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Houston (Platts)--18 Aug 2017 354 pm EDT/1954 GMT 

Efforts to serve New England with more US shale gas that would make supply costs cheaper on days of high demand for the home heating and power plant fuel suffered a blow Friday when a federal appeals court effectively stalled the 650 MMcf/d Constitution Pipeline at the New York border.

Operator Williams and shippers Cabot Oil & Gas and Southwestern Energy have viewed Constitution as an important cog in the natural gas wheel that would alleviate bottlenecks in the pipeline-constrained Northeast, a region that needs new infrastructure to move output from the Marcellus and Utica shale plays. New England, in particular, heavily relies on pipeline imports from Canada and LNG imports from overseas to meet winter peak consumption, factors that can increase prices during shortages.

Constitution's sponsors had repeatedly expressed optimism in recent months that the assistance the five-year-old project was seeking from the Trump administration and a successful challenge of the New York State Department of Environmental Conservation's denial last year of a key water permit would allow the pipeline to move forward and be completed.

That goal has been put in limbo now that the US 2nd Circuit Court of Appeals has ruled to uphold the permit denial.

"A state's consideration of a possible alternative route that would result in less substantial impact on its waterbodies is plainly within the state's authority," the court said.

It added, "we conclude that NYSDEC's actions were within its statutory authority and that its decision was not arbitrary or capricious, and we deny the petition."

Keith Isbell, a spokesman for Tulsa, Oklahoma-based Williams, said in an email that while the company "would have preferred an immediate decision that would have moved the project forward," it believes it has a "path to final approval." It was not immediately clear if that meant a new water quality permit application would be filed or the company would appeal to a higher court or take some other action.

"As New York invests in intermittent, more-costly resources like solar and offshore wind and evolves its nuclear fleet, Constitution will create a reliable and affordable supply of clean, American-produced energy," Isbell said.

Officials at Cabot, which has a 500 MMcf/d commitment on Constitution, and Southwestern, which has a 150 MMcf/d subscription, did not immediately respond to requests for comment on the court decision.

The 121-mile Constitution Pipeline, backed by subsidiaries of Williams, Cabot, WGL Holdings and Duke Energy's Piedmont Natural Gas, is designed to support production growth from the Marcellus in northeastern Pennsylvania, transporting volumes northward to an interconnect with Tennessee Gas Pipeline and Iroquois Gas Transmission in Wright, New York. From there, volumes would flow south on Iroquois toward New York City-area demand markets, or east on Tennessee into New England and Boston demand centers.

Volumes flowing into New England tend to bottleneck at the Compressor Station 261 constraint point on Tennessee downstream of Wright.

Volumes through Station 261 averaged 861 MMcf/d during peak winter months this past winter, a utilization rate of roughly 74% of the capacity through the Station 261 segment, Platts Analytics' Bentek Energy data showed. In prior winters, this figure had been much higher. The near-record cold winter of 2013-2014 saw utilization at Station 261 approach 90% on average during peak-winter-demand months.

Prices in New York and New England have since moderated from recent Polar Vortex winters. Cash prices at the Algonquin city-gates, which serves Boston-area deliveries, averaged $16.05/MMBtu between November 2013 and March 2014. Three years later, cash prices near Boston averaged $4.55/MMBtu between November 2016 and March 2017, the result of milder winter weather and increased utilization of LNG imports at the Everett Distrigas facility outside Boston, Platts Analytics data showed.

While the incremental capacity from Constitution would provide an immediate outlet for increased production in Pennsylvania, those volumes would nonetheless run the chance of encountering familiar capacity constraints before reaching high-demand US Northeast markets because of its configuration of delivering into pipeline interconnects and not necessarily providing "last-mile" service to regional end-users, with the exception of a proposed delivery meter to a local gas distributor in upstate New York.

The project was initially proposed to enter service in early 2015, but a longer-than-anticipated review process led to the in-service date being moved to late 2016. Constitution received US Federal Energy Regulatory Commission approval to start clearing trees in Pennsylvania in early 2016, but was stopped at the Pennsylvania-New York border because New York rejected its water permit.

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