U.S. Federal Energy Regulatory Commission (FERC) has exclusive authority under the Natural Gas Act to authorize the siting of facilities for imports or exports of liquefied natural gas (LNG), according to FBR Capital Markets. FERC's process incorporates other state and federal approvals, including the Coastal Zone Management Act, Clean Water Act, and Clean Air Act.
FERC reviews applications in consultation with the U.S. Coast Guard, U.S. Department of Transportation, Environmental Protection Agency, and state agencies and their federal implementation partners (including the U.S. Fish and Wildlife Service and Army Corps of Engineers), said Benjamin Salisbury, an analyst at FBR Capital.
Likewise, the Department of Energy (DOE) is responsible for granting approval to export natural gas to both free trade and non–free trade countries. In addition, states effectively have a veto over the process through a number of required approvals.
Salisbury said if FERC determines that the proposed LNG project is in the public interest, it will be approved. Even after a project has been approved, parties still have the opportunity to delay or prevent the project by petitioning FERC to rehear the case or challenging the decision in Federal Court.
After approval, FERC monitors both the design construction and the commercial operation of LNG terminals. The principal source of public concern for siting LNG facilities is the risk of fires and explosions caused either by accident or by security attacks. Environmental impacts also exist but are relatively minor in comparison.
Federal law requires DOE approval of natural gas exports. The DOE has held that the law creates a rebuttable presumption that proposed exports of natural gas are in the public interest, requiring opponents to demonstrate that the export is inconsistent with the public interest, FBR Capital said in a note to clients.
In examining the issue, the DOE considers all relevant issues, including: domestic need for the gas and the impact on U.S. gross domestic product, consumers, industry, U.S. balance of trade, jobs creation, and other issues, as well as whether the arrangement is consistent with the DOE’s policy of promoting competition in the marketplace by allowing commercial parties to freely negotiate their own trade arrangements.
In our experience, the Department tends to put a high value on promoting free trade and competition in the marketplace, said Salisbury. He said potential opponents of the project include industrial consumers of natural gas and electricity who are reluctant to export gas and risk higher domestic prices.
Salisbury noted that large energy consumers consistently warn that a rush to gas in U.S. electric generation and other uses could lead to a spike in demand and prices despite abundant shale resources. Instead of exporting gas, manufacturers would rather import demand by bringing jobs in the manufacturing and chemical sectors back to the U.S.
However, Salisbury's reading of current law shows little leverage for preventing gas exports on this basis. Notably, supporters point out that the U.S. can already export gas via the pipeline to Mexico or Canada, who can liquefy and export LNG.
Moreover, environmental concerns over the process of hydraulic fracturing further stoke anxiety among energy consumers and environmental groups.
While Salisbury continues to expect a robust shale gas development policy in the U.S., he also anticipates growing pains, as evidenced by the recent New York Times article pointing to the possible radium content in wastewater as a source of concern.
Risks will continue in U.S. LNG/energy infrastructure/environmental permitting projects, including delay and litigation. Salisbury emphasizes that significant portions of the complicated permitting process, including subsequent litigation, offer numerous opportunities for construction delay. These include extensive environmental studies and project disruption, based on technicalities or seemingly unrelated laws and regulation.