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With demand for US LNG surging, FERC backpedals on new pipeline guidance
In the face of widespread opposition from politicians and the natural gas industry, the US Federal Energy Regulatory Commission (FERC) backpedaled on some new policies designed to increase the agency's review of the climate impact of new natural gas pipeline projects.
More than 38,000 public comments were received after the policy statements were published in February, FERC said on 24 March. Instead of enacting the policies immediately, the agency will consider the statements as "draft" documents. It opened a new public comment period through April 25.
The announcement came the same week that US President Joe Biden and European Commission (EC) President Ursula von der Leyen jointly announced "further, concrete steps" through which the US will help replace natural gas that Europe has been importing from Russia. The EC has outlined a plan to replace 101.5 billion cubic meters (Bcm) of Russian gas this year, including up to 15 Bcm of added US imports this year and signing contracts for imports of an additional 50 Bcm of LNG from the US through 2030.
On 17 February, a divided FERC announced the new policies as "final" guidance that would take effect in 30 days, though at the same time opening a 30-day comment period that it said could lead to further modifications of the rules. This unusual approach reflected the split within the Commission of a 3-2 vote to enact the new policies, with the three Democratic appointees supporting them and the two Republican appointees strongly against.
That rapid implementation plan has been rescinded. "After further consideration, the Commission today designated both documents as draft policy statements on which the Commission is seeking further public comment. The two draft policy statements will not apply to pending project applications or filed applications before the Commission issues any final guidance in these dockets," FERC stated.
This retreat came as in the last month, natural gas producers and pipeline operators, as well as members of Congress, said that the policy statements would harm US energy interests by prolonging approvals of or even rejecting new gas pipelines or LNG export terminals. Those complaints intensified as natural gas prices surged in the US and globally, due to Russia's invasion of Ukraine.
Indicative of the concern, the US Senate held a hearing on 3 March during which senators from both sides of the aisle spoke about "death by a thousand cuts on … fossil fuels" and "price pain" for consumers.
Temporarily at least, the natural gas industry has been appeased.
The Interstate Natural Gas Association of America (INGAA) said 24 March that it "is pleased that FERC heard the tremendous concerns expressed by natural gas customers and operators and took bipartisan, unanimous action."
In a comment letter to FERC earlier in the month, INGAA had been highly critical of the incorporation of more environmental factors into pipeline decisions. It said FERC had set itself up "as a de facto climate regulator for the entire natural-gas sector—from wellhead to burner tip—with enormous and immediate consequences for both regulated natural-gas companies, including INGAA's members, as well as the entire US economy."
INGAA called FERC's interpretation of its regulatory reach "unlawful and unwarranted."
The American Gas Association (AGA) emphasized that the draft rules must be revised. "The 2022 Policy Statements will actively discourage the development of pipeline infrastructure, reduce reliability, raise consumer costs, and create deep uncertainty that will destabilize the competitive markets," AGA said.
Environmentalists, who had cheered the new policies a month ago, were cautious in their comments. They said that federal courts have been clear that FERC must expand its decision-making criteria along the lines of the now-draft guidance. "The courts are increasingly affirming that FERC cannot ignore climate and environmental justice impacts of the projects they approve, and as long as they fail to take these impacts seriously, they'll continue to lose in court," said the Sierra Club in a statement.
When the new policy statements were released, Matt Palmer, ENR research and analysis director at S&P Global Commodity Insights, said: "FERC's new policy is highly likely to slow down the permitting process."
But he added that the current, highly litigious system is flawed as well. "The cost overruns from litigation at every step in the process have made it extremely difficult for new pipelines to get constructed," Palmer said.
US House member Cathy McMorris Rodgers, Republican-Washington, said that "more than a dozen natural gas pipeline projects and at least six LNG-related applications have been unnecessarily delayed" by the draft policy statements.
FERC issues permits for all new construction and modifications to interstate gas transmission pipelines in the US (those that cross the boundary from one state to another). More than 320,000 miles of these lines are operating in the US.
FERC also issues permits for all applications for LNG facilities, which are now sending record volumes of LNG to Europe.
In one of the two February statements, FERC updated its "1999 Policy Guidance" to expand the criteria to decide if a project meets the standard of "public convenience and necessity" for approval. Under the prior policy, if a project had contracts in hand for most of its capacity, known as a "precedent agreement," it was deemed to have met the public convenience and necessity standard for approval.
Under the new draft policy, FERC will consider the environmental impacts of climate change, environmental justice, and effects on competition with other energy resources, non-economic impacts to landowners, and other factors in a "holistic" approach.
The other draft document, "Interim Greenhouse Gas Emissions Policy Statement," for the first time makes explicit how FERC will incorporate climate change impacts in deciding on gas pipelines.
The policy statement defines any project with 100,000 metric tons/year of CO2-equivalent emissions as "significant impact on climate change." Any project exceeding this threshold will have to undergo an environmental impact statement (EIS). That EIS will include a weighting of the impact of increased GHG emissions caused by the project as part of its public need assessment.
In explaining the policies, FERC Chairman Richard Glick said in February that federal courts in the last several years have said that the Commission's review of projects lacked the "hard look" at environmental impacts mandated under federal law. Courts had remanded back to the Commission several projects—a process that Glick noted increased uncertainty for the pipeline industry and could potentially delay approvals.
In announcing in March that the new guidance is only a draft, Glick referenced his belief that the court decisions still will drive the Commission towards taking greater account of GHG emissions.
"The US Court of Appeals for the DC Circuit has on several occasions, including as recently as March 11th, cast significant doubt about the approach the Commission has been taking to site natural gas pipelines and LNG facilities. The policy statements were intended to provide a more legally durable framework for the Commission to consider proposed natural gas projects," he said in a prepared statement.
Speaking with reporters on 24 March, Glick said he hopes to be renominated as FERC chair when his term expires on 30 June 2022. Republicans in the US Senate have said that the new pipeline policy statements could lead them to oppose his confirmation.
This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.
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