On Tuesday of last week, the British government announced its long-awaited decision on airport expansion, favouring the option of a third runway at Heathrow. Despite the clear and compelling economic benefits, it has taken nearly twenty years for the government to reach a decision on the now-critical requirement of increased capacity across the UK’s key airports; a decision that the Davies Commission estimates will deliver a GDP boost of $147bn over the next 60 years.
For the energy industry, the politicization of critical infrastructure decisions is nothing new. For decades energy investors’ calls for long term planning have been at odds with the oft short term horizons of political decision making. But the problem is not limited to the UK. It is symptomatic of a wider issue that stretches across the Atlantic to the United States – a lack of long-term, government-led planning on key infrastructure developments. Whilst there is no shortage of private cash ready to be invested into major infrastructure, there is a lack of political will to deploy it. Sanctioning and constructing critical energy infrastructure projects has never been more difficult.
In the United States, the associated challenges are felt particularly strongly among the gas producers of the north-eastern Marcellus mega-basin. Whilst production forecasts for the basin continue to outperform analysts’ expectations, stalling pipeline investment is likely to constrain the extent to which new wells can be connected. Despite the Federal Energy Regulatory Commission’s (FERC) publically-stated concerns about supply security, and President Obama’s positioning of gas as a “bridge fuel” to a low carbon economy as recently as 2014, impassioned opposition from environmentalists has led to major delays and cancellations of pipeline projects (most notably the Constitution project). The FERC has the authority to licence pipelines, and has been open in its intentions to expedite key projects, but the strength of environmental and state-level opposition has surprised many, and halted numerous investments.
With the upcoming presidential election looming, it appears unlikely that the investment required to connect the body of new, highly productive wells being drilled in the Marcellus will be passed anytime soon. As energy investments become increasingly politicized, now, more than ever, strong governance is critical to ensure that the debate remains rational – giving due consideration to the interlinked, fundamental aims of adhering to climate change policy and securing economic growth.
Alec Mitchell, Douglas-Westwood London
Alec.Mitchell@douglaswestwood.com or +44 20 3427 3499