In what promises to be the first in a series of rulings
concerning the jurisdiction of the Federal Energy Regulatory
Commission (FERC) over liquefied and compressed natural gas (LNG
and CNG) projects and activities, FERC concluded recently that an
LNG project in Pennsylvania is not subject to its jurisdiction
under the Natural Gas Act (NGA). Whether a planned project is
subject to FERC's jurisdiction can have a significant impact in
terms of the timing and costs associated with the commercialization
of an LNG, CNG or natural gas play. This recent order, issued on
July 17, provides regulatory assurance to help streamline the
commercialization of future projects.
The July 17 order responds to an April 1, 2014, filing by Gulf Oil
Limited Partnership (Gulf) of a petition for declaratory order
seeking a finding of nonjurisdictional status over Gulf's
construction, ownership and operation of a natural gas liquefaction
facility in Northeastern Pennsylvania. Gulf explained that it would
receive natural gas from a gathering pipeline system located in the
Marcellus Shale region.1 Once it liquefied the natural
gas, Gulf explained it would then deliver the LNG by tanker truck
to customers in Pennsylvania and the Northeast to be used to supply
vehicular and high-horsepower engine fuel, and to serve local
distribution company (LDC) peak-shaving facilities.
In granting the petition, the Commission agreed 1) the liquefaction
services to be provided by Gulf do not implicate the agency's
jurisdiction over the transportation of gas in interstate commerce
by jurisdictional pipelines and 2) once sold by Gulf, the LNG would
not be transported "at any point by pipeline facilities
subject to [FERC]'s section 7 jurisdiction." The
Commission also agreed with Gulf that the project was not
"motivated by a desire to circumvent the Commission's
section 7 jurisdiction."2 Further, assuaging
Gulf's concerns, FERC found that section 7 of the NGA would not
be implicated retroactively if LNG delivered to an LDC's
peak-shaving facility were to displace gas supplies being
transported on an interstate pipeline or be delivered by the LDC to
an interconnected interstate pipeline.3
Although the result in the Gulf order was not unexpected, this
ruling should help break the logjam of similar requests seeking
jurisdictional rulings on planned LNG and CNG activities. Those
requests include filings in recent months by Shell, Pivotal, Emera
and Strom, all of which are still pending before FERC.4
Those requests propose different sources for natural gas supplies
and different uses for the LNG and CNG from their respective
proposed facilities. The numerous requests evidence the increased
investor and industry activity and interest in small- and mid-scale
liquefaction and compression projects to serve new LNG and CNG
markets with relatively low-cost domestic natural gas supplies. For
such projects to proceed, though, developers and financiers need
certainty as to the scope of regulation that FERC will impose on
these projects. FERC's Gulf Order and orders soon to follow for
these other proposed projects will provide the additional
regulatory clarity needed to allow these and future projects to
take better advantage of the ongoing gas renaissance in the
country.
[1] Petition for Declaratory Order Seeking Confirmation of the
Non-Jurisdictional Status of a Liquefied Natural Gas Production
Facility and Request for Expedited Action, Docket No. CP14-132, at
2 (April 1, 2014) (Gulf Petition).
[2] Gulf Order at 4 citing Air Products and Chemicals,
Inc., 58 FERC ¶ 61,199 at 61,619 (1992) (describing
circumstances and citing precedents in which the Commission found
the liquefaction of gas would constitute "an integral part of
the interstate flow" subject to the Commission's
jurisdiction under section 7 of the NGA).
[3] Gulf Order at 4.
[4] FERC Docket Nos. RP14-52 (Shell), RP14-732 (Pivotal), CP14-114
(Emera) and CP14-121 (Strom).
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