Liquefied Natural Gas (Lng) Litigation after the Energy Policy Act of 2005: State Powers in Lng Terminal Siting

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I. INTRODUCTION

Historically, the United States has relied on domestic and Canadian sources to satisfy its domestic demand for natural gas. As domestic and Canadian gas reserves have declined in recent years, however, the demand for and the price of natural gas has increased, leading to increasing interest in imports of liquefied natural gas (LNG). Transporting natural gas very long distances from gas fields located in regions of the world with little or nonexistent consuming markets across the oceans to large consuming markets is made feasible by chilling the gas to minus 260 degrees Fahrenheit, at which point the natural gas changes to a liquid state, reducing its volume to 1/600th that of vaporous natural gas. LNG can then be transported via ocean-going vessels across the ocean to be regasified and distributed in consuming markets.

In the 1970s, four U.S. import terminals opened and began importing new quantities of LNG. This first start for LNG importation into the United States fell into recession in the early 1980s when market conditions made LNG importation commercially impracticable. Recent increases in natural gas prices and heightened demand based on natural gas's environmentally friendly conditions has created a second and more powerful push for LNG importation with over forty applications filed with the Federal Energy Regulatory Commission (FERC) and the Maritime Administration to construct or expand LNG regasification terminals in the United States.

As the United States moves toward increasing LNG importation and developers race to construct import terminals, the relatively young U.S. LNG industry is experiencing expected growing pains that have created obstacles and opposition to the LNG movement, including infrastructure concerns related to gas quality and interchangeability, safety and security concerns, environmental concerns, competition over supply, and coordination of upstream supply and downstream regasification capacity. Such challenges present an opportunity to slow the development of LNG terminals.

However, regardless of potential challenges and varying predictions about how much of the projected U.S. consumption will be fulfilled by imports of LNG, it is clear that LNG will have an important role to play in the energy future of the United States. There must be enough infrastructure to accommodate the LNG imports as well, and that infrastructure must be proximate to the market centers where the peak demand occurs.

Energy infrastructure raises unique concerns, specifically in the post-September 11 environment. As a result, LNG has engendered huge opposition in many of the communities in which it has been proposed and those communities have methods by which they can negatively impact the review and regulatory processing of LNG terminals. The primary tools available to LNG opposition are the powers, embedded in various federal and state laws, which the states have to affect LNG terminal siting. Aware of the potential delay caused by some of these tools and recognizing that states may react to satiate local opposition, Congress passed, and the President signed, the Energy Policy Act of 2005 (EPAct 2005),1 which included LNG-specific sections intended to restrict certain state powers, while at the same time including provisions to facilitate states' input into the LNG terminal siting process.

The EPAct 2005 amended the Natural Gas Act of 1938 (NGA)2 to streamline the process for approving natural gas projects, including LNG import terminals. The EPAct 2005 expressly provided the FERC with exclusive authority over applications to site, construct, and operate LNG terminals. It also provided a direct, expedited appeal to the U.S. courts of appeals from most agency decisions authorized under federal law, and authorized the FERC to create a binding schedule for agencies reviewing projects under the FERC's jurisdiction. To facilitate the process, the FERC is required to institute a prefiling process, consult states in the application process, and create a single consolidated record for appeals from all agency decisions. …