A federal appeals court had questions about the grant of eminent domain authority to a Midwest natural gas pipeline with Canadian customers, and now the proposed Jordan Cove LNG export terminal in Oregon and related 232-mile Pacific Connector project could be at the center of the next battle over use of the legal power by companies involved in export.
In a Sept. 6 decision involving the Midwest project, the U.S. Court of Appeals for the District of Columbia Circuit said it needed a better explanation from the Federal Energy Regulatory Commission on its decision to credit precedent agreements for gas transportation and export as proof that the pipeline project was in the public interest. This type of finding supports the eminent domain authority that goes along with a Natural Gas Act certificate to build a pipeline. Pipeline companies and other infrastructure developers use eminent domain to take property in cases where landowners refuse to sell.
The D.C. Circuit remanded the case, which involved the 1.5-Bcf/d Nexus pipeline developed by Enbridge Inc. and DTE Energy Co.'s Nexus Gas Transmission LLC, to FERC on that narrow issue. (U.S. Appeals Court for the District of Columbia Circuit docket 18-1248)
While the D.C. Circuit decision could have implications for pipeline projects serving LNG terminals, the effects might be limited by the details of those projects and their permit proceedings, including whether opposition parties at FERC have raised the issue in time, observers said.
"We think [Pembina Pipeline Corp.'s] Jordan Cove likely faces the steepest challenge in the wake of [the D.C. Circuit decision]," consulting firm ClearView Energy Partners said in a research note on Sept. 9. "Given little growth in natural gas demand along the pipeline route or in Coos Bay beyond the LNG terminal itself, FERC may find it very difficult to defend [a Natural Gas Act Section 7] decision for the project solely on domestic demand."
Looking more broadly at recently approved and pending LNG projects, the risk from the D.C. Circuit ruling may not be as high, according to ClearView. Five recently approved projects did not get hit with rehearing requests that would put them on the path to judicial review, and other projects would rely for supply on intrastate gas pipelines that are outside FERC jurisdiction. FERC oversees natural gas infrastructure projects involved in interstate commerce.
Jordan Cove has a 'live issue'
Carolyn Elefant, an attorney who argued the Nexus pipeline case for the city of Oberlin, Ohio, and landowners, said the use of eminent domain for export projects was a "live issue" raised by landowners in the Jordan Cove docket. "It's definitely been preserved every which way in Jordan Cove."
"I think where this case presents problems in the future is pipelines in FERC cases like Jordan Cove or other LNG [projects], where you're building a pipeline that is pretty much transporting gas from off another interstate pipeline or a shale region directly to the LNG [terminal] for export," Elefant said.
Paul Vogel, a spokesman for Jordan Cove, said the developers have noted the decision, but they believe the most important factor in securing right of way is relationships with landowners. "That has resulted in securing voluntary easement agreements for 82% of the privately-owned right of way for Jordan Cove's pipeline in less than one year," he said.
The Jordan Cove development team is pursuing a FERC certificate for the second time, after the first application was rejected. The project has faced opposition from lawmakers, environmentalists and some landowners.
Impact on gas export projects
Some observers predicted limited fallout for the gas industry from the D.C. Circuit decision. "The important point here is that if the panel thought the commission could not provide a plausible explanation on remand, they would have vacated the certificate, and they didn't do that," said William Scherman, a partner at Gibson Dunn & Crutcher LLP. "So the court is clearly giving the commission flexibility to provide greater and more fulsome explanation on remand."
D.C. Circuit Judge Judith Rogers, in a concurrence, "is giving the commission some indication of what the court is looking for," Scherman added.
Rogers wrote that FERC's findings on the need for Nexus were backed by "substantial evidence in the record considered as a whole." She said she joined the remand to give FERC a chance to "provide an explanation of its authority to rely in Section 7 certificate proceedings on precedent agreements with foreign shippers serving foreign as well as domestic customers."
It is possible that FERC could also answer the court by further justifying its decision based on the share of gas on Nexus that is used domestically, sidestepping the export matter for now, Scherman said.
Nathan Matthews, an attorney for the Sierra Club, said his group was "happy with the fact that the court recognized that exports are different when it comes to public use and benefiting the American public."
"This is absolutely an issue with Jordan Cove, although the facts are much more stark with Jordan Cove," Matthews said. He observed that much of the gas on the Nexus project was expected to go to U.S. customers.
FERC will also need to consider these issues in the Rio Bravo pipeline project serving NextDecade Corp.'s Rio Grande LNG export project, the Sierra Club attorney said.
Maya Weber is a reporter with S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.
