It’s hard to fathom some of the comments that Energy Transfer’s (ET) top management made about their schedule for Mariner East in their quarterly earnings call on November 4. They continue to promise a construction schedule that would be impossible to meet even if there were no legal or regulatory issues to address—and of course, there are plenty of those remaining.

ET is the parent company of Sunoco Pipeline, which is building Mariner East.

ET management’s scheduling “pipe dream”. In the earnings call, ET reiterated its position that the “next significant phase” of Mariner East (the completion of ME2x) will occur by the end of 2020 (just seven weeks from now) and the “final phase” (completion of ME2) is “expected to be completed in the second quarter of 2021”.

The overall picture according to ET management is this:

  • By the end of 2020, ME2X will be in operation across the entire state, carrying highly volatile “natural gas liquids” (NGLs).
  • ME1 will be phased out of NGL service and will be carrying refined products (mostly gasoline) west-to-east by the end of 2020. “We anticipate a fourth quarter 2020 startup for early volumes to be able to flow from Ohio into Pennsylvania and to upstate New York markets,” according to the earnings call.
  • By June of 2021, ME2 will also be in operation across the entire state, also carrying NGLs, and the workaround pipeline (“Frankenpipe”) that has been carrying most of the NGLs through southeastern PA will presumably no longer be used.  

It is clear to those of us in southeastern Pennsylvania that these timelines are unachievable. Even given ET’s perennial wild-eyed optimism about schedules, these dates represent a new level of delusion.

What could go wrong? The problem with ET’s timeline is that there are numerous places where the pipelines are far from complete. Let me point to three significant ones.

At Snitz Creek (Lebanon County) Sunoco has racked up over a dozen Notices of Violation (NOVs) from the Department of Environmental Protection as it tries, and fails, to drill through rock that is a limestone version of swiss cheese. The DEP has invited Sunoco to sit down and talk so that the DEP can “determine whether to withhold issuance, renewal or amendment of permits”. The outcome of those talks may determine when (or whether) ME2X can be completed in that part of Pennsylvania. Meanwhile, work there is halted.

At Marsh Creek Lake (Chester County) Sunoco has polluted an important recreational and drinking-water lake and has been instructed by the DEP to re-route the pipeline. Sunoco is appealing that requirement, and work on ME2 at that location has been shut down pending the appeal.

Lawyers involved with the appeal have until November 23 to file their briefs. At some point after that, the Administrative Law Judge will issue his opinion. Even if Sunoco is then permitted to resume drilling at the location of the spill that triggered this regulatory action, the project will still be set back a least a couple of months. If they are required to do the re-route, it will be more like a couple of years.

Near the Tunbridge Apartments (Delaware County) Sunoco has resumed construction of both pipelines. It repeatedly failed in its attempts to use HDD at this location and has abandoned that approach. Now it is trying open trench construction. But that will involve “trenching” down a steep slope through rock that was hard enough to stop its HDD drills. It will also have to cross a high-value wetland, and it plans to trench through land for which it hasn’t even been able to secure rights yet.

And all of this is in the middle of a densely populated suburb. There are many things that could go wrong here, and since neither pipeline is complete in this area, the schedule for both pipelines will be impacted if there are problems.

I could go on about other problems, such as the “Safety 7” complaint that questions the emergency plans for these pipelines and the whistleblower suit against the company for covering up violations, but you get the picture.

Are investors being misled? So there is ample evidence that Sunoco will fail to make its claimed ME2X completion date, and it probably won’t make its ME2 completion date either. How can management make these claims to its investors? Is it possible that ET’s top management is so ill-informed, and the yes-men at lower levels in the company are so intimidated, that word of these problems is not reaching the upper levels of the company? Or is it the case that management is well aware of these problems and prefers to hide them from investors as long as possible? Either way, it doesn’t speak well for the company, and it should give investors pause before they entrust ET with their money.

Other news. The earnings call covered a variety of topics, most of which didn’t involve Mariner East. But there was mention of plans for transporting “natural gasoline” (a.k.a. “condensate” or “C5+”) on ME, which has not been done previously, and plans for increasing the capacity for handling LPG (liquified butane and propane) at Marcus Hook. The financial news included ET’s recent dividend cut and its rosy projections for its financial future.

New management structure. The latest quarterly earnings call was the first since the shift in ET’s management structure.  Former CEO Kelcy Warren has been “kicked upstairs” to the position of Executive Chairman. That presumably means less involvement in day-to-day decision-making. There are now co-CEOs: Tom Long (who has been Chief Financial Officer) and Mackie McCrea (who has been Chief Commercial Officer). I assume they continue in those positions as well as their CEO roles, since the press release does not say anything about replacements.

It is unclear whether this management change will make much difference in how ET operates. Kelcy Warren participated in the earnings call, as he usually has in the past, and there was no indication of any change in policies or corporate strategy.

Here’s how you can help. Please contribute to help defray the expenses associated with the Safety 7 trial before the PUC. The hearings are over now, but the bills are still rolling in. Whether you can afford $10 or $100 or $1,000, every bit helps. Details are here.