FERC Issues Pause in Natural Gas Pipeline Policy Statements as the White House Announces an Initiative for Increasing LNG Exports to Europe and the D.C. Court of Appeals Provides Guidance on Consideration of Greenhouse Gas Emissions

Further to our recent client alert on this subject,¹ the Federal Energy Regulatory Commission (FERC) issued an order on March 24, 2022, pausing action on its updated policy statements on Certification of New Interstate Natural Gas Facilities and Consideration of Greenhouse Gas Emissions in Natural Gas Infrastructure Project Reviews. In a unanimous order,² FERC: (1) made the two recent policy statements draft instead of final, (2) invited comments on the policies, and (3) stated that the policy statements will not apply to applications currently pending before FERC or filed before FERC finalizes its action on these policy statements. Comments are due on the draft policy statements by April 25, 2022, with reply comments due on May 25, 2022.

FERC received comments and requests for rehearing from many natural gas industry parties in response to the recent policy statements, and the US Senate Committee on Energy and Natural Resources held a hearing on the subject on March 3, 2022, at which all five FERC Commissioners appeared.

In addition, the Russian invasion of Ukraine has led to a heightened interest in US natural gas production as a source for increasing liquified natural gas (LNG) supplies to Western Europe, which may affect FERC’s future actions on these policies. Indeed, on the day after FERC issued its order pausing action on these policy statements, the White House announced a joint initiative with the European Commission for the United States, working with international partners, to substantially increase—to at least 15 bcm of natural gas equivalent in 2022—deliveries of LNG to the European Union market, with further increases going forward.³ Other key points in the joint statement that likely will affect FERC's future actions, include:

• The United States commits to “expeditiously” act upon permit applications to enable additional LNG export capacities to help achieve the goals in the joint statement, including terminating EU dependence on Russian fossil fuels by 2027.
• The United States and the European Commission will undertake efforts to reduce the greenhouse gas intensity of all new LNG infrastructure and associated pipelines.
• The European Commission commits to support long-term contracting mechanisms necessary to support final investment decisions on additional LNG export facilities, as well as LNG import facilities in the EU.
• The European Commission will work to ensure additional, stable demand of US LNG of approximately 50 bcm/annum through at least 2030, with the understanding that the LNG price should reflect long-term market fundamentals.

For second-wave, US LNG projects seeking long-term offtake to support financing and final investment decision, it will be interesting to see the form of support to be offered by the European Commission. At a minimum, the statement is a demonstration of support to European buyers seeking to undertake the long-term commitment required to enable a US project to proceed. For second-wave, US LNG projects in the permitting phase; it will be interesting to see how and whether FERC can expedite its review process, which is fairly well-established.

In contrast to the actions described above, a recent decision by the US Court of Appeals for the DC Circuit provides some support for the FERC majority views that greenhouse gas emissions deserve more careful scrutiny in environmental reviews of natural gas pipeline certificate applications. In its decision in Food & Water Watch v. FERC, issued on March 11, 2022,⁴ the DC Circuit held that FERC had a duty under the National Environmental Policy Act to consider the reasonably foreseeable greenhouse gas (GHG) emissions from the downstream combustion of natural gas to be transported by pipeline facilities proposed to FERC in a certificate application. (For procedural reasons, the DC Circuit did not address whether FERC had a duty to consider the emissions associated with upstream production of natural gas to be transported in the new pipeline facilities.) This decision relies heavily on precedent established in Sabal Trail⁵ that FERC must consider the downstream emissions associated with a gas pipeline project when FERC has specific information about the destination of the natural gas to be transported in the pipeline and how it will be used (i.e., where “the available information was sufficiently specific to render downstream emissions reasonably foreseeable”). The decision expanded the finding in Sabal Trail--which involved natural gas to be used by gas-fired power plants--to cover also natural gas to be used by customers of local distribution companies, holding that FERC had not adequately demonstrated that the emissions from use by such customers was not reasonably foreseeable. The Court also held that GHG emissions from natural gas use should be considered even if the gas to be transported by the project may displace natural gas that would have been transported by other projects or other fuels that have higher emissions than natural gas.

The DC Circuit rejected a number of other arguments proffered by the petitioners, but its holding regarding FERC’s failure to consider the downstream emissions of the proposed project led it to remand the case to FERC for further consideration (but without vacating the decision). It should be noted, however, that FERC’s proposed (and now draft) policy statement on natural gas project certificate applications did not provide for consideration of upstream or downstream GHG emissions associated with LNG export terminals.

To the extent that future permit applications involve projects that would help to support LNG exports, FERC will face the challenge of acting quickly on these applications while at the same time ensuring that its environmental reviews can withstand legal challenges.

¹ FERC Issues New Policies for Review of Applications for New and Modified Natural Gas Pipelines, Including Consideration of Greenhouse Gas Emissions for Pipeline and LNG Facilities, February 22, 2022 (available here)

² Certification of New Interstate Natural Gas Facilities and Gas infrastructure Project Reviews, Order on Gas Infrastructure Project Reviews, Docket Nos. PL18-1-001 and PL21-3-001 (March 24, 2022). (available here). Commissioner Danly separately concurred in part and dissented in part to the order, expressing support for the pause but reiterating his fundamental disagreement with the draft policy statements and suggesting that the statements should be rescinded.

³ Joint Statement between the United States and the European Commission on European Energy Security (March 25, 2022). (available here)

⁴Food & Water Watch v. FERC, No. 20-1132, 2022 WL 727037 (D.C. Cir. Mar. 11, 2022) (available here)

⁵ Sierra Club v. FERC, 867 F.3d 1357 (D.C. Cir. 2017).

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Monica Hwang, an O’Melveny partner licensed to practice law in Texas, John Rousakis, an O’Melveny partner licensed to practice law in New York, Hugh E. Hilliard, an O’Melveny senior counsel licensed to practice law in the District of Columbia, John D. Renneisen, an O’Melveny senior counsel licensed to practice law in the District of Columbia, and Eric Rothenberg, an O’Melveny of counsel licensed to practice law in New York and Missouri, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

© 2022 O’Melveny & Myers LLP. All Rights Reserved. Portions of this communication may contain attorney advertising. Prior results do not guarantee a similar outcome. Please direct all inquiries regarding New York’s Rules of Professional Conduct to O’Melveny & Myers LLP, Times Square Tower, 7 Times Square, New York, NY, 10036, T: +1 212 326 2000.