Second Wave LNG Schedules Trumpeted by FERC, Smooth Sailing Ahead?

Company Fundamentals LNG Projects

In an official press release on August 31, followed shortly after by social media posts, FERC touted the release of projected environmental schedules for 12 Liquefied Natural Gas terminals, as well as many hundreds of miles of related pipeline projects, as evidence of a streamlined review process. The simultaneous release of this many environmental schedules is unprecedented and, as explained by the Chairman, is a result of “streamlining efforts [that] will provide all LNG stakeholders additional regulatory certainty and help minimize undue administrative burdens.” What do the planned schedules tell us about who’s leading the “Second Wave” of LNG development?

Ironically, during the same week the FERC issued a revised schedule — adding at least four additional months — for Williams’ Northeast Supply Enhancement project, a near billion dollar demand-driven gas pipeline project. So, while the LNG schedules were widely celebrated by industry participants, how should you weigh the following risks:

  1. the likelihood of potential revisions to environmental schedules;
  2. the Commission’s potentially divergent views on a related pipeline’s demonstration of project need and the project’s impact on climate change; and,
  3. the impact of a potential 2-2 Commission votes.

What projects are out front?

Among the several projects of the Second Wave of U.S. LNG export terminals, the race is on to be the first to reach a Final EIS, FERC certificate and Final Investment Decision (FID). FERC’s press release sought to allay concerns that the increased workload associated with LNG project reviews could create bottlenecks at the Commission, explaining that it has “added several FERC LNG staff.” By issuing these notices for LNG terminals and related pipeline development, the FERC must be confident that it can adhere to the promulgated dates.

Nonetheless, the forecasted schedule is predicated on the timely input from developers and cooperating agencies. Time will tell. Certainly, pipeline developers have become accustomed to multiple revised schedules as demonstrated this week by FERC’s revised schedule for the Northeast Supply Enhancement project. In the interim, what do the recently released schedules tell us about who’s in the lead?

One project not on the list, but a clear pack leader — for now — is LNG Limited LLC’s Magnolia LNG, a proposed 8 million tonnes per annum (MTPA) facility in Lake Charles, Louisiana, with gas coming from the Kinder Morgan Louisiana Pipeline under a 20-year term pipeline capacity agreement. Unlike the other eight export projects in the Gulf Coast, Magnolia actually has a certificate in hand. And, notably for the other projects, at the time it received the certificate, April 2016, Magnolia had executed non-binding agreements with four potential customers for approximately 6.1 MTPA of firm capacity and approximately 0.3 MTPA of interruptible capacity, collectively. Nonetheless, two and one-half years later, Magnolia is still seeking customers for the remaining nearly 2 MTPA before it can reach a FID. While Magnolia has sailed ahead, the project offers a cautionary note that, even after receipt of a Final EIS, DOE approval and FERC certificate, contractual commitments for liquefaction services can drag out timelines.

Among the new LNG export terminals being developed along the Gulf Coast that received new environmental notices from FERC, Venture Global’s Calcasieu Pass Terminal Project appears to be leading the way based on its expected issuance of the Final EIS. With a Draft EIS in hand, FERC expects to issue the Final EIS for Calcasieu Pass in October 2018. This is nearly three months before the next set of projects — Tellurian’s Driftwood and Sempra’s Port Arthur. Lagging behind these three LNG projects and their related pipelines, with expected Final EISs in March and April 2019, respectively, are Texas LNG’s 4 MTPA project, and then NextDecade’s 27 MTPA Rio Grande project and Exelon’s Annova project, a smaller 6.95 MTPA development. Trailing the pack is Venture Global’s 22 MTPA Plaquemines project, with a May 2019 Final EIS date.

Avoiding a Split Decision

Last week, the FERC issued the schedule for Jordan Cove II, the reconstituted project that failed to receive a certificate during the first go-around, but offers the LNG Second Wave an example from which to learn. In Jordan Cove I, after three revised schedules, the project received the Final EIS. But nearly six months later, FERC denied the project its certificate, finding that the applicant’s generalized allegations of need did not outweigh the potential for adverse impact on landowners and communities. What this decision made clear, when contrasted with the Magnolia LNG project, which received its certificate only one-month later, is the benefit of being able to at least show executed non-binding agreements with potential customers.

Since Magnolia and Jordan Cove, the Commissioner complement has changed, dramatically – – from a five-member Commission that rarely issued dissenting and/or concurring decisions (i.e., split decisions) to the McIntyre Commission, where split decisions are far more commonplace. Commissioners Glick and LaFleur have generally taken stances that require a more rigorous assessment of project need and an analysis of the impact on greenhouse gas emissions. We currently do not know how these two commissioners will address these concerns with respect to pipeline projects that are needed to supply gas to an LNG export terminal, especially if that project is supported solely by a contract with the affiliated developer of the LNG facility. As such, if the Administration’s strategy is to try to pace the appointment of Commissioner Powelson’s replacement with the end of Commissioner LaFleur’s term in June 2019, the Second Wave of Gulf Coast projects could be impacted. Here’s how:

If the Commission is split 2-2 on a decision, either for an original certificate or rehearing orders, the Chairman will simply not bring the project up for a vote. Therefore, a potential decision would remain pending until something happens to break the tie, such as in the case of Tony Clark joining the Commission to break the tie in Millennium’s Minisink Compressor Station proceeding. In the case of these LNG projects, based on the above analysis, one project that could be impacted, ironically the leader among the new export terminals in the Second Wave, could be Calcasieu Pass Terminal Project, with a targeted January 2019 certificate. At this stage, it seems unlikely that a newly appointed and confirmed commissioner would be in place by that date.