Oregon LNG export permit stymied again

  • Demonstrators against a proposed liquid-natural gas pipeline and export terminal in Oregon sit in in the governor’s office in the State Capitol in Salem, Ore., On Nov. 21, 2019, to demand Democratic Gov. Kate Brown stand against the proposal. Members of a federal regulatory agency on delayed a vote on the project on Feb. 20, with one member saying greenhouse gas emissions and endangered species should be considered. (Photo/Andrew Selsky/AP)

For the second time in four years, the liquefied natural gas export terminal proposed for Coos Bay, Ore., failed to win approval from the Federal Energy Regulatory Commission.

The $10 billion project may get another chance with the commission at its next meeting, but it’s only one of several hurdles for the developer, Calgary-based Pembina Pipeline. The state has rejected three of the project’s biggest permits; environmental opposition has grown over the years; and the Asian market for LNG is at record low prices.

Maybe shareholders in Pembina knew something in 2017 when the company took over the Oregon project with its purchase of Canadian pipeline rival Veresen. Pembina’s stock price fell that day.

The plan was that Pembina, an oil pipeline operator, would diversify into the gas pipeline and LNG business by buying Veresen.

“This is the magic: we’ve become basin diversified, commodity diversified,” Pembina CEO Mick Dilger said in announcing the deal in May 2017.

The magic didn’t work.

The Jordan Cove Energy Project started more than 15 years ago as a proposed LNG import terminal, looking to feed growing North American demand for the fuel amid stagnant U.S. production. In 2009, Veresen, back then known as Fort Chicago, and its partners pipeline operator Williams Cos. and California gas and power utility PG&E Corp., received FERC approval to build and operate an LNG import facility.

It was supposed to be operational in 2014.

Before construction ever started, however, the U.S. shale drilling boom ignited, putting an end to the gas import project. Like so many other unneeded LNG import terminals on the U.S. East and Gulf coasts, Veresen turned its attention to making Jordan Cove an export project.

The company applied to FERC in 2013. The liquefaction plant would have capacity to produce 7.5 million tonnes per year of LNG. Up to 1.2 billion cubic feet per day of feed gas would be delivered by a 229-mile-long, 36-inch-diameter connector line from the California border across Oregon to the coastal terminal in Coos Bay.

At full operation, the terminal would send out 10 LNG carriers per month.

But in March 2016, avoiding a decision on environmental issues, FERC denied the application; specifically, the pipeline. Lacking any firm customers for the LNG, Veresen had failed to convince regulators that the pipeline was needed. The public benefits of a commercially unproven project were insufficient to overcome the actual harm to property owners along the pipeline route.

Unlike LNG export terminals, which undergo no such public-interest test at FERC, regulated pipelines that are part of the nationwide grid are required to show a need for the line.

Looking for a favorable decision under the new administration of President Donald Trump, the project reapplied to FERC in September 2017. In hopes of passing the public-interest test this time, the developer announced it had secured agreements to sell LNG in Asia, although they were non-binding deals.

FERC’s final environmental impact statement for the project, issued in November 2019, said, “constructing and operating the project would result in temporary, long-term and permanent impacts on the environment. … (and) some of these impacts would be adverse and significant.”

However, the final EIS said, “Many of these impacts … would be reduced to less than significant levels with the implementation of proposed and/or recommended impact avoidance, minimization and mitigation measures.”

Good enough for FERC but not for Oregon state regulators.

The state Department of Land Conservation and Development this month rejected a key permit, deciding that the LNG terminal would have significant adverse effects on the state’s coastal scenic and aesthetic resources, endangered species, critical habitat, fisheries and commercial shipping.

Only a member of the president’s Cabinet could overrule the permit denial, the state said.

State land agency director Jim Rue said neither FERC nor the Army Corps of Engineers “can grant a license or permit for this project unless the U.S. Secretary of Commerce overrides this objection on appeal.”

It was the third state denial for Jordan Cove, adding to rejections of a water quality permit by the Department of Environmental Quality and a dredging permit by the Department of State Lands.

“Three strikes and you’re out!” Ashley Audycki, a Coos Bay organizer for the environmental group Rogue Climate, said in a news release the day of the land agency’s denial. “Jordan Cove LNG has failed to obtain three critical permits from the state of Oregon. Jordan Cove LNG has no viable path forward.”

Oregon Gov. Kate Brown in January said she “would consider all available options to safeguard the health and environment of Oregon” if the federal government ignores state permitting processes.

Pembina in January pulled its application for a state permit for dredging, removal and fill work for the pipeline and LNG terminal, saying it would wait on FERC action.

That decision came Feb. 20, when FERC commissioners voted 1-2, declining to approve the Jordan Cove application. Trump has failed to fill two vacant seats on the five-member commission.

“I’m disappointed that we were not able to vote out Jordan Cove today, but I respect my colleagues’ need for more time,” said FERC Chairman Neil Chatterjee.

“I want to reassure people that today’s vote is not a denial of Jordan Cove’s application. The application remains pending before the commission and we will vote on this matter when we are ready,” Chatterjee said.

FERC Commissioner Bernard McNamee, who joined with Commissioner Richard Glick in voting no, said his vote was “not a hard ‘nay,’” and was based in part on the state’s determination that the project is not consistent with Oregon’s Coastal Management Program.

“I want to see what the state of Oregon said, and I need that information to inform my decision about whether I’m ultimately going to vote for or against Jordan Cove,” said McNamee, who was quoted by the Natural Gas Intelligence newsletter on Feb. 20.

Larry Persily is a former Alaska journalist, state and federal official who has long tracked oil and gas markets and projects worldwide. He is the Atwood Chair of Journalism at the University of Alaska Anchorage School of Journalism and Public Communication.

02/26/2020 - 9:34am