On August 7, 2012, the Office of Fossil Energy of the Department of Energy (“DOE”) issued a Final Opinion and Order, Order No. 2961-A, granting long-term authorization to Sabine Pass Liquefaction LLC (“Sabine Pass”) to export liquefied natural gas (“LNG”) from the Sabine Pass LNG terminal in Cameron Parish, Louisiana to non-Free Trade Agreement (“non-FTA”) nations.  This remains the only long-term authorization issued by DOE to export LNG to non-FTA nations.  There are currently 9 other non-FTA export applications that are being held in abeyance by DOE until the completion and review of two studies evaluating the impacts of LNG exports on U.S. gas supplies, prices, and markets.  In its order, DOE lifted the environmental condition contained in its prior order, [Order No. 2961], that had required the Federal Energy Regulatory Commission (“FERC”) to complete its on-going Environmental Assessment (“EA”) and then DOE to review the EA and independently evaluate the environmental impacts of the export proposal to meet its obligations under the National Environmental Policy Act (“NEPA”).  DOE reviewed the FERC administrative record (including the EA) and orders authorizing the construction and operation of the Sabine Pass LNG export facilities, and issued a “Finding of No Significant Impact” (“FONSI”) which enabled DOE to issue a final order lifting the environmental condition contained in the prior order authorizing the proposed LNG exports.

In so doing, DOE denied a late-filed request for intervention and protest of the Sierra Club which argued that FERC’s EA was inadequate and that DOE had to supplement the environmental review performed by FERC to consider the cumulative and indirect impacts of increased shale gas development allegedly caused by LNG exports. Sierra Club had previously intervened in the Sabine Pass proceeding at FERC and made the same arguments concerning the adequacy of FERC’s EA.  As part of its “Beyond Natural Gas” campaign to oppose LNG exports and gas infrastructure projects in the U.S., Sierra Club has also intervened or sought to intervene and made virtually identical NEPAarguments in all pending non-FTA export proceedings at DOE and related FERC LNG export facilities proceedings.  

BACKGROUND

Pursuant to the Energy Policy Act of 2005, FERC is the lead agency under NEPA for the environmental review of LNG export projects.  Although DOE acts as a cooperating agency in the FERC environmental review process, it must issue its own independent NEPA environmental document.  In recognition of this obligation, DOE in its original May 2011 Sabine Pass order, Order No. 2961, conditioned its authorization on satisfactory completion of environmental review by FERC under NEPA and upon DOE issuing its own FONSI or record of decision after completion of the FERC environmental review process.

FERC Proceedings

FERC began its environmental review of the Sabine Pass LNG export project in August of 2010 as part of the FERC NEPA pre-filing process.  FERC issued its EA on December 28, 2011.  On January 30, 2012, Sierra Club filed a late motion to intervene in the FERC proceeding, and objected to the FERC EA on a number of grounds, including that FERC was required to prepare an Environmental Impact Statement (“EIS”) instead of an EA, and that FERC did not adequately consider the cumulative and indirect impacts associated with “induced” natural gas production that would occur upstream of the facility.

On April 16, 2012, FERC issued its order approving the project, in which FERC adopted 55 environmental conditions designed to mitigate impacts identified in the EA and determined that, if these conditions were followed, Sabine Pass’ LNG export project would not constitute a major federal action significantly affecting the quality of the human environment.  Although FERC granted Sierra Club’s late intervention, it did not agree with Sierra Club that an EIS was required, or that the environmental effects of increased production of natural gas from shale developments were “reasonably foreseeable” impacts of the project under NEPA.  Shortly thereafter, Sierra Club filed a late motion to intervene in the Sabine Pass docket at DOE, and simultaneously sought rehearing and stay of the FERC order.  On July 26, 2012, FERC denied Sierra Club’s requests for rehearing and stay and re-affirmed the adequacy of its environmental analysis under NEPA.  FERC explained that it was virtually impossible to estimate how much, if any, of the export volumes associated with the Sabine Pass export project would come from existing or new shale gas production.  In addition, even if incremental shale gas development would result from the project, the amount, timing, and location of such development activity was simply unknowable at this time.

DOE Proceedings

In the August 7, 2012 order, DOE denied Sierra Club’s motion to intervene out of time and issued a final authorization to Sabine Pass to export LNG to non-FTA countries.  DOE determined that Sierra Club had not demonstrated good cause for seeking to intervene nearly 16 months after the publicallynoticed deadlines.  Addressing Sierra Club’s argument that FERC’s issuance of a FONSI began a “new phase” in the DOE proceeding which made Sierra Club’s intervention to address environmental issues timely, DOE noted that Sierra Club was on notice since 2010 of DOE’s review of the environmental impact of the proposed LNG export and of DOE’s cooperation in FERC’s environmental review.  Accordingly, DOE rejected Sierra Club’s contention that the finalizing of FERC’s EA created a “new phase” in the DOE proceeding or that environmental concerns had not been raised in the DOE proceeding “until now”.  DOE also found that granting Sierra Club’s untimely motion to intervene at this late stage of the proceeding could further delay issuance of a final order, and would “unduly prejudice” Sabine Pass.  DOE also determined that Sierra Club would not be prejudiced by a denial of its late intervention request since it had raised the identical issues at FERC concerning the adequacy of the EA, and could seek judicial review of FERC’s orders.

Finally, DOE determined that Sierra Club had not demonstrated the inadequacy of FERC’s EA.  Based on its independent review of the administrative record compiled by FERC, including the EA, DOE found that FERC had examined all of the reasonably foreseeable impacts of the LNG export project, and that the EA provided DOE a “complete picture” of the environmental impacts to enable DOE to meet itsNEPA responsibilities.  In this regard, DOE accepted and adopted FERC’s determination that induced shale gas production is not a reasonably foreseeable effect of the LNG export project for purposes of its NEPA analysis.

IMPLICATIONS

DOE’s Order No. 2961-A finalizes the long-term authorization granted to Sabine Pass to export domestically-sourced LNG to non-FTA nations, and is the first such authorization issued by DOE.  The Sabine Pass project has now received authorization from both FERC and DOE.  The FERC authorization is subject to judicial review by Sierra Club to litigate its NEPA arguments concerning the sufficiency of the EA.  Sierra Club may also seek rehearing of DOE’s denial of intervention.  Sierra Club is likely to continue to pursue its NEPA arguments about the need to broadly consider the cumulative and indirect environmental impacts of upstream shale gas production in DOE and FERC proceedings involving other LNG export projects.  Judicial review of these orders could have broader implications regarding the scope of agencies’ analyses of indirect and cumulative impacts under NEPA.

The nine LNG export projects pending before DOE face other uncertainties as well.  Processing of these export applications is on hold at DOE pending issuance of a second study that was commissioned by DOE to evaluate the macroeconomic impacts associated with export of U.S. domestic natural gas supplies.  The first such study, performed by the U.S. Energy Information Administration, was released in January of 2012.  The second study is due out in late summer of this year, and will be posted for public review and comment.  Recently, a bi-partisan group of lawmakers including 10 Democrats and 34 Republicans from Texas, Louisiana, Arkansas and Oklahoma sent a joint letter to DOE urging the agency to proceed with processing pending applications.  A copy of the letter can be obtained here.  DOE will review the studies and comments, and then determine what action, if any, to take concerning the pending applications, such as imposing a volumetric cap or percentage of supply limit on the amount of LNG that can be exported from the U.S.     

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