A federal appeals court on Tuesday vacated a key New Jersey permit needed for a proposed $1 billion natural gas pipeline project that would run through the Raritan Bay between New Jersey and New York.

The U.S. Court of Appeals for the Third Circuit ruled that the New Jersey Department of Environmental Protection did not adequately explain how the Northeast Supply Enhancement pipeline project would comply with state water-quality standards when the agency approved a key water quality certification last year.

The proposed project, being developed by energy company Williams through its Transcontinental Gas Pipeline subsidiary, would include a roughly 37-mile expansion designed to increase natural gas capacity between Pennsylvania, New Jersey and New York.

In its ruling, the three-judge appeals panel found that NJDEP failed to sufficiently address concerns surrounding dredging in the Raritan Bay and the potential disturbance of contaminants buried in the seabed.

The court’s decision does not permanently block the pipeline project. Instead, the matter has been sent back to NJDEP, which can provide additional analysis, request more information from the developer, issue a revised certification or reach a different decision on the permit.

Williams said it is reviewing the court’s decision and maintains that the project is important for strengthening energy reliability and meeting growing demand in the region.

Environmental groups that challenged the permit welcomed Tuesday’s ruling, arguing that construction could impact water quality, marine habitats and wetlands in parts of New Jersey.

The project has faced years of regulatory and legal challenges. New Jersey previously rejected permits connected to the proposal before state regulators approved the water quality certification in November 2025 and another key permit earlier this year.