A three-judge panel at the U.S. Court of Appeals for the D.C. Circuit on June 28 dealt a defeat to the Sierra Club, which sought review of the authorization by the Federal Energy Regulatory Commission of an increase in production capacity at a liquefied natural gas terminal in Louisiana.
According to Sierra Club, the commission failed to consider certain environmental consequences of its authorization, in violation of the National Environmental Policy Act of 1969 (NEPA). The commission initially challenged the Sierra Club’s standing under Article III of the Constitution to bring this petition. The appeals court said in its June 28 ruling that the club has standing, but rejected the club’s claims.
The petition before the court challenged whether the commission complied with NEPA when it approved an increase in production capacity at a liquefied natural gas (LNG) terminal in Cameron Parish, Louisiana, operated by Sabine Pass Liquefaction LLC and Sabine Pass LNG LP. The commission initially approved the construction and operation of the terminal as a facility for the import of LNG into the United States. Changes in market conditions, however, prompted Sabine Pass to seek commission authorization to construct and operate facilities that would permit the terminal to receive natural gas produced in the United States, liquefy it, and prepare it for export to points abroad. In 2012, the commission authorized Sabine Pass to liquefy and prepare for export up to 16 million tons of natural gas per year.
The Sierra Club, which participated in the commission proceedings, did not petition for judicial review of the 2012 order. The commission orders that Sierra Club has now challenged amend the 2012 order and also denied rehearing of the decision to amend. In October 2013, Sabine Pass requested that the commission authorize it to use the terminal to liquefy and prepare for export an additional 4 million tons of natural gas per year — in total up to 20 million tons per year.
NEPA required the commission to conduct an environmental analysis of Sabine Pass’s proposed amendment, and Sierra Club, which intervened in the application process, argued that the commission needed to consider several specific environmental consequences in its analysis. Among them were two environmental consequences that form the core of Sierra Club’s petition to the court.
- First, Sierra Club argued that increasing the volume of exported natural gas would induce U.S. natural gas producers to extract and process more gas in order to meet the increase in demand and thereby cause more gas production-related environmental harm.
- Second, Sierra Club argued there would be increased air pollution resulting from increased coal burning, because: increasing the volume of natural gas exports would more fully integrate the domestic natural gas market with the global market, where the price of natural gas is generally higher; market integration would cause domestic natural gas prices to rise as the lower domestic price and the higher global price reach an equilibrium; this hike in domestic gas prices would prompt U.S. energy consumers — in particular electric utilities — to switch from using natural gas to using coal, which is cheaper than natural gas but generates more air pollution.
In the Sierra Club’s view, both of these environmental consequences of Sabine Pass’s proposal constituted “indirect effects” of the proposed amendment and therefore had to be considered in the commission’s NEPA analysis. Pursuant to NEPA, the commission produced an environmental assessment of Sabine Pass’s latest proposal. It summarily rejected Sierra Club’s comments, stating that it had addressed them in the environmental assessment that it conducted in connection with the 2012 order. The commission proceeded to grant Sabine Pass’s request and amended the 2012 order to increase the maximum volume of natural gas that it could liquefy at the terminal from 16 to 20 million tons per year.
The commission observed that with respect to effects flowing from export-driven increases in domestic natural gas prices, the Department of Energy — and not the commission — possessed the legal authority to approve any increase in the volume of natural gas actually exported. The commission also determined that induced natural gas production was not a reasonably foreseeable consequence of the 2014 amendment and therefore not an indirect effect under NEPA. Furthermore, in the commission’s view, the 2014 amendment did not generate any new impacts that NEPA required it to consider cumulatively. The commission denied Sierra Club’s request for rehearing, reiterating the determinations it had made in granting the 2014 amendment.
Said the June 28 appeals court ruling: “What Sierra Club challenges here is the potential environmental effects flowing from greater natural gas exports from the Terminal. The two indirect effects at the heart of Sierra Club’s petition cannot occur unless a greater volume of liquefied natural gas is shipped from the Terminal and enters the international marketplace. But the Commission orders challenged here do not authorize Sabine Pass to increase exports from the Terminal. Those orders only authorize an increase in production capacity at the Terminal. As the Commission explained, the Department of Energy alone has the legal authority to authorize Sabine Pass to increase commodity exports of liquefied natural gas. The challenged Commission orders therefore are not the legally relevant cause of the indirect effects Sierra Club raises. Accordingly, the Commission did not need to consider those effects in its NEPA review.”
The court added: “Sierra Club, of course, remains free to raise these issues in a challenge to the Energy Department’s NEPA review of its export decision. Nothing in our opinion should be read to foreclose that challenge or predetermine its outcome. Furthermore, the Commission adequately explained why it was not reasonably foreseeable that greater production capacity at the Terminal — separate and apart from any export activity — would induce additional domestic natural gas production. It concluded that the Terminal’s liquefaction operations did not necessitate an increase in domestic natural gas production. Whatever effect increased natural gas exports might have on domestic production levels, the Commission’s conclusion was reasonable with respect to the effect of increasing production capacity.
“Next, Sierra Club contends the Commission failed to take into account certain cumulative impacts of the 2014 Amendment,” the court wrote. “In particular, Sierra Club maintains the Commission should have considered the impacts of the 2014 Amendment alongside several other proposals to increase natural gas export capacity nationwide, some pending, some 15 already approved. Those proposals include two other projects at the Terminal (the ‘Sabine Pass projects’). During administrative proceedings, the Commission determined that the 2014 Amendment would not contribute to any cumulative impacts. On appeal, the Commission contends that Sierra Club’s argument fails on two grounds: (1) The court lacks jurisdiction to hear Sierra Club’s contention regarding the other projects — save for one of the Sabine Pass projects — because it failed to raise them in its petition for rehearing before the Commission, and (2) in any event, NEPA did not require the Commission to consider the effects of the 2014 Amendment cumulatively with the other projects. The court lacks jurisdiction to consider Sierra Club’s challenge as it pertains to any projects other than the Sabine Pass projects.
“Sierra Club endeavors to hang jurisdiction on a very thin reed. In its Motion to Intervene, Sierra Club commented that the Commission needed to ‘consider the cumulative impacts of all pending export proposals.’ Its Motion for Rehearing, however, contains no mention of any projects besides other Sabine Pass projects. The header of the relevant section reads: ‘FERC Violated NEPA by Failing to Consider Connected Actions or the Cumulative Effect of Other Proposed Sabine and Related Pipeline Projects.’ In that section, Sierra Club notes that the 2014 Amendment ‘is one of only a number [sic] of pending proposals for expansion of the Sabine Pass project’ and mentions that ‘Sabine Pass has also applied for authorization to construct two additional liquefaction trains and pipeline modifications. CP13-552 and CP13-553.’ Sierra Club maintains that this merely ‘drew the Commission’s attention to’ the specified Sabine Pass project but ‘did not suggest that these were the only relevant actions, for purposes of a cumulative impacts analysis.’ This reads too much into its Motion for Rehearing. Nothing in that motion put the Commission on notice that Sierra Club was challenging the Commission’s cumulative impacts analysis as it pertained to projects other than the Sabine Pass projects. In granting the 2014 Amendment, the Commission understood Sierra Club to contend that the Commission needed to consider natural gas projects unrelated to the Terminal. In denying rehearing, the Commission addressed only one of the other Sabine Pass projects while noting that Sierra Club on rehearing did not challenge the Commission’s cumulative impacts analysis as to projects unrelated to the Terminal. Because the Commission was not on notice of Sierra Club’s broader objection, it did not have the opportunity to consider them in the first instance.”