LNG Projects

LNG Import Projects

LNG project planning and development is becoming more complex and challenging. Successful developers must understand the evolving regulatory and legal framework. While FERC’s role as the lead agency in the approval of the siting of onshore LNG import terminals has been confirmed and clarified through EPAct 2005, the role of other federal agencies in the regulatory process is still evolving.  In particular, the U.S. Coast Guard has imposed significant new requirements for the review of environmental, safety, and security impacts of LNG terminals in the U.S. The siting of an LNG terminal, whether onshore or offshore, also requires careful assessment of the degree of state and local opposition. The Coastal Zone Management Act, Clean Air Act, and Clean Water Act remain potent tools for opponents of LNG projects since these federal statutes are implemented by the states and are not preempted by EPAct 2005. The Deepwater Port Act also specifically grants governors of adjacent states the authority to veto an offshore LNG terminal project.

• What state and local permits or authorizations are subject to federal preemption?
• What matters may be properly regulated by state and local authorities?
• Will state governors exercise their veto rights over offshore LNG projects under the Deepwater Port Act?
• Will the emerging strategies of LNG opponents succeed?

Investors and Financial Institutions

Investors and lenders must not only understand the complex regulatory process, but also the potential roadblocks to successful project development. The decision to invest requires careful due diligence of the status of the FERC approval process, or, in the case of an offshore terminal, the Coast Guard/ MARAD process. Knowledge of other required federal and state authorizations, including all necessary environmental permits, is also essential. Financial institutions want to be assured of an LNG supply chain, including an LNG supply agreement or a terminal use agreement to ensure that an LNG project will be commercially viable. Once the investment is made, continued monitoring is required to ensure that no regulatory obstacles have arisen to threaten that viability.

LNG Suppliers

LNG suppliers, seeking to gain access to U.S. terminals and markets, must engage in due diligence comparable to that undertaken by investors. Since the demise of open access requirements for new, or expansions of existing U.S. LNG terminals, LNG suppliers have a number of options. They may decide to secure capacity through an equity investment in a terminal project. Other options include long term sales agreements or terminal use agreements, involving single or multiple shippers. These commercial arrangements must be structured to balance numerous considerations, including the security of supply, limitations imposed by terminal operating requirements and Coast Guard regulations, as well as changing market conditions, to provide the flexibility required in today’s emerging world-wide LNG market.  

Natural gas storage is a distinguishing characteristic of the U.S. market that may provide commercial opportunities for LNG suppliers seeking ways to hedge commercial risks. For those LNG suppliers seeking to participate in the downstream market, pipeline transportation agreements and storage contracts are a necessary part of the chain of contracts.