On March 11, 2016, the Federal Energy Regulatory Commission (FERC) denied Jordan Cove’s application to build an LNG export facility at Coos Bay, Oregon. In that same order, FERC also denied a related application by Pacific Connector Gas Pipeline, L.P. (Pacific Connector) for approval to construct and operate a pipeline to supply natural gas to Jordan Cove. Whereas the US DOE must approve the export of the commodity itself, FERC is the lead agency tasked with approving the siting, constructing, and operation of LNG import or export terminals. As such, some have questioned whether the Jordan Cove denial signals a new regulatory standard to build a US LNG export terminal?
In its review, FERC first addressed the approval of the 232-mile Pacific Connector pipeline, which would traverse several Oregon counties before reaching the export terminal at Coos Bay. In denying the pipeline, FERC had to balance the public benefits of the pipeline against the adverse effects on landowners. In this case, the pipeline faced significant opposition from several landowner and environmental groups, which argued the pipeline did not have any confirmed customers and had only obtained 4.7% of the right-of-way easement acreage and 2.8% of the construction easement acreage. As such, these groups claimed that the adverse impacts on the 630 landowners that would be subject to eminent domain if the pipeline were approved outweighed the benefit of the pipeline.
After reviewing the record, FERC found there was little or no evidence of need for the proposed pipeline, in particular because Pacific Connector did not have any executed precedent agreements, only non-binding term sheets. Moreover, Pacific Connector had not conducted an open season, which could have provided some indication of demand. The Commission thus found insufficient evidence of need to justify giving Pacific Connector the power of eminent domain.
FERC also refused to find that Pacific Connector was necessary on the strength of the Department of Energy’s (DOE) approval of Jordan Cove’s LNG export application. FERC found no precedent for approving the project on this basis, which is a reminder that the issues considered by the US DOE are different from the issues considered by FERC.
After denying the pipeline, FERC next turned to Jordan Cove’s application for approval to construct the LNG export terminal and denied that application as well on the basis that because it would not authorise the Pacific Connector pipeline, which was the only source of gas for the LNG terminal, the terminal would have no feed gas. Without feed gas, FERC concluded Jordan Cove would produce no benefits to offset the impacts resulting from its construction and was, therefore, inconsistent with the public interest.
In response to FERC’s denial, Calgary-based Veresen, the project sponsor for Jordan Cove, indicated that since FERC appears to be concerned that there is not yet “sufficient commercial support for the projects,” they will continue to advance negotiations with customers. Subsequently, it was reported that Jordan Cove had reached an agreement with its first customer, a consortium of Japanese buyers. On April 11, Jordan Cove and Pacific Connector filed a request for rehearing with FERC on the basis that they have recently entered into several agreements that demonstrate significant commercial support for the projects. According to Veresen, FERC has to grant or deny the request for rehearing within the next 30 days.
In the meantime, environmental groups opposing several LNG export projects in Brownsville, Texas, have heralded the Jordan Cove denial, claiming it bodes well for the denial of other similarly situated LNG export projects.
While it remains to be seen how FERC will analyze future US LNG export projects and whether Jordan Cove will get a rehearing, project sponsors that can show commercial agreements and landowner support will have a much better argument to regulators that the project is in the public’s interest.
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