REGULATORY: FERC: FERC Authorizes Sabine Pass LNG Export Project; Vacates Authorization for Jordan Cove LNG Import Project by Neil L. Levy, David G. Tewksbury, and Stephanie S. Lim

by King & Spalding
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On April 16, 2012, the Federal Energy Regulatory Commission (“FERC”) granted authorizations under the Natural Gas Act (the “NGA”) for Sabine Pass Liquefaction, LLC (“Sabine Pass Liquefaction”) and Sabine Pass LNG, L.P. (“Sabine Pass LNG”) to site, construct, and operate facilities to export liquefied natural gas (“LNG”) at Sabine Pass LNG’s existing LNG import terminal in Cameron Parish, Louisiana. This represents the first time that FERC has authorized a project that would export LNG from domestic production. [1] Concurrently, FERC issued an order vacating the authorization previously granted to Jordan Cove Energy Project, L.P. (“Jordan Cove”) for an LNG import terminal in Coos County, Oregon based on its understanding that Jordan Cove no longer intends to construct and operate an import terminal and is instead planning to use the facilities to export natural gas.

In authorizing the LNG export facilities at the Sabine Pass facility under Section 3 of the NGA, FERC rejected arguments that the export of domestically produced natural gas would harm consumers in the United States or otherwise adversely impact the public interest. FERC explained that any alleged harm would result from the export of natural gas, rather than the facilities at issue, and that FERC’s authority is limited to approving or disapproving applications for the construction and operation of export facilities while the Department of Energy has authority to regulate exports of the commodity itself. FERC also rejected arguments that a full environmental impact statement (“EIS”) was required, finding instead that an environmental assessment was adequate because the proposed facilities would be within the footprint of the existing Sabine Pass LNG terminal, which was previously the subject of an EIS and because there were only a small number of well-defined environmental issues that had to be considered.

With respect to questions about the impact of the export operations on import authorizations, FERC found no reason to believe that existing terminal customers would be harmed by the liquefaction project. To the extent disputes arise in the future, FERC suggested that those disputes should be resolved based on the terms of the existing customers’ terminal use agreements, and noted that allegations of undue discrimination or anticompetitive behavior could be brought to its attention through a complaint. As for questions about the jurisdictional implications of domestic natural gas being liquefied for export and then being regasified and delivered back into interstate pipelines for domestic use, FERC found it unnecessary to address such issues, because “neither Sabine LNG nor Sabine Pass Liquefaction has requested, or is being granted, authority to store interstate gas for reintroduction to the interstate market.” It emphasized that “[p]rior [FERC] authorization would be needed before the facilities could be operated in such a manner.”

In its concurrent order on the Jordan Cove project, FERC granted rehearing in part of its December 17, 2009 order granting authorization under Section 3 of the NGA for the siting, construction, and operation of Jordan Cove’s proposed LNG import terminal and issuing a certificate of public convenience and necessity under Section 7(c) of the NGA for construction and operation by Pacific Connector Gas Pipeline, LP (“Pacific Connector”) of an interstate natural gas pipeline from the outlet of the terminal to a point on the Oregon/California border. On rehearing, FERC vacated the Section 3 authorization and certificate of public convenience and necessity. FERC stated that, as a general matter, its review is focused on whether the benefits of the proposed project outweigh any potential adverse consequences, and that once FERC has determined that there are no substantial adverse impacts, “the market is allowed to determine which gas infrastructure projects will actually be constructed.” Nonetheless, FERC claimed that its “ability to rely on the usually valid assumption that a project sponsor will not go forward with construction of a project (in this case, an import terminal) for which there is no market is compromised here,” where the sponsor has “explicitly stated that it is not desirable under current market conditions to construct facilities necessary for the importation of natural gas.” FERC cited various statements by Jordan Cove indicating that it was now planning “to seek authorization to enable the use of the Jordan Cove terminal facilities for only the exportation of natural gas.” FERC also vacated the Section 7 certificate because Pacific Connector’s proposed pipeline was an integral part of the LNG import terminal proposal.

In a strongly worded dissent, FERC Commissioner Philip D. Moeller expressed concern that FERC’s order revoking Jordan Cove’s authorization three years into the five-year term of the authorization “could fundamentally change how the public views whether [FERC] will stand by its decision” and that the order is in conflict with FERC’s longstanding policy of “not ‘pick[ing] winners and losers.’” He took particular note of the concurrent order authorizing the Sabine Pass export project, stating that “[w]hile that five-year authorization is undeniably valuable, investors need certainty that [FERC] will not revoke the Sabine authorization if it later finds that the ‘facility is not viable under current market conditions.’”
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[1] An existing LNG export terminal near Kenai, Alaska was built without authorization from FERC or its predecessor, the Federal Power Commission (the “FPC”), after the FPC dismissed an application relating to the construction, operation, and maintenance of the terminal as unnecessary. See Phillips Petr. Co., 37 FPC 777 (1967). FERC has since issued an order clarifying its jurisdiction over the Kenai facility. See ConocoPhillips Alaska Natural Gas Corp., 126 FERC ¶ 61,037 (2009).


  Neil L. Levy
  Washington, D.C.
  +1 202 626 5452
  nlevy@kslaw.com

  View Profile »
    David G. Tewksbury
Washington, D.C.
+1 202 626 5454
dtewksbury@kslaw.com

View Profile »

 

 

 

 

  Stephanie S. Lim
  Washington, D.C.
  +1 202 626 8991
  slim@kslaw.com

  View Profile

 

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