US FERC tweaks Jordan Cove order to align timing of pipeline, LNG contracts

Washington — The US Federal Energy Regulatory Commission has agreed to alter its order authorizing the Jordan Cove LNG project in Coos Bay, Oregon, to ease the developers' worry that FERC would force a mismatch between the contracting processes for pipeline capacity and LNG services.

Jordan Cove and Pacific Connector had pressed for a synchronized process, fearing that potential customers of the LNG terminal would not sign up for liquefaction services without assurance of a corresponding contract for pipeline capacity.

As such, they opposed a requirement in FERC's March 19 order authorizing the planned 7.8 million mt/year export terminal and the related 229-mile pipeline. The measure in question directed Pacific Connector to notify pipeline shippers of the right of first refusal no more than 12 months before the end of the shipper's service agreement.

Instead, the developers argued an 18-month period was needed to better align the timing of offers toward the end of pipeline shippers' contract period with the realities of the LNG market.

FLEXIBILITY DEEMED 'REASONABLE'

FERC, in an order on rehearing May 22, agreed and concluded Pacific Connector's proposal to retain the flexibility to start the bidding process for the right of first refusal as much as 18 months before the termination date was reasonable.

"The unique relationship between an interstate pipeline that predominantly serves an LNG terminal and that terminal is different than the domestic natural gas pipeline market, and therefore supports a different balance of interests between existing shippers and potential third-party bidders," FERC said.

The decision was included as part of a May 22 rehearing order (CP17-494; CP17-495) on the authorization of the LNG terminal and Pacific Connector pipeline in which FERC simultaneously rejected extensive requests for hearing on multiple grounds by environmental groups, landowners, tribes and state agencies.

CZMA PATH FORWARD

FERC also agreed to another of the project developers' requests on rehearing: that the commission clarify that a US Secretary of Commerce determination overriding Oregon on coastal zone management issues would suffice to meet a condition of the order. FERC had required that before construction can begin, the companies must file a copy of the determination of consistency with the Coastal Zone Management Plan issued by the state of Oregon.

Imposing a barrier for the project, the Oregon Department of Land Conservation and Development February 19 found the applicants had not established consistency with specific enforceable policies of the Oregon Coastal Management Program. In response, the companies have appealed that finding to the secretary of commerce.

On this point too, FERC agreed with the developers on rehearing that action from the commerce secretary could overcome that hurdle. FERC noted that the Coastal Zone Management Act is a federal statute, implementation of which is delegated to states on first instance. "[T]he secretary of commerce retains authority to override a state's decision," FERC said.

The commission, however, declined to bend to the project sponsors on its consideration of a 26-mile area as eligible for listing in the National Register of Historic Places, in deference to a state preservation office. FERC noted that the consultation process with all parties is still ongoing, but affirmed its decision to support a determination made by the State Historic Preservation Office.

The project sponsors had worried that nothing like the proposed 26-mile traditional cultural property had ever been found eligible, making it hard to understand how FERC would determine the effects of development.

The lengthy rehearing requests by multiple parties signal appeals court challenges likely await the project, from the state of Oregon as well as national environmental groups aligned with others.

Legal debate over the orders authorizing the project also comes at a time when commercial hurdles are high for US LNG projects in the development stage. Exacerbating market challenges, the coronavirus pandemic has helped suppress spot market LNG demand and curbed the near-term investment appetite for multibillion-dollar infrastructure projects.