United States: LNG Update: Jordan Cove LNG Export Facility

In early December, the FERC denied requests for rehearing of its March 11, 2016 Order denying the applications of Jordan Cove Energy Project, L.P. ("Jordan Cove") to site, construct and operate an LNG export terminal in Coos Bay Oregon ("Jordan Cove LNG Terminal") and Pacific Connector Gas Pipeline, LP ("Pacific Connector") to construct and operate an approximately 232-mile interstate natural gas pipeline originating at the Oregon/California border and terminating at the Jordan Cove LNG Terminal ("Pacific Connector Pipeline").55

Under the Natural Gas Act, FERC authorizes the construction and operation of interstate natural gas pipelines and on-shore LNG terminals. FERC's March 11 Order surprised industry observers because it denied authorization for a proposed LNG export project for the first time since FERC began considering large-scale LNG export projects in 2012. FERC found Pacific Connector, which would supply natural gas from western Canada and the US Rocky Mountain region to the Jordan Cove LNG Terminal, failed to demonstrate a need for the Pacific Connector Pipeline outweighing the potential harm to the economic interests of landowners whose property rights might be taken by Pacific Connector's exercise of eminent domain. Having denied Pacific Connector's application, FERC also denied Jordan Cove's application because the Jordan Cove LNG Terminal is not feasible without a pipeline to transport natural gas to the terminal.56

Pacific Connector and Jordan Cove filed requests for rehearing of FERC's March 11 Order, as did the State of Wyoming and the Wyoming Pipeline Authority.

Pacific Connector and Jordan Cove asked FERC to stay the March 11 Order and reopen the record to permit the submission of two long-term agreements executed by Jordan Cove for the export of LNG from the Jordan Cove LNG Terminal, and three precedent agreements for long-term transportation service executed by Pacific Connector. According to Jordan Cove, the agreements executed by Pacific Connector together accounted for 77 percent of the capacity of the Pacific Connector Pipeline. Pacific Connector and Jordan Cove argued that the agreements, which were executed after FERC issued the March 11 Order, are sufficient evidence of market need to support approval of the Pacific Connector Pipeline and the Jordan Cove LNG Terminal.

In its joint request for rehearing, Wyoming argued that in the March 11 Order, FERC failed to consider the benefits of the Pacific Connector Pipeline to the Wyoming economy and should have allowed Pacific Connector and Jordan Cove more time to demonstrate market support for the Pacific Connector Pipeline and the Jordan Cove LNG Terminal.

In its December 9 Order, FERC denied the requests to reopen the record and denied rehearing of the March 11 Order. FERC held that Pacific Connector and Jordan Cove had failed to demonstrate "extraordinary circumstances" to support reopening the record over the need for finality in FERC's decisions. FERC observed that before filing its rehearing request, Pacific Connector had every opportunity to demonstrate market need for the Pacific Connector Pipeline, but had failed to do so over a three-and-a-half-year period, during which FERC staff had issued four data requests seeking such information.

FERC stated that under its policy for authorizing interstate natural gas pipeline projects, Pacific Connector could have relied on a variety of relevant factors to demonstrate need, including precedent agreements, demand projections, potential cost savings to consumers or a comparison of projected demand with the amount of capacity currently serving the market. However, Pacific Connector failed to show any evidence of market demand for its project that would satisfy the factors listed in the Certificate Policy Statement.

FERC reiterated that its denial of Pacific Connector's certificate application is "without prejudice to Jordan Cove and/or Pacific Connector submitting a new application . . . should the companies show a market need for these services in the future." FERC expressed its concern that Pacific Connector and Jordan Cove submitted evidence of market demand within 30 days of the March 11 Order, yet failed to provide such evidence after receiving four data requests during a three-and-a- half-year period. FERC stated that it "expects that the Applicants will submit evidence of market need as part of their initial application, or in a timely manner in response to staff data requests, so that the Commission can appropriately consider such evidence as part of the certificate application."

Wyoming argued that FERC should have considered the benefits of the Pacific Connector Project on the State of Wyoming, including increased natural gas production, employment and tax and royalty income. In response to Wyoming's arguments on rehearing, FERC stated that generalized claims of need for the Pacific Connector Pipeline, including a generalized statement of benefits to Wyoming, do not outweigh the risk of Pacific Connector's exercise of eminent domain on landowners and communities. FERC also found that the issue of whether the export of LNG from the Jordan Cove LNG Terminal will cause economic harm or benefit is not within the purview of FERC in determining whether to authorize pipeline facilities under the Natural Gas Act.

Pacific Connector, Jordan Cove and Wyoming have the right to seek judicial review of FERC's orders. However, on December 15, Jordan Cove announced in a press release that it will file a new application for the Pacific Connector Pipeline and the Jordan Cove LNG Terminal. When it does, it may not be starting from square one with respect to environmental review of the projects. In the December 9 Order, FERC indicated that it "may use portions of the existing record, i.e. the September 2015 Final Environmental Impact Statement, to process that filing."57

Pacific Connector and Jordan Cove may have reason to be optimistic about the reception their new application will receive after January 20, 2017. Since becoming President on January 20, Donald Trump has the ability over the next several months to appoint four new FERC commissioners, including three from his party, and to designate the new FERC Chairman from among those new commissioners. In a September 22, 2016 speech in Pittsburgh, then-Republican presidential candidate Trump claimed that the Obama Administration had "blocked or abandoned" several energy transportation projects, including "a $6.8 billion liquid natural gas export facility," presumably a reference to FERC's denial of authorization for the Jordan Cove LNG Terminal and the Pacific Connector Pipeline.

Jordan Cove and Pacific Connector have not indicated when they will file a new application with FERC. However, with the resignation of former FERC Chairman Norman Bay as of February 3, 2017, FERC will now have only two commissioners and, consequently, does not have a quorum necessary to vote on proposed orders. FERC will not have the ability to act on a new application filed by Jordan Cove and Pacific Connector until President Trump nominates, and the Senate confirms, at least one new FERC commissioner.

Footnotes

55. Jordan Cove Energy Project, L.P., et al., "Order Denying Rehearing," 157 FERC ¶ 61,194 (2016) ("December 9 Order").

56. Jordan Cove Energy Project, L.P., and Pacific Connector Gas Pipeline, LP, "Order Denying Applications for Certificate and Section 3 Authorization," 154 FERC ¶ 61,190 (2016) ("March 11 Order").

57. December 9 Order at n.28.

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