- Industry: Energy & Utilities
By James Ensor and Matthew Daly
Building the infrastructure required to export US-made LNG takes years and requires approval from various federal and state regulatory bodies. With the administration and federal agencies pursuing an “energy dominance” strategy to become a world-leading fossil fuel exporter, the responsibility for ensuring export facilities are environmentally sound falls to the states. An adequate environmental cost and economic benefit framework needs to be established to determine whether these facilities are in the public interest, and it’s an open question as to who will create that framework.
Examination of global demand and the need for U.S. LNG
The United States was on track to become one of the largest LNG importers up until 2008, when advances in extraction technology made natural gas reserves at the Barnett Shale accessible. Hydraulic fracturing (fracking) came into widespread use, allowing producers to tap into tightly packed shale formations to extract gas. Shortly after fracking took hold, advances in horizontal drilling increased the accessibility of recoverable natural gas. US Energy Information Administration (EIA) data illustrated in Figure 1 shows a notable uptick in US natural gas gross withdrawals beginning in 2008 and continuing into the present.
Currently, massive reserves of natural gas are available, with gross withdrawals roughly 58 percent higher in 2018 than they were in 1990. Cheniere Energy Inc. was the first to file for approval to construct an LNG export facility in 2010. The first cargo left its Sabine Pass facility in 2016 after construction was completed. The remainder of the first wave is composed of Cheniere’s Corpus Christi facility, Sempra’s Cameron facility, Kinder Morgan’s Elba Island LNG facility (notably located in Georgia), and Freeport LNG—all of which are online or expected to be in 2019.
Exporting LNG is still an infant industry. However, projections double global demand for LNG by 2035, putting the United States on track to export more energy than it imports by 2020— with the United States in position to become the third largest exporter of LNG globally. Secretary of Energy Rick Perry, Federal Energy Regulatory Commission (FERC) Chairman Neil Chatterjee, and LNG companies are hopeful more LNG export facilities can be approved to capitalize on these developments.
A variety of factors are driving the increase in LNG exports, including multiple US Department of Energy (DOE) studies suggesting that consumer well-being and the national gross domestic product improve with higher rates of LNG exports. Further, the geopolitical advantages of helping allied countries reduce dependency on Russian natural gas and the positive effects on the overall national trade deficit are factors. The Shell LNG Outlook 2019 projects that gas will be supplying 40 percent of additional energy demand by 2035 and states “LNG continues to be the fastest-growing gas supply source, with an expected compound annual growth rate of 4 percent a year between now and 2035. We expect growth in LNG demand to continue around the world, led by Asia and Europe.”
Valid arguments are also made against the rapid expansion of LNG export capabilities, particularly the increase in greenhouse gas (GHG) emissions as a result of the cumulative effects from these projects. Concerns exist of price increases domestically for residential uses of gas for cooking and heating, and commercial applications and power generation. There are currently 12 LNG applications before FERC awaiting approval. The industry
are is cautiously optimistic for future projects following FERC’s February 21 approval of Venture Global’s Calcasieu Pass LNG export terminal.
Previous debate on LNG export facilities
Gaining the requisite approvals to construct an export terminal for LNG is a lengthy process primarily overseen by FERC and DOE. The 1938 Natural Gas Act, which regulated natural gas imports and exports, required the Federal Power Commission to determine whether an LNG project is in the “public interest.” Requirements under the act have evolved over the years, separating jurisdiction over LNG terminals between DOE and FERC. FERC has authority over the siting, construction, and operation of LNG facilities and makes a public interest determination over that narrow scope. DOE has the authority to determine whether the export of LNG itself is in the public interest.
This leaves DOE with the oversight of the gas as a commodity, and whether those import and export activities are in the public interest. All applications for exports to countries with a free trade agreement (FTA) are considered to be in the public interest; for countries without an FTA, the process is lengthier, with a public comment period. FERC is also required by the National Environmental Policy Act (NEPA) to produce an Environmental Impact Statement (EIS) on all LNG facilities that file for approval.
NEPA was filed into law in 1970, and since then court challenges have determined FERC’s requirements when approving both pipeline and LNG terminal projects. In order to fully understand how the scope of EIS filings has evolved, it’s important to understand the distinction between GHG emissions and their impact as being “upstream,” “midstream,” or “downstream.” Upstream impacts are emissions generated from extraction of gas, midstream emissions occur during the transmission of the gas (typically through pipelines), and downstream emissions are generated when gas is used by the end-user. FERC’s authority is generally limited to midstream-level infrastructure, arguing in the past those are the only emissions needed to consider during the public interest assessment of the project.
Case law has established that downstream greenhouse gas emissions must be considered by FERC when approving the siting of natural gas pipelines, because it is reasonably foreseeable the gas will be burned at power plants. In the case of LNG terminals, the courts have determined that downstream GHG emissions do not need to be considered, since DOE has jurisdiction over whether the gas will be imported or exported.
The Court absolved FERC of the requirement to analyze downstream emissions effects of export terminals in three separate challenges brought against their decisions to approve both the Freeport and Sabine Pass LNG export terminals, by relying on the precedent that “An agency has no obligation to gather or consider environmental information if it has no statutory authority to act on that information.” Since DOE is regulating the export of gas as a commodity, FERC has no legal authority to consider emissions generated from downstream use of gas in its decision to approve export facilities.
Nevertheless, in both situations, the direct and cumulative effects of FERC’s approval must be taken into consideration in the EIS. This means that significance assessments will be more limited in the case of LNG export terminals, yet still be performed and evaluated when making a public interest determination. Now that the Trump administration has withdrawn the United States from the Paris Climate Accord and rolled back the Clean Power Plan, national-level benchmarks to assess the significance of emissions against no longer exist. Since there are no targets established, FERC has argued it’s impossible to make a significance determination. FERC will likely stand by this argument. If FERC cannot reach a decision, it leaves the argument to be settled in the court of public opinion.
The DC Circuit Court of Appeals has deemed an EIS as not being adequate if “an EIS’s deficiencies are significant enough to undermine informed public comment and informed decision making.” Public interest groups and states need to be fully informed of the environmental impacts of pipelines and LNG facility projects. Without an adequate EIS, states might not have the information necessary to exercise their authority to veto a project, even if FERC doesn’t possess that authority itself. NEPA requires FERC to meet this benchmark by considering and disclosing a project’s direct, indirect, and cumulative emissions, determine the “significance” of those impacts, and use that information in their public interest determinations.
Considering the importance of an adequate EIS and the resulting decisions it influences, the scope of what emissions are included, and the context provided around the significance of those emissions doesn’t provide enough information to fully inform a public interest determination. Instead of taking the opportunity to lead on this issue by developing a framework to consider GHG emissions and the cumulative impacts of LNG export terminal projects, FERC’s latest approval essentially uses the lack of a standardized methodology for assessing the significance of those impacts to support the conclusion there won’t be significant harm caused by those impacts. This practice doesn’t encourage legitimate debate between FERC commissioners about what constitutes the public interest. Without adequately considering emissions impacts and their effects on climate change, neither FERC nor those organizations that rely on a comprehensive EIS can determine if any facility is in their interest.
This article originally appeared in Natural Gas & Electricity Journal.
Daly, Matthew and Ensor, James (April 2019). “Environmental Concerns in Race to Approve ‘Second Wave’ of LNG Export Facilities.” Natural Gas & Electricity 35/9, ©2019 Wiley Periodicals, Inc., a Wiley company.