LNG is surging. Can FERC reviews keep up?

By Miranda Willson | 05/11/2023 07:03 AM EDT

The Federal Energy Regulatory Commission is facing pressure over its handling of natural gas exports. Some observers say a murky legal standard puts the agency in a difficult spot.

A large tanker is pushed by smaller ships toward Cheniere Energy Inc.'s Corpus Christi LNG export facility in Texas.

Cheniere Energy Inc. exports liquefied natural gas via its Corpus Christi facility (pictured) in Texas and its Sabine Pass facility in Louisiana. Business Wire

The United States sent more liquefied natural gas overseas last year than ever before — and energy companies want the total to keep climbing.

But some legal observers see an unanswered question: How should the Federal Energy Regulatory Commission review proposed LNG projects?

“It’s sort of clear, but it’s also sort of a mess,” said Joshua Macey, an assistant professor at the University of Chicago Law School.


Controversy over how new projects should be reviewed has reached new heights, with some lawmakers advocating for quicker approvals of terminals and climate hawks calling FERC’s assessments of greenhouse gas emissions inadequate. The debate is crucial in part because more than half of U.S. LNG exports in 2022 went to European countries seeking alternatives to Russian fuels following the Kremlin’s invasion of Ukraine.

Several attorneys and FERC watchers see an ambiguous directive in the law governing FERC’s oversight of LNG. The language was last updated in 2005, at a time when virtually no natural gas was being exported from the continental U.S.

While the law — the Natural Gas Act — directs FERC to “issue or deny” applications to site LNG import and export terminals, it gives the commission “absolutely zero guidance” for how to make that decision, said Jennifer Danis, federal energy policy director at the Institute for Policy Integrity. The think tank is housed at the New York University School of Law and focuses on climate and energy issues.

“The section that grants FERC’s jurisdiction to site the LNG facilities is standardless,” Danis said. “It’s just a grant of authority with no legal backbone governing about how to implement that authority.”

There are currently six LNG export terminals awaiting FERC approval, two under construction and 13 others that have been approved and could be built this decade.

Former FERC Chair Richard Glick suggested in December that Congress clarify what he described as “uncertainty” over how the commission should determine whether to approve or deny LNG import and export terminals.

As the top federal regulator for many large energy projects, FERC is charged with weighing the benefits of proposed natural gas pipelines, hydropower plants and LNG terminals against their potential adverse impacts. But the commission’s process for conducting such a cost-benefit analysis for LNG projects is “not at all clear,” Glick said.

“When it comes to infrastructure that costs billions of dollars and impacts the surrounding community and the environment more generally, uncertainty is bad for everyone,” Glick, a Democrat, said late last year.

While not all industry experts and FERC watchers agree with Glick, how the commission considers and processes applications for LNG terminals could have broad ramifications for energy security, climate change and communities affected by gas export projects.

Proponents of exporting natural gas say U.S. LNG is reducing European countries’ reliance on Russian fuels and helping Asian countries move away from more carbon-intensive coal. They want to see FERC approve terminals expeditiously to meet the growing demand overseas for American natural gas.

To that end, West Virginia Sen. Joe Man chin’s proposed energy permitting bill would establish new deadlines for FERC and other agencies to review the environmental impacts of energy projects, including LNG terminals. For projects with potentially significant impacts, FERC would have two years to complete an environmental review.

“It is clear that without comprehensive permitting reform, we will never ensure lasting American energy security and independence and will delay progress on environmental goals,” Manchin, a Democrat, said in a statement this month.

At the same time, the location of numerous LNG export terminals near predominantly low-income communities along the Gulf Coast has spurred concerns about environmental pollution and calls from environmental advocates for a more thorough review process. Forty-four Democratic members of Congress this week called for a review of how the Biden administration handles LNG export infrastructure and more guidance from the White House to beef up FERC’s reviews.

Environmental groups say that the build-out of LNG terminals is bad for the climate as well. The Commonwealth LNG terminal, for example, is projected to emit more than 3.5 million tons of greenhouse gases per year — equivalent to the carbon dioxide released by approximately eight natural gas power plants annually, according to EPA estimates.

“We see the export infrastructure and the exports themselves as both imposing harms that aren’t getting acknowledged” by federal regulators, said Nathan Matthews, a senior attorney at the Sierra Club.

A ‘difficult issue’

For decades, the vast majority of liquefied natural gas terminals in service in the United States were designed for importing — not exporting — the fossil fuel.

That began to change in the last decade, after new oil and gas drilling techniques such as fracking turbocharged U.S. natural gas production and created a market for exports. In 2016, the Sabine Pass LNG terminal became the first major export terminal to send gas overseas from the lower 48 states, according to the U.S. Energy Information Administration.

Last year, the United States exported nearly 5 ½ times as much LNG as the total amount that was exported in 2017, per the EIA. About 66 percent of it went to European markets in 2022, while 23 percent went to Asian markets, FERC said in a report in March.

“Just since the start of the war in Ukraine, that’s a gigantic driver of a lot of this,” said Harvey Reiter, a partner at the law firm Stinson LLP whose focus includes FERC.

Within the next 12 months, two LNG export terminals — Golden Pass and Calcasieu Pass — are expected to enter into service, said Ade Allen, a gas markets analyst at the consulting group Rystad Energy. And between now and 2030, global demand for LNG is expected to grow by 42 percent, Allen said.

Some say rising demand justifies a more timely permitting process for U.S. export terminals. It takes an average of four years to fully permit an LNG terminal, according to the Center for LNG, a trade association for the industry. The process involves the Department of Energy, FERC, the Pipeline and Hazardous Materials Safety Administration and sometimes other agencies.

“The demand for natural gas globally continues to validate the facilities that are trying to navigate the permitting process,” said Charlie Riedl, executive director of the Center for LNG. “The real question becomes how quickly can we get facilities built.”

But others are concerned that calls for faster permitting will lead to insufficient reviews — and that the build-out could have significant environmental consequences. Although tension is not unique to LNG proposals, Danis of the Institute for Policy Integrity said FERC seems particularly “confused” when reviewing gas export terminals because of the scant guidance in the Natural Gas Act.

“FERC is really in a quandary in terms of what factors it should consider in terms of the siting of the facility,” Danis said.

Part of the confusion may stem from the fact that FERC is not the only agency reviewing LNG proposals, according to other legal experts.

While FERC is charged with approving the terminals themselves as well as associated natural gas pipelines, the Department of Energy makes a separate determination as to whether LNG companies should be allowed to export natural gas. Generally, DOE assumes that gas exports to countries with which the United States has a free trade agreement are in the public interest of the United States.

But U.S. national security interests stemming from gas exports are not under FERC’s jurisdiction, said Reiter of Stinson LLP.

“DOE might say that [national security] is a really good reason to approve a natural gas export, outweighing environmental concerns. But can FERC kill a project when it knows that DOE is going to be considering that? That’s a difficult issue,” Reiter said.

What FERC is supposed to consider are the potential socioeconomic and environmental impacts stemming from the terminal — including its greenhouse gas emissions, the U.S. Court of Appeals for the District of Columbia Circuit ruled in 2021.

Yet the court has also found in other cases that FERC cannot consider the environmental costs — or benefits — of natural gas once it is exported and used for fuel or other purposes abroad, said Alison Gocke, an associate professor of law at the University of Virginia School of Law.

“I think there’s some confusion about what they can consider. It’s unclear whether FERC can consider the impacts of exports themselves. I suspect the answer is [the commission] probably can’t,” she said.

FERC’s ‘default presumption’

Willie Phillips, FERC’s acting chair, was not available to comment on how he believes the commission should weigh the benefits and costs of proposed LNG terminals, agency spokesperson Mary O’Driscoll said. O’Driscoll did, however, point to FERC’s reauthorization in April of two LNG terminals along the Gulf Coast of Texas.

As for Riedl of the Center for LNG, he said was confused as to what exactly Glick — the former FERC chair — thought was missing from the Natural Gas Act that would require clarity from Congress.

“I’m not sure what else you’d be looking for given the case law that exists around this, and he never really did clarify that,” Riedl said, referring to Glick’s statement on the Commonwealth LNG project. “What we’ve seen is that the authorizations are pretty legally durable when challenged in court.”

One way to read the Natural Gas Act is that the law puts a “thumb on the scale” in favor of FERC approving proposed LNG terminals, which could be consistent with the Biden administration’s energy goals, said James Coleman, a professor of law at Southern Methodist University.

Under the law, FERC is supposed to approve terminals if they are “not inconsistent” with the public interest, which is different than how FERC reviews pipelines.

“It obviously has a sort of default presumption that you have an approval,” Coleman said.

Still, Macey of the University of Chicago suggested that any potential uncertainty could be resolved if FERC and DOE take another look at their respective authorities. Both agencies could develop a memorandum of understanding laying out what costs and benefits each should consider when reviewing LNG export proposals, Macey said.

“DOE and FERC need to come to an agreement. They should reach an MOU where they pass guidance and decide how this [process] happens,” he said. 

For now, however, O’Driscoll of FERC said the two agencies make their respective decisions on LNG projects independently. DOE’s media team was unable to comment Wednesday on the agency’s reviews of natural gas exports.

Hannah Wiseman, a professor at Penn State Law, said that those looking for clarity regarding how FERC reviews LNG terminals may be frustrated with the status quo.

The commission has only ever denied one proposed LNG project, the Jordan Cove LNG terminal. In a 2016 decision, the commission found that there wasn’t enough evidence showing that the project was needed. The developer of Jordan Cove later reapplied for and received a permit in 2020.

In many respects, FERC’s LNG review process “makes sense if the federal government is prioritizing rapid approval of export terminals,” Wiseman said.

“But if the federal government wanted deeper environmental and social considerations, the amount of discretion is too broad,” she said.