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For rebuffed Jordan Cove LNG, pipeline was the stumbling block at FERC

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For rebuffed Jordan Cove LNG, pipeline was the stumbling block at FERC

For developers of the stalled Jordan Cove LNG export project, convincing federal regulators of a need for the associated gas pipeline has been a hurdle too high.

FERC on Dec. 9 said it would not reconsider its initial rejection of the Jordan Cove Energy Project LP and Pacific Connector Gas Pipeline projects because developers had failed to present "extraordinary circumstances" that would have justified a rehearing. The project now has the option to re-seek authorization by submitting a new application.

The commission's decision came down to a lack of need for the 36-inch-diameter pipeline, rather than the export terminal, Katie Bays, an energy analyst at Height Securities LLC, said in an interview. Despite Jordan Cove's disclosure of agreements to supply LNG from the Oregon coast to ITOCHU Corp. and JERA Co. Inc., FERC was unlikely to change its mind based on two "contracts in principal," she said.

FERC in March denied the 0.9-Bcf/d LNG export facility and pipeline, pointing to a lack of necessity and commercial support. "Pacific Connector has presented little or no evidence of need for the Pacific Connector Pipeline," the commission said in its original order. The developers then filed a request for rehearing, saying they had entered into agreements that demonstrated commercial support for the project.

Taylor Johnson, Jordan Cove's vice president for commercial and legal, said in a Dec. 12 email that FERC's decision to not rehear the project "was arbitrary and has little to no legal reasoning behind it."

While routing a large pipeline to the U.S. West Coast was always seen as a relatively difficult task, the Veresen Inc.-led Jordan Cove venture had been hopeful that Japanese demand for LNG exports would convince regulators that a pipeline supplying the Coos Bay, Ore., terminal is necessary.

But proposed export projects on Canada's west coast, Jordan Cove's would-be competition, have been delayed at best. Just one of the LNG export projects proposed for British Columbia has received a final investment decision as developers try to determine the best way to move forward amid a glutted global market and low oil and gas prices.

During the eight months between the request for rehearing and FERC's denial, representatives of Jordan Cove, Pacific Connector, Veresen and Colorado localities in the Piceance Basin repeatedly pointed to the agreements with ITOCHU and JERA as evidence that the market demanded natural gas be supplied to the terminal to be exported to overseas buyers.

"The title of [FERC's] order should be 'A Day Late, a Dollar Short,'" Joseph Fagan, a partner at Day Pitney LLP, said in an email. "FERC repeatedly [expressed] its frustration with the fact that the evidence of market support/demand was not provided during the FERC review process despite the attempt by agency staff to elicit evidence of such support."

Instead, developers might have had more success with FERC had they demonstrated the pipeline's contracted capacity earlier in the review process, said Rick Smead, managing director at RBN Energy. "They were focusing on the wrong thing, which was commitments with LNG customers that had not been translated into firm contracts on the pipeline," he said. He added that the company overall had good commercial support, but that FERC wanted more.

Even if the ITOCHU and JERA agreements had been a part of the original record, proving necessity for the $1.74 billion pipeline might still have been difficult, Bays said. "You're building a much larger pipeline than the market would require outside of the export terminal," Bays said. "You're in a pickle in the West, where the market doesn't really require this new gas pipeline."

Still, supporters of the project said FERC should have reconsidered its denial based on the evidence submitted after developers' request for rehearing. "Jordan Cove has been able to secure five offtake agreements with potential buyers, clearly demonstrating there is genuine appetite for U.S. natural gas in Asia," Charlie Riedl, executive director of the Center for Liquefied Natural Gas, a trade association in Washington, D.C., said in an emailed statement. "It's disappointing that FERC has chosen not to reexamine the project."

The project would also need to garner additional support from landowners who would be affected by Pacific Connector, Bays added. "It's a large greenfield pipe with very little landowner support," Bays said. "It's very, very obvious that FERC is uncomfortable giving eminent domain authority to that pipeline."

Dependence on a greenfield pipeline sets Jordan Cove apart from the Magnolia LNG project, which received FERC approval in April despite not having contracted out all of its export capacity, ClearView Energy analysts said in a Dec. 12 note. Instead of having to develop a brand new pipeline that stretches more than 200 miles, Magnolia LNG's "proximity to nearby underutilized natural gas infrastructure [is] in stark contrast [to] Jordan Cove's reliance on" the Pacific Connector pipeline, the note said.

Moving forward, "getting a Court of Appeals to remand the decision not to issue the certificate back to FERC will be a high bar," said Fagan. Instead, developers will probably have better luck submitting a new application that includes the agreements with ITOCHU and JERA. "FERC acknowledges that it can rely on the earlier record in evaluating any future application; the developers would not be starting from square one," he said.

Jordan Cove's Johnson said Dec. 9 that the company is reviewing its options, including appealing to a federal court or refiling its application.