permit. There’s also an order asking the Department of Transportation to consider allowing liquefied natural gas to be transported via approved tank cars, facilitating easier transport of LNG to the Northeast, where Russian LNG was actually imported during the winter because of high gas demand.
Stephen Ellis does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.