United States: DC Circuit Denies Sierra Club Appeal Of FERC Authorization Of Two LNG Facilities

Since 2012, the major opponent of new large-scale liquefied natural gas (LNG) export projects has been the Sierra Club. The Sierra Club has adopted a two-pronged approach in its opposition to LNG exports projects, opposing both authorizations granted by the Federal Energy Regulatory Commission (FERC) under Section 3 of the Natural Gas Act (NGA) to construct and operate facilities for the export of LNG and authorizations granted by the US Department of Energy Office of Fossil Energy (DOE/FE) under Section 3 of the NGA to export LNG to countries with which the US does not have free trade agreements that require "national treatment" for trade in natural gas. The Sierra Club has argued that in granting authority to construct LNG facilities and export LNG, FERC and DOE/FE have not complied with the requirements of the National Environmental Policy Act of 1968 (NEPA) by failing to consider the indirect, cumulative and nationwide environmental effects of increased natural gas production due to increased natural gas exports.

In separate opinions issued on June 28, the US Court of Appeals for the District of Columbia Circuit denied the Sierra Club's appeals of two orders issued by FERC authorizing the construction and operation of LNG facilities. The D.C. Circuit found that because DOE/FE – and not FERC – has jurisdiction to authorize exports of natural gas, including LNG, FERC does not have to consider the potential environmental effects of increased natural gas production due to greater natural gas exports resulting from the construction of LNG export facilities. The court's decisions defer consideration of the Sierra Club's arguments to cases challenging DOE/FE's authorization of LNG exports.

Background

Section 3 of the NGA gives FERC exclusive jurisdiction to approve the construction and operation of LNG terminals, which include natural gas facilities located onshore or in state waters used to receive, unload, load, store, transport, gasify, liquefy or process natural gas that is exported to a foreign country from the US. FERC approves the siting, construction and operation of LNG terminals upon a finding that such activities are not inconsistent with the public interest. In addition, under NEPA, FERC is obligated to consider the potential environmental effects of its authorization to construct LNG terminals.

Section 3 of the NGA also gives DOE/FE authority over exports of natural gas. Under Section 3(c) of the NGA, LNG exports to countries with which the US has free trade agreements that require "national treatment" for trade in natural gas are automatically considered in the public interest, and applications to export gas to such countries must be approved without modification or delay. Requiring "national treatment" means treating an imported good the same as a locally produced good once it enters a market. The US currently has such free trade agreements with Australia, Bahrain, Canada, Chile, Colombia, Dominican Republic, El Salvador, Guatemala, Honduras, Jordan, Mexico, Morocco, Nicaragua, Oman, Panama, Peru, Republic of Korea and Singapore. Authorization to export LNG to countries without such free trade agreements requires DOE/FE to find that the proposed exports are not inconsistent with the public interest. In making this determination, DOE/FE considers the domestic need for the natural gas proposed to be exported, whether the proposed exports pose a threat to the security of domestic natural gas supplies and other factors bearing on the public interest. DOE also must review the potential environmental effects of the proposed export under NEPA.

FERC is the lead agency for conducting the environmental review of proposed LNG export projects under NEPA, and DOE/FE has been a participating agency in FERC's environmental review. Once FERC issues its final environmental review document (either an Environmental Impact Statement or an Environmental Assessment), DOE/FE issues its own Record of Decision, making its own environmental determinations in connection with its export authorization.

The Sabine Pass Case

In the first case considered by the D.C. Circuit, Sierra Club v. FERC, Case No. 14-1249 (the "Sabine Pass Case"), Sierra Club challenged FERC's 2014 order amending its 2012 orders authorizing the construction and operation of Trains 1-4 of LNG export facilities in Cameron Parish, Louisiana operated by Sabine Pass Liquefaction, LLC and Sabine Pass LNG, L.P. (the "Sabine Pass LNG Facility"). This resulted in an increase of four million tons per year of natural gas in the production capacity at the Sabine Pass LNG Facility.

Sierra Club argued that in its NEPA analysis, FERC failed to consider the indirect environmental effect of increased US natural gas production induced by greater exports of US-produced LNG, and the increased air pollution resulting from rising coal use due to inflated natural gas prices caused by larger LNG exports. Sierra Club contended that FERC should have considered these indirect effects cumulatively with all pending and approved proposals for LNG export projects in the US.

The D.C. Circuit found that, at bottom, Sierra Club's challenge to FERC's order relates to the potential environmental effects of greater natural gas exports from the Sabine Pass LNG Facility, but that FERC's orders do not authorize Sabine Pass to increase exports from the Sabine Pass LNG Facility. The court agreed with FERC that DOE/FE alone has legal authority to authorize Sabine Pass to increase commodity exports of LNG, and therefore FERC did not need to consider the indirect effects of concern to the Sierra Club in its NEPA review. The court also said that Sierra Club is free to raise these issues in a challenge to DOE's NEPA review of its export decisions.

The Freeport Case

In the second case, Sierra Club and Galveston Baykeeper v. FERC, Case No. 14-1275 (the "Freeport Case"), Sierra Club challenged FERC's 2014 order authorizing Freeport LNG Development, L.P. to construct and operate facilities for the export of LNG at its existing LNG terminal in Texas (the "Freeport LNG Facility").

Sierra Club argued that contrary to its obligation under NEPA, FERC had failed to consider the indirect environmental effects of a possible increase in domestic natural gas production being induced by LNG exports from the Freeport LNG Facility and had failed to analyze the cumulative environmental effects of the Freeport LNG facilities with all of the proposed export projects in the US.

The D.C. Circuit considered whether FERC discharged its duty under NEPA to adequately consider the indirect and cumulative environmental effects of authorizing the siting, construction, expansion and operation of the Freeport LNG Facility. As in the Sabine Pass Case, the court agreed with FERC that because DOE/FE alone has authority to authorize the export of any natural gas through the Freeport LNG Facility, FERC's NEPA analysis did not have to address the indirect effects of the anticipated export of natural gas from the Freeport LNG Facility. As in the Sabine Pass Case, the D.C. Circuit's decision defers consideration of the Sierra Club's arguments to appeals of DOE/FE orders authorizing LNG exports to non-FTA countries.

The Sierra Club petitioned the D.C. Circuit for review of one of DOE/FE's orders authorizing the export of LNG to non- FTA countries from the Freeport LNG Facility. The Sierra Club did not, however, seek judicial review of DOE/FE's orders authorizing the export of LNG to non-FTA countries from Trains 1-4 of the Sabine Pass LNG Facility.

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