This past summer, the Department of Energy Office of Fossil Energy (DOE/FE) revised the procedure it uses when considering whether to allow certain exports of liquefied natural gas (LNG). The new procedure establishes a timeline that turns on the completion of the National Environmental Policy Act (NEPA) process, which has always been essential to decisions regarding LNG but now takes on an elevated importance, moving to an earlier stage of the project financing, planning, and permitting.
Given this heightened centrality of NEPA to LNG exports, the new procedure begs questions about the ways that NEPA and LNG exports have interacted to date. This post offers a review of the issues and trends that have emerged on that front.
After recapping the new procedure (for a more detailed explanation, please click here), the post looks at: (1) the role of the Federal Energy Regulatory Commission as the lead NEPA agency; (2) the administrative statements on the proper level of NEPA review for LNG projects; (3) the scope of issues that the NEPA process should cover LNG export projects; (4) the timing of the NEPA process for LNG export projects; (5) the potential time and expense that the NEPA process could add to LNG export projects; and (6) the approaches toward NEPA that LNG export projects have taken so far.
Natural Gas Act and the New Procedure
Under Section 3 of the Natural Gas of 1938 (NGA), as amended, a company cannot import or export natural gas without first obtaining DOE/FE authorization. The agency must grant this authorization unless it finds that doing so would be inconsistent with the public interest. Additionally, by virtue of a 1992 amendment, Section 3 decrees that exports or imports will be consistent with the public interest if they are to or form countries with which the United States has a free trade agreement (FTA) providing for the national treatment of natural gas. For all other (non-FTA) countries, DOE/FE must determine the public interest. Through its regulations, DOE/FE has established an adjudicatory process to conduct determinations.
At the same time, Section 3 generally requires would-be importers or exporters to obtain approval from the Federal Energy Regulatory Commission (FERC) to construct or operate an LNG terminal. Virtually all current imports and exports are to Canada or Mexico via the interconnected North American pipeline network, but advances in LNG technology and high demand in other countries have driven commercial interest and investments in LNG infrastructure.
Both the approval of DOE/FE to import or export and the approval of FERC to construct or operate an LNG terminal represent federal actions subject to NEPA. In 2010, for the first time in modern history, DOE/FE began receiving applications for long-term LNG exports from the Lower 48 to non-FTA countries. For a variety of reasons, DOE/FE began to issue conditional orders of approval that were contingent upon the completion of the NEPA process. The new procedure suspends this practice and provides that the agency will not issue conditional orders and will issue final orders only upon the completion of the NEPA process.
FERC as NEPA Lead Agency
NEPA is designed to incorporate environmental considerations into agency decision-making. It requires that, for any “major federal action significantly affecting the quality of the human environment,” an agency must prepare an environmental impact statement (EIS). If it is not clear whether an action will rise to this level, the agency must prepare an environmental assessment (EA), which will determine whether the agency may issue a finding of no significant impact (FONSI) or must undertake an EIS.
Frequently, a single project will require multiple agencies to take federal actions. Rather than having each of these agencies conduct a parallel review process, NEPA calls for a single lead agency to coordinate the review with the help of cooperating agencies.
Because the construction and operation of LNG infrastructure is likely to have a more significant impact than the importation or exportation of natural gas as a commodity, DOE/FE has historically deferred to FERC as the lead agency. This role was formalized through the Energy Policy Act of 2005, which added Section 15(b)(1) to the NGA (“The Commission shall act as the lead agency for the purposes of coordinating all applicable Federal authorizations and for the purposes of complying with the National Environmental Policy Act of 1969”).
Proper Level of Environmental Review
The new DOE/FE procedure could have a notable impact on the ways that LNG projects are packaged and the order in which the agency reviews them. That is because the NEPA process can be time-consuming, expensive, and uncertain. In the past, a conditional order could have been used as a means to secure the funding needed to complete the NEPA process. Now, project applicants must obtain that funding on the front end.
The amount of time, money, and uncertainty that NEPA consumes varies in large part according to the level of review required. Put more directly, an EA is cheaper and easier to produce than an EIS is. But which do LNG exports require? Do decisions to approve exports “significantly” affect the environment or not?
In 1981, in the preamble to its adoption of the old Section 3 review procedure, DOE emphasized the interconnected responsibilities of FERC and the precursor to DOE/FE and said: “Since decisions on such applications are usually major Federal actions significantly affecting the environment within the meaning of [NEPA], an [EIS] would usually be prepared to assess the impacts of and alternatives to the proposed project.” In its NEPA implementing regulations, FERC recognizes that a Section 3 authorization “normally” require an EIS.
DOE regulations, meanwhile, create a categorical exclusion for the “[a]pproval of new authorization or amendment of existing authorization to import/export natural gas under section 3 of the Natural Gas Act that does not involve new construction and only requires operational changes, such as an increase in natural gas throughput, change in transportation, or change in storage operations.” The key phrase here is “does not involve new construction,” since even the conversion of an existing LNG import facility to accommodate exports will require major construction, with the addition of liquefaction trains and other works.
The Congressional Research Service has summarized the day-to-day approach to NEPA requirements by explaining that, “[f]or projects related to LNG exports, the level of environmental review and documentation required will generally depend on whether the proposed action or project will require the construction of major new natural gas pipelines or related facilities or minor modifications of existing pipelines or related facilities.”
Scoping Issues for LNG Export Projects
A common battleground in land use litigation is over the proper scope of issues that NEPA and its state analogs should take into account. The Sierra Club has consistently intervened in Section 3 determinations and has faulted environmental reviews for, among other things, failing to consider the inducement that LNG exports would create for energy companies to increase shale production.
Indeed, project applicants have complained, as Sempra did in the public interest determination for its project in Cameron Parish, Louisiana, that “Sierra Club devotes much of its arguments to generalized environmental and other concerns concerning the exploration and production of shale gas rather than the specifics of the current application.”
DOE/FE has said that it will consider the cumulative impacts of exports, but it and FERC have both concluded that induced shale gas production is not reasonably foreseeable for NEPA purposes, in part because exports would not be connected to production at specific drilling sites.
In August 2014, at the same time DOE/FE adopted its new procedure for reviewing Section 3 applications, it released what it titled an “Addendum to Environmental Review Documents Concerning Exports of Natural Gas from the United States.”
In releasing the addendum, DOE/FE explained that numerous commenters in Section 3 adjudications had entreated the agency to consider the environmental impacts of induced hydraulic fracturing. DOE/FE stated that such considerations would be inappropriate because: (1) receiving authorization does not guarantee that a project will move forward; (2) if a project does move forward, there is no guarantee that it will be used to the full extent originally intended; (3) shale development will continue regardless of whether exports are approved; and (4) exports in the Lower 48 cannot be linked to specific production activities.
The addendum consists only of a review of existing literature and not a presentation of new research. DOE/FE released it “to provide additional information to the public regarding the potential environmental impacts of unconventional natural gas production activities … While not required by NEPA, DOE has prepared this Addendum in an effort to be responsive to the public and provide the best information available.”
Perhaps leaving the door still slightly open for groups like Sierra Club, DOE/FE has hinted that if a Section 3 application was for the export of gas produced at a particular shale play, it might consider inducement.
NEPA Review and the Broader Permitting Process for LNG Exports
Sierra Club has also argued, in adjudications conducted under the old Section 3 review procedure, that DOE/FE cannot lawfully issue conditional orders before an applicant completes the NEPA review because doing so would “inhibit, if not preclude, incorporation of any environmental impacts into the public interest calculus.”
The new procedure, of course, suspends the practice of issuing conditional orders and achieves the same end that Sierra Club sought through that line of argument. Sierra Club should thus view the new procedure as a positive. Despite this, Sierra Club did not submit comments on the new procedure, even though it has maintained an active DOE/FE LNG practice. There could be many explanations for this, the most cynical being that Sierra Club did not care about the timing of conditional orders in the first place and only wanted to sideline fossil fuel projects, a task that may not be any easier under the new procedure.
Additionally, in the adjudication proceedings in which it has intervened, Sierra Club has consistently argued that the Section 3 obligates DOE/FE to consider environmental impacts as a part of the public interest determination, in addition to the consideration of environmental impacts as part of the related NEPA process. Project applicants – and DOE/FE – have generally viewed NEPA as the proper forum and the public interest determination as the domain of economic and, to a lesser extent, geopolitical factors.
Recognizing the uphill nature of its arguments, Sierra Club has further contended that, in the aggregate, Section 3 determinations represent an LNG policy that has and will continue to have a significant impacts on the environment. Given this, Sierra Club has said, DOE/FE should conduct a programmatic NEPA review. To date, the agency has resisted these calls.
Added Time and Expense of NEPA Compliance
NEPA review adds costs and delays to LNG applications, though quantifying either is a challenge. Although anecdotes abound of the time and expense required to complete an EIS, relatively little data exists on the topic. For the most part, neither agencies themselves nor outside observers have thoroughly tracked or attempted to develop generalizable trends about the NEPA process.
In an April 2014 study, the Government Accountability Office (GAO) reported certain figures for DOE. Specifically, between 2003 and 2012, the average payment the agency made to a contractor for an EIS was $6.6 million, and the median was $1.4 million. But these estimates are only for the costs that fell to the agency. The costs project proponents had to pay were much higher. In its comment on the new Section 3 procedure, ExxonMobil said that “[a]ccording to industry estimates, the NEPA process can cost over $100 million, and tens or even hundreds of millions more in concurrent costs as the propjet continues to advance.”
Information on timing is harder to come by. But the same GAO study cited to a review from the National Association of Environmental Professionals finding that, for the nearly 200 EISs completed in 2012, the average completion time was about 4.6 years. The up-front work conducted prior to the publication of the official start of the EIS preparation process would add further time.
The factors bearing on a particular EIS could vary tremendously from one agency action to the next. The GAO figures offer an imprecise guide at best to what applicants for LNG export approvals might expect.
In its comment, ExxonMobil estimated that the average NEPA process for an LNG export project would take 12 to 18 months. The American Petroleum Institute estimated that the process as typically lasting 18 to 30 months or longer.
LNG Environmental Export Reviews So Far
DOE/FE is currently engaged in the NEPA process for 11 LNG export projects, 10 of which involve exports to non-FTA countries, and has completed NEPA review for 2 additional non-FTa projects. Of these 13 projects, the two that have completed their NEPA review – the Sabine Pass project in Louisiana and the Dominion Cove project in Maryland – prepared EAs and then issued FONSIs. The 11 others have all prepared, begun to prepare, or announced plans to prepare environmental impact statements (EIAs). (As a clarifying point, the Golden Pass project originally intended to prepare an EA but, following the scoping period, announced plans to instead prepare a full EIA.)
The line that separates projects with significant impacts from those without is famously fuzzy and frequently litigated. It is probably arguable that Sabine Pass and Dominion Cove required full EIAs, just as it is arguable that certain other projects did not. For Sabine Pass, Sierra Club intervened in the FERC proceeding and argued the EA was inadequate because it: (1) did not examine the environmental impacts of exporting LNG; (2) did not examine whether exporting would induce further shale production; (3) insufficiently analyzed impacts on domestic gas prices and climate change; (4) failed to consider fuel-switching; (5) wrongly concluded that approving the project would not result in a significant impact and did not require a FONSI. FERC rejected these arguments, prompting Sierra Club to attempt to belatedly intervene in the Section 3 determination before DOE/FE, which also rejected them.
The need for an EIS as opposed to an EA turns on more than the volume of the exported commodity. It is determined instead by the broader project of which the exports are a part. The LNG projects amount to substantial undertakings that require actions by multiple federal agencies. For the Dominion Cove project, FERC served as the lead NEPA agency while the cooperating federal agencies included not only DOE/FE but also the Army Corps of Engineers, the Coast Guard, and the Department of Transportation. In this milieu, the DOE/FE Section 3 authorization represented just one action, the environmental impacts of which were considered together with all related federal actions.
The Dominion Cove and Sabine Pass projects would be likely to have less significant impacts than other proposed projects because they would build upon existing LNG import facilities rather than start from zero. But the same could be said of several other projects that are preparing EISs.
Yet some projects call for a greater construction of new works than others; and some call for greater expansion outside of existing footprints than others. Along these lines, several of the other LNG export projects – such as the Cameron and Jordan Cove projects – are bundled with new natural gas pipeline projects.
In scoping the projects, the federal agencies have identified a range of issues. Common issues include land use impacts of construction, the aquatic impacts of dredging and tanker activity, and safety and reliability of operating facilities.
(Editorial Note: This blog post was written at the time DOE/FE adopted its new procedure and does not reflect developments that have occurred since, including the issuance of final orders for the Carib and Cameron projects.)