FERC denies Oregon LNG project applications

Tuesday, March 15, 2016

U.S. energy regulators have denied applications to site, construct, and operate the proposed Jordan Cove liquefied natural gas (LNG) export terminal, an associated pipeline and related facilities slated for development in Oregon.

The Jordan Cove LNG Terminal and the Pacific Connector Pipeline were proposed as two segments of a single, integrated project.  According to the FERC record, the applicants designed the facilities to enable the production of up to 6.8 million metric tons per annum (MMTPA) of LNG, using a feed of approximately 1.04 billion standard cubic feet per day (Bcf/d) of natural gas, for export to international or domestic markets in the non-contiguous United States.  The proposed pipeline would carry natural gas to the LNG terminal, for liquefaction, storage in cryogenic tanks, and loading onto ocean-going vessels.

Under U.S. federal law, the Federal Energy Regulatory Commission exercises permitting authority over several types of natural gas infrastructure, including LNG terminals and interstate pipelines.  In 2013, Jordan Cove Energy Project, L.P. applied under section 3 of the Natural Gas Act (NGA) and Parts 153 and 380 of the Commission’s regulations to site, construct, and operate the LNG terminal.  Several weeks later, Pacific Connector Gas Pipeline, LP applied under NGA section 7(c) and Part 157 of the Commission’s regulations for a certificate of public convenience and necessity to construct and operate an approximately 232-mile-long, 36-inch-diameter interstate natural gas pipeline running to the Jordan Cove LNG Terminal.

Over the next few years, Commission staff engaged in a back-and-forth with the applicants over the status of liquefaction contracts for the LNG terminal and precedent agreements for pipeline capacity.  The Sierra Club and others intervened and filed protests.  Concerns stated included environmental issues and landowner complaints, as well as an alleged lack of need for the projects.  Meanwhile the Commission issued the project a generally favorable environmental assessment.

The Commission ultimately denied the applications on March 11, 2016.  In its order denying the applications, the Commission cited its Certificate Policy Statement as providing "guidance for evaluating proposals to certificate new construction."  In the Commission's words:
The Certificate Policy Statement establishes criteria for determining whether there is a need for a proposed project and whether the proposed project will serve the public interest. The Certificate Policy Statement explains that in deciding whether to authorize the construction of major new pipeline facilities, the Commission balances the public benefits against the potential adverse consequences. The Commission’s goal is to give appropriate consideration to the enhancement of competitive transportation alternatives, the possibility of overbuilding, subsidization by existing customers, the applicant’s responsibility for unsubscribed capacity, the avoidance of unnecessary disruptions of the environment, and the unneeded exercise of eminent domain in evaluating new pipeline construction. 
The threshold requirement for pipelines proposing new projects under this policy is that the pipeline must be prepared to financially support the project without relying on subsidization from its existing customers.  In this case, the Commission found that Pacific Connector satisfies the threshold "no subsidization" requirement of the Certificate Policy Statement because it is a new natural gas company and does not have existing customers. 

Next, the Commission determine whether the applicant has made efforts to eliminate or minimize any adverse effects the project might have on the applicant’s existing customers, existing pipelines in the market and their captive customers, or landowners and communities affected by the route of the new pipeline. If these interest groups face residual adverse effects after efforts have been made to minimize them, the Commission essentially performs an economic balancing test on the evidence of public benefits to be achieved as compared to the residual adverse effects. Only when the benefits outweigh the adverse effects on economic interests will the Commission proceed to complete the environmental analysis where other interests are considered.

The benefits test proved problematic for the Pacific Connector pipeline.  The Commission found no adverse impact to existing customers, existing pipelines in the market or their captive customers.  But the Commission noted the landowner concerns, and a lack of evidence that the applicant had obtained any easement or right-of-way agreements for the necessary use of private lands.  In the Commission's view, these concerns must be weighed against the benefits to be gained from the project.

But the Commission found that "Pacific Connector has presented little or no evidence of need for the Pacific Connector Pipeline."  The Commission noted that the pipeline applicant had "neither entered into any precedent agreements for its project, nor conducted an open season, which might (or might not) have resulted in “expressions of interest” the company could have claimed as indicia of demand." According to the Commission, the applicant offered only "generalized allegations of need."  These did include the fact that Jordan Cove received U.S. Department of Energy authorization for export of LNG to free trade agreement and non-free trade agreement nations as "consistent with the public interest."  But the FERC noted that this DOE authorization for LNG was pursuant to different statutes, and moreover did not apply to the pipeline

The Commission noted that it "has not previously found a proposed pipeline to be required by the public convenience and necessity under NGA section 7 on the basis of a DOE finding under NGA section 3 that the importation or exportation of the commodity natural gas by an entity proposing to use the services of an associated LNG facility is consistent with the public interest."  As a result, the Commission found that "the generalized allegations of need proffered by Pacific Connector do not outweigh the potential for adverse impact on landowners and communities." Because the record did not support a finding that the public benefits of the Pacific Connector Pipeline outweigh the adverse effects on landowners, the Commission denied Pacific Connector’s request for certificate authority to construct and operate its project.

Turning next to the LNG terminal, the Commission noted that the Pacific Connector Pipeline is the only proposed transportation path for natural gas to reach the Jordan Cove LNG Terminal, and that the Commission has not previously authorized LNG export terminal facilities without a known transportation source of natural gas. Because the Commission concluded that the record did not support a finding that the Jordan Cove LNG Terminal can operate to liquefy and export LNG absent the Pacific Connector Pipeline, the Commission instead found that authorizing its construction would be inconsistent with the public interest. Therefore, it also denied Jordan Cove’s request for authorization to site, construct and operate the Jordan Cove LNG Terminal.

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