Regulation of LNG Facilities in the United States
1. Permitting Authority for Onshore Terminals
- FERC is the lead agency when it comes to authorizing construction and siting of onshore LNG facilities under Section 3 of the Natural Gas Act. FERC performs an environmental and safety review of a proposed LNG plant and prepares an environmental impacts statement (EIS), which is required under the National Environmental Policy Act (NEPA).
- The U.S. Department of Transportation (DOT) Office of Pipeline Safety has authority over safety regulations and standards for the transportation and storage of LNG in interstate commerce or foreign commerce under the pipeline safety laws (49 USC Chapter 601).
- The U.S. Coast Guard, in connection with onshore facilities and vessels, is responsible for safety and security of port areas under the Magnuson Fishery and Conservation Act (50 USC Section 191), the Ports and Waterways Safety Act of 1972, as amended (33 USC Section 1221, et seq.), and the Maritime Transportation Security Act of 2002 (46 USC Section 701), and has authority for facility security plan review and siting as it pertains to the management of vessel traffic in and around an LNG facility.
2. Permitting Authority for Offshore Terminals
- The U.S. Coast Guard has principal authority over construction and siting of offshore LNG facilities and oversees the preparation of an EIS that examines the potential impact of a new facility, which is required under NEPA and the Deepwater Port Act of 1974 (DWPA), as amended (33 USC 1501 et seq). Coast Guard oversight of an offshore facility continues as long as the facility is operational, since the agency is responsible for the safety and security of LNG facilities and vessels in U.S. coastal waters.
- The Maritime Administration (MARAD) of the DOT has authority over the licensing of deepwater ports, based on an application process administered jointly by the Coast Guard and MARAD, under provisions in the DWPA as amended by the Maritime Transportation Security Act (MTSA) of 2002 to include LNG facilities developed offshore. New maritime anti-terrorist regulations became effective on July 1, 2004 that directly affect operations at US LNG terminals. All vessels and ports worldwide that engage in international trade must comply with the International Ship and Port Security code. In addition, foreign-flagged vessels entering US waterways must meet the security requirements of the MTSA.
3. States' Rights in Authorizing LNG Facilities
While FERC has exclusive authority under the Natural Gas Act to authorize the siting of facilities for the import or export of LNG; that authorization is conditioned upon the applicant's satisfaction of other statutory requirements. In particular, a state can effectively "veto" an LNG facility by denying permits associated with the Clean Water Act, the Coastal Zone Management Act, and the Clean Air Act. Nothing legislated in the Energy Policy Act of 2005 changed the authority of the states in this regard. What follows are brief descriptions of the three acts mentioned above:
- Coastal Zone Management Act: Under Section 307(c), an LNG project developer, or sponsor, must certify that the proposed activity in a designated coastal zone complies with the policies of the affected state's coastal zone management program. If the state does not concur with the certification, a FERC approval to construct will not be granted.
- Clean Water Act: Under Section 401, certification of compliance with the state's water quality standards is required from the responsible state agency for any activity that might result in a discharge into navigable waters, including construction and operation of an LNG facility. If the 401 certification is denied, the LNG facility cannot be constructed. Also, under Section 404, a permit is required from the U.S. Army Corps of Engineers for discharge of dredged and fill material.
- Clean Air Act: Under Section 502, a permit is required for any person to operate a source of air pollution, as detailed in the Act. If the responsible state agency does not issue the permit, the project cannot go forward.
Beyond its authority based on these Federal statutes, the state also has the ability to be a cooperating agency with FERC during the review of a project under the National Environmental Policy Act (NEPA), and can contribute to the complete environmental review of the proposal.
4. The FERC Review Process and Oversight of Construction and Operation
Prior to a FERC decision regarding an LNG application, the FERC Office of Energy Projects (OEP) staff prepares an Environmental Assessment (EA) or an EIS under the requirements of the National Environmental Policy Act (NEPA) to inform both the public and the permitting agencies of potential adverse and/or beneficial environmental and safety impacts of a proposed project and its alternatives.
Prior to a project developer/sponsor filing an LNG-related application, its representatives typically meet with OEP staff to explain the proposal and solicit advice. OEP staff will review conceptual designs of planned LNG facilities, provide guidance on resolving potential environmental, safety, and design issues; and explain the level of design detail and safety analysis required for a complete application.
Projects under review can proceed through either one of two processes: (1) the more formal Pre-Filing process or (2) the Traditional process. Roughly 80% of currently proposed LNG projects go through the pre-filing process while 20% go through the traditional process. The end result of the review process is an EIS that addresses both environmental and safety concerns. Upon FERC approval, the developer will receive: (1) a FERC Order stating its decision on whether to approve construction and operation of the LNG terminal; (2) market rate authority; and (3)conditions that must be met prior to construction. The developer must also secure the following prior to construction from the state in which construction will occur Section 401 permits and Coastal Zone Management clearance.
FERC also monitors the design and construction of the approved LNG project and its commercial operation after commencement of service. After a company receives FERC approval for a project and has met all pre-construction conditions required by a FERC Order, the Director of the OEP will authorize the commencement of construction, after which the developer/sponsor will be required to file monthly reports detailing construction activity; the status of any outstanding project permits; an updated project schedule; and details of compliance with environmental conditions. Also, Staff will visit the project site as it deems necessary throughout the construction phase.
Prior to commencement of commercial operations from the LNG facility, the developer/sponsor must receive written approval from the Director of the OEP. Only after complying with all pre-operation conditions set forth in the FERC Order would a company receive authorization to begin operation.
Also, each LNG facility under FERC jurisdiction is required to file semi-annual reports to summarize plant operations, maintenance activity; and abnormal events for the previous six months. In addition, staff periodically conducts inspections of an LNG facility throughout its operational life.
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