Exporting compressed natural gas from the US

Monday, October 6, 2014

In a divided opinion, the Federal Energy Regulatory Commission has found that it does not have jurisdiction over facilities proposed by Emera CNG, LLC to compress natural gas for export to the Bahamas by ship.

Natural gas is an important fuel used globally for electric power generation, heating, and industry.  Throughout most of the U.S., an abundant supply of natural gas means domestic pricing for gas is lower than overseas.  This creates a potentially profitable opportunity to export natural gas from the U.S., if regulatory conditions allow.

Natural gas can be exported by pipeline as a gas, or by truck or ship as either compressed natural gas (CNG) or liquefied natural gas (LNG). Liquefying natural gas enables massive quantities of gas to be transported anywhere in the world, but requires the construction of expensive facilities to liquefy and regasify the fuel.  The federal Natural Gas Act gives the Federal Energy Regulatory Commission jurisdiction over the siting and construction of most LNG facilities in the U.S., and authorizes FERC to issue certificates of public convenience and necessity for LNG facilities engaged in interstate natural gas transportation by pipeline.  For example, Dominion Cove Point LNG, LP recently secured the FERC's approval for its Cove Point LNG export facility.

By comparison, compressing natural gas to high pressures is a relatively lower-cost way to improve the energy density of the fuel and reduce its transportation costs, albeit not to the degree of LNG.  CNG exports are already happening, and may soon increase.

Emera recently proposed to construct a CNG compression and truck-loading facility at the existing Port of Palm Beach in Riviera Beach, Florida, in order to export CNG to the Commonwealth of the Bahamas.  At the site, Emera would draw natural gas from the Riviera Lateral, a pipeline owned and operated by Peninsula Pipeline Company.  Emera would then dehydrate and compress the gas to fill containers that would be loaded onto trucks.  The proposed CNG facility would initially be capable of loading 6 million cubic feet per day (MMcf/d) of CNG, with expansion capabilities up to 25 MMcf/d.  Once loaded onto trucks, Emera will haul the containers to a berth about a quarter mile away at the Port of Palm Beach.  At the port, the containers will be loaded onto a roll-on/roll-off ocean-going carrier and shipped to Freeport, Grand Bahama Island, where the containers would be unloaded, the CNG decompressed and injected into a pipeline for transport to electric generation plants owned and operated by Emera affiliate Grand Bahama Power Company and other customers on Grand Bahama Island.

To reduce regulatory uncertainty, Emera petitioned the Federal Energy Regulatory Commission for a declaratory order that its project will not be subject to the Commission’s jurisdiction under the Natural Gas Act.  Last month, a majority of the FERC Commissioners found that the construction and operation of the CNG facility described by Emera would not be subject to FERC's authority over natural gas exports under the Natural Gas Act.  In particular, the majority opinion held that Emera’s facilities to compress and load CNG onto trucks are not jurisdictional export facilities.

In reaching this conclusion, the majority found that the proposed CNG facilities were unlike the border-crossing pipelines and coastal LNG terminals that the Commission traditionally has regulated under section 3 as import/export facilities, and more like existing, unregulated facilities that deliver LNG into trucks which are subsequently driven across the border into Canada or Mexico.  Indeed, the opinion cites the example of Xpress Natural Gas, which has a CNG plant in Maine that receives gas from an interstate pipeline and loads CNG containers onto trucks for delivery to customers in Canada and in New England.  The Commission does not regulate the CNG facility under either section 3 or 7, nor does it exercise jurisdiction over the trucks’ passage across the border under section 3.

The majority opinion similarly found that because Emera said that all of the natural gas to be compressed at Emera’s planned facility will be exported in foreign commerce to the Commonwealth of the Bahamas, the Commission’s section 7 jurisdiction over transportation and sales of gas for resale in interstate commerce would not be implicated by Emera’s proposal.

Notably, new Commissioner Norman Bay dissented from the majority opinion.  Noting language in section 3 of the Natural Gas Act giving FERC jurisdiction over natural gas exports, Commissioner Bay's dissent describes the majority’s argument as that because the CNG will leave Emera’s facility by truck and travel a quarter of mile before being loaded onto ocean-going carriers for export – rather than by a pipeline running across a border or to a tanker – the facility is not an “export facility” under section 3 of the Natural Gas Act. In Commissioner Bay's words, "It cannot be that the Commission’s jurisdiction turns on this 440-yard truck journey."

With FERC regulation under the Natural Gas Act behind it, Emera will still need other approvals to export CNG; for example, Emera has filed an application with the U.S. Department of Energy's Office of Fossil Energy for authorization under Section 3 of the Natural Gas Act for export of natural gas.

What role will CNG exports play in the U.S.'s energy future?

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