The Federal Energy Regulatory Commission (FERC) issued two new statements of policy February 17 regarding the certification of new pipelines and the assessment of greenhouse gas (GHG) impacts. Together, the two updates reflect a more meticulous regulatory environment and a stricter adherence to policies that midstreamers must comply with in an effort to avoid lengthy and expensive court challenges that have become more commonplace recently. The guidelines will affect most new projects within FERC jurisdiction and, among those, some of the biggest impacts will be felt in the U.S.’s rapidly expanding LNG sector — the terminals themselves and the pipelines that deliver feedgas to them. That could be cause for concern as Russia’s war on Ukraine has exacerbated an already precarious gas situation in Europe and a global LNG supply crunch. In today’s RBN blog, we explain the impact of FERC’s latest guidance on pipeline certification and GHG policy with regard to the LNG sector.
In Part 1, we looked at the clarifications provided by FERC regarding the Updated Certificate Policy Statement (PL18-1) and Interim GHG Policy Statement (PL 21-3). We concluded that, overall, the Certificate Statement of Policy (SOP), which outlines the criteria that new FERC-regulated projects must meet for certification, would put a renewed emphasis on factors other than precedent agreements such as community impact, but really it just echoes what the FERC is already doing. So, while the Certificate SOP represents a recommitment to more stringent standards that new projects must meet, prudent project sponsors would have anticipated and planned for those hurdles. In other words, it shouldn’t be a big step change from the criteria already being applied. In contrast to the Certificate SOP, which has already been in effect for decades, the GHG SOP will eventually lead to a final policy statement after the commission receives comments. Depending on the language included in the GHG policy once finalized, it is likely to require an Environmental Impact Statement (EIS) for projects with a relatively low emissions threshold of 100,000 metric tons per year (MT/year). The preparation and approval of an EIS is much more time-intensive than the Environmental Assessment (EA) and could eventually end up being a bigger burden to new projects, especially if the final version of the guidance includes a requirement to assess the downstream impacts of Scope 3 emissions — those related to the ultimate consumption of natural gas and other hydrocarbons.
As the guidance exists now for the two SOPs, the impact to most gas projects should be fairly minor, but that is true only because the environment at FERC and the U.S. Court of Appeals for the DC Circuit was already much tougher after a changing of the guard inside those organizations in the last couple of years. However, those tougher standards are already significantly lengthening the time it takes to move through the FERC approval process, adding even more uncertainty to midstream development. That’s a tough pill to swallow for the developers of smaller projects that may not have the economies of scale to address such rigorous standards. From a macro, long-term view, though, the biggest potential impact from the Certificate and GHG SOPs combined may be to the huge LNG export facilities aiming to send U.S. gas into the international market and the pipelines that feed the terminals. Importantly, the SOPs will impact some projects more than others.
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