Week Ending April 15, 2016

Disappointed Supporters, including Officials in Colorado and Wyoming, Urge FERC to Reopen Record on Recently Rejected Jordan Cove, Pacific Connector Pipeline Projects

This Article Appears as Published in Foster Report No 3095
Disappointed Supporters, including Officials in Colorado and Wyoming, Urge FERC to Reopen Record on Recently Rejected Jordan Cove, Pacific Connector Pipeline Projects

No sooner did FERC seemingly nix and dispose of Jordan Cove LNG’s plans to develop a liquefied natural gas (LNG) export terminal and connecting pipeline, the project’s backers now say they have in hand preliminary agreements from customers to buy a least 50% of its planned initial design capacity.  In large part, it was the project’s developers (Veresen Inc. and Williams Partners) failure to demonstrate a public benefit that would outweigh the potential for adverse impacts on landowners and communities that swayed the Commission to deny outright the certificate application for the Pacific Connector Pipeline on March 11.  Calgary-based Veresen says the latest deal involves the Japan-headquartered ITOCHU Corp., which has bases in 65 countries and engages in trading and export/import involving energy, minerals, chemicals, food, real estate and numerous other industries.

The case under renewed scrutiny on rehearing is FERC’s proceeding labeled Jordan Cove LNG Terminal Project and Pacific Connector Pipeline Project (CP13-483 and CP13-492).  According to the March 11 order, Jordan Cove LNG/Pacific Connector Pipeline had not even held a successful “open-season” process to demonstrate informal interest in the facility.  The agency, in its rejection order, had cited the lack of agreements or expressions of interest from customers for a project that would have impacts including eminent domain proceedings against landowners along the pipeline route.  There was reference in the contested order to the possibility of FERC reconsidering the project in the future if a market for exported LNG materializes.[1]

Market and Supporters.  Joining a band of business boosters and elected officials in western Colorado, and the State of Wyoming, Jordan Cove is seeking rehearing of the Commission’s order issued 3/11/16, declaring foul.  (See adjacent article for a review of Jordan Cove/Pacific Connector’s  joint petition for rehearing of the March 11 order).  The Colorado supporters are presumed to have hoped for the opening of a new market for natural gas produced locally in the Piceance Basin.

Shortly after FERC rejected Jordan Cove’s and the pipeline’s plans, Veresen announced later in March that a Japanese joint venture, JERA Co., preliminarily agreed to buy at least a quarter of the planned initial production of Jordan Cove.  JERA, established last year by Tokyo Electric Power Co. and Chubu Electric Power Co., purportedly will soon become the world’s largest buyer of LNG when their fuel procurement businesses are integrated.  JERA was reported to have agreed tentatively to purchase at least 1.5 million metric tons of LNG annually from Jordan Cove  LNG for 20 years.  ITOCHU has preliminarily agreed to buy 1.5 million tons for the same amount of time.  Veresen’s initial design capacity is 6 million tons a year for the project on Oregon’s coast at the port of Coos Bay.

This second major customer agreement for the Jordan Cove LNG project, with ITOCHU, “represents further proof of the market support for this project,” Don Althoff, president and chief executive officer of Veresen, said in a news release.  “ITOCHU is a leading global energy company and we are pleased to have them as an additional foundation customer for the Jordan Cove LNG project.”  Veresen also affirmed it is continuing negotiations with other parties.

Among filers this week for rehearing of FERC’s thumbs down order, are Jordan Cove/Pacific Connector, the state of Wyoming, and Colorado Governor John Hickenlooper who this week filed his own pleading with FERC for reconsideration.  Oregon’s governor, Kate Brown, hasn’t taken a position apparently.

The Jordan Cove development plans (import and export) have been one of the more heavily contested projects from the beginning, and even a FERC Chairman, John Wellinghoff, came down against it early on.  Wellinghoff was the sole vote against Jordan Cove when it was proposed as an import terminal in 2009.  The Commission majority initially had approved the LNG receiving terminal in Oregon and related Pacific Connector pipeline, and about the same time reaffirmed its decision favoring Sparrows Point LNG in Baltimore, Maryland.  Chairman Wellinghoff dissented from the 3-1 majority in both cases, proclaiming his worry about policies favoring imports over domestic natural gas.

In his dissent at the time, Wellinghoff suggested, among other things, that the recent development of abundant shale gas supplies opened up the possibility of cheaper gas reaching the West Coast.[2]  He also had said Environmental Impact Statements (EIS) need to do a better of job of studying renewable energy as an alternative to LNG imports.[3]

Supporters of Export Project.  Moving ahead to this week, Colorado Governor Hickenlooper asked FERC to grant his request for rehearing and issue the requested authorizations.  He wrote, “The Jordan Cove and Pacific Connector Pipeline Project represents an important new source of demand for natural gas producers in Colorado.  It is important for shippers and domestic natural gas producers to continue to access markets for natural gas including the Asian Pacific countries which comprise the fastest growing liquefied natural gas (LNG) market in the world.”  He believes the project would provide gas producers “direct and efficient access to those markets which will be important to US natural gas producers for the long-term.”

The Governor added, the project has “clearly demonstrated this market demand” through the recent announcement on March 22 of an agreement between Jordan Cove and JERA, and the April 8 disclosure of an agreement between Jordan Cove and ITOCHU.  “In denying the Project, FERC will not only be denying the positive economic benefits to the development areas, it will also be denying the far reaching benefits beyond the Pacific Northwest.”

The Governor further noted that this project terminal is the only LNG facility on the west coast that would directly link Colorado to new energy markets via the Ruby Pipeline.

On April 1l the Oregon Business Council filed with FERC a second to the motions for rehearing, espousing a list of potential benefits to the state and region if the terminal and pipeline are constructed.  “Given the recent customer announcement with JERA and ITOCHU, we hope the FERC will use its authority under the Natural Gas Act (NGA) to authorize the project and issue the Certificate of Public Convenience and Necessity,” declared the Council.  Its members support Jordan Cove and Pacific Connector because “they will create thousands of construction jobs, hundreds of permanent jobs, improve the International Port of Coos Bay, and increase opportunities for natural gas service in Southern Oregon.”[4]  Jordan Cove and Pacific Connector have the ability to inject a huge sum of private

capital, estimated at $7, 5 billion, “into a region of Oregon that has struggled economically since the decline of the timber industry.” In addition, the Council stated that although Jordan Cove does not need a deeper navigation channel, it is paying for the Port’s work to permit a deeper channel, benefiting existing shippers and increasing safety.  “Also, Jordan Cove will almost triple the tonnage volume of products moved through the Port, increasing the Port’s ability to compete for federal maintenance funds for its navigation channel and jetties.  These are significant benefits to helping the Port stay in business and expand its business.”

According to the Oregon council, the availability of reliable sources of natural gas is “a key ingredient for economic growth,” and local natural gas distribution companies (LDCs) that currently deliver gas to many communities in the project area will have the opportunity to expand their services along Pacific

Connector and through an interconnect between Pacific Connector and Williams’ existing facilities. Industrial and commercial customers too can connect directly or through an LDC for natural gas service. Pacific Connector Pipeline will foster new economic development in the region by attracting new industries and providing natural gas to residential and commercial users.

The Oregon State Building and Construction Trades Council (counting approximately 25,000 men and women members) similarly asked FERC to reconsider.  “Many of my members are spread throughout the United States because they can’t find enough work in Oregon.  Jordan Cove and Pacific Connector would allow many of them to return home with their families for up to four years.”

The builders’ council stressed that Jordan Cove LNG is expected to invest more than $420 million by the end of this year on development and engineering and to acquire the property on which to construct the terminal, and property to be used for environmental mitigation.  “That is a key difference between Jordan Cove and some other projects.  As a result, Jordan Cove has uncontested site control.”

But the commitment to build this project does not stop with Jordan Cove; “it extends all the way to Japan.”

The Oregon Building and Construction Trades Council and the AFL-CIO of Oregon are both on record in support of this project.  As FERC has already approved numerous projects in eastern and Gulf Coast states, the Council hopes the Commission will approve the Jordan Cove Energy and Pacific Connector Gas Pipeline Project, thereby “giving our members in the Pacific Northwest the same opportunities that workers in other regions of the country have benefited from.”

Opponents’ Argument.  Not everyone is encouraging the Commission to step back, however.  For instance, Citizens Against LNG Inc., out of North Bend, reacted to the rehearing petitioners, after noting “over the last few days FERC has been bombarded with a host of Jordan Cove support letters.”  Citizens Against LNG, claiming to represent over 5,000 citizens in Southern Oregon “who live, work, have businesses, recreate and socialize in areas that would have been negatively impacted” by the Jordan Cove LNG terminal, storage tanks, natural gas liquefaction facility and the Pacific Connector Gas Pipeline, offered its “sincere gratitude and thanks” for the Commission’s March 11 order, in the belief that it correctly denied applications for a certificate and authorizations under section 3 and section 7(c) of the Natural Gas Act (NGA) and the regulations.  “The FERC order correctly concluded that the market did not support the Jordan Cove project and the adverse effects to landowners and communities outweighed the public benefit of the project.”

Citizens Against LNG urged FERC to “critically analyze some of the misinformation found in some of these support letters along with Jordan Cove’s current stated gas distribution plans and volumes, which differ from those that have been submitted into multiple various regulatory agencies including the National Energy Board of Canada.”

The Citizens opined that FERC should have gone even further by suspending all regulatory processes that were underway on the Jordan Cove/ Pacific Connector Project.  “Citizens continue to have one comment deadline after another including legal briefs that are due for a project that FERC has essentially deemed non-viable.   Since FERC staff have suspended working on the Jordan Cove Project it would only seem appropriate for FERC to instruct other agencies to do the same as well.”

Besides, the group stressed, the preliminary agreements that Jordan Cove has signed with JERA and ITOCHU are just “preliminary.”  These are not signed contracts that are binding and shouldn’t be perceived as such.  Jera’s president had told the Reuters Global Commodities Summit last October that the company will significantly cut long-term LNG contracts.  Consequently, “Americans should not be at risk of losing rights to their property, their livelihoods and businesses so some foreign energy company can wheel and deal away our energy advantage.”

State of Wyoming and the Wyoming Pipeline Authority (WPA) Petition For Rehearing.  Wyoming’s regulators also sought rehearing of FERC’s March 11 order.  In their view, the Commission had treated the Jordan Cove LNG Terminal and the Pacific Connector Pipeline as two segments of a single, integrated project — finding essentially that without a pipeline connecting the LNG terminal to a source of gas supply to be liquefied and exported, the proposed Jordan Cove LNG Terminal cannot provide any benefit to the public to counterbalance any of the impacts that would be associated with construction of the terminal facilities.  Among their complaints, the Commission violated Pacific Connector’s due process rights to fair notice of the proposed termination action in advance of the Commission’s determination to reject the section 7(c) application.  And FERC abused its discretion and acted arbitrarily and capriciously in rejecting the Jordan Cove’s section 3 application based solely on the denial of the Pacific Connector section 7(c) application.

Wyoming stated that the Commission failed to consider the evidence of public benefit adequately.  Enhancing the ability of natural gas produced in Wyoming to compete in international markets represents a significant public benefit not adequately taken into account in the March 11 order.

In addition to the direct fiscal impact of gas production on state revenues, gas and oil extraction and related activities have accounted for between 8.3% and 9.8% of statewide non-farm employment over the last ten years.

The Commission has consistently supported the infrastructure expansions required to provide and preserve access to markets for natural gas produced in Wyoming — Trailblazer Pipeline LLC (CP01-64), Cheyenne Plains Gas Pipeline LLC (CP03-301 et.al., CP07-128), the Rockies Express Pipeline LLC (CP06-354), Bison Pipeline, LLC (CP09-161).  As a result of these projects and capacity to move gas through to the Midwest on Colorado Interstate Gas, the total capacity to move gas to Midwestern and Eastern markets is approximately 4.3 Bcf/d.

Now, according to the Wyoming stakeholders, the “inescapable impact” of growth in gas production in the eastern U.S. forces more of the natural gas produced in Wyoming to flow westbound instead.  The ability to market gas from Wyoming to the west is a function of capacity for Wyoming-produced gas to reach western markets, the availability of other competing supplies to reach western markets, and the size of western markets.  The related applications of Jordan Cove and Pacific Connector “go to the heart of the third variable.”

Under current conditions, Jordan Cove and Pacific Connector represent an “important and unique opportunity for increased natural gas production in Wyoming, and potentially an important market stabilization opportunity as well.”  These opportunities are directly the product of “making international markets accessible to Wyoming-produced natural gas for the first time.”

Next, the State of Wyoming charged that the Commission improperly conflated the “benefits” test under the Certificate Policy Statement with a showing of “need” in order to demonstrate benefits.  The two are not and should not be synonymous.  The Commission “ignored not only the evidence of substantial public benefits in the record from the WPA and the State of Wyoming, but additional evidence of public benefits from, among others, Ninth District State Representative Caddy Hanen McKeown and Douglas County Commissioner Susan Morgan.”  The potential for increased employment in Wyoming along with increased tax and royalty income to the State and its local governments were not adequately taken into account.

Just as Jordan Cove/Pacific Connector argued in their rehearing petition, Wyoming similarly asked the Commission to recognize “the inherently more difficult nature of international negotiations for energy products,” especially given the recent extreme volatility in domestic natural gas markets and international LNG markets.  Project applicants should be afforded additional time to develop a record to potentially support a finding of public benefits in excess of adverse impact by reopening the record in these dockets for a specified period of time.

The Commission previously granted generous additional time for a project proponent to procure market support.  In Docket CP06-19, et.al, for example, the Commission had granted Windy Hill Gas Storage, LLC a certificate to construct and operate a gas storage facility in eastern Colorado.  It won extensions over a period of 9 years before the certificate was vacated.  It is reasonable to the State of Wyoming that a project with the international marketing complexity of Jordan Cove and the related Pacific Connector Pipeline receive more than 34 months to demonstrate market support during the application phase of a project.

Equally compelling to Wyoming’s regulators is the circumstance of the LNG Development Co., LLC’s Oregon LNG project (CP09-6, CP09-7), an import-only LNG facility and appurtenant interconnected pipeline facilities proposed in October 2008.  The Commission staff has yet to issue its FEIS (final Environmental Impact Statement) on the project.  Accordingly, if an import-only LNG project has been pending for nearly eight years, the Commission “has abused its discretion and acted arbitrarily and capriciously” in denying Pacific Connector’s certificate application at less than three years, without affording it additional time to obtain the necessary precedent agreements.

“While the public benefits balancing test gives the Commission much latitude, the Commission must recognize the inherent complexities surrounding the Jordan Cove project.  The Commission should not treat this project as a run-of-the-mill request for approval.”

Instead, argued the State, the Commission should take proper note of the project’s unique characteristics, which involve both a greenfield pipeline and LNG export facility, and the project’s critical reliance on international commitments.  “These complexities mandate greater, not less, flexibility than the Commission accorded in this instance.”

At least, the Commission is obligated to articulate a “principled rationale for its dramatically different treatment” of Jordan Cove and Pacific Connector as contrasted to Windy Hill.   The Commission could have imposed less drastic remedies (including appropriate conditioning).

In this proceeding, the Wyoming petition expanded, “the Commission’s reliance on lack of precedent agreements and other indicia of ‘expressions of interest’ in the Pacific Connector as the grounds for dismissing the project applications is a classic example of application of ‘secret law’ frowned upon by the Court of Appeals.  (Williston Basin Inter. Pipeline Co. v. FERC, DC Circuit).  In this regard, the Commission’s reliance on Turtle Bayou Gas Storage Co., LLC  is seriously misplaced.  In Turtle Bayou, the applicant sought a certificate for a gas storage project which would require the use of eminent domain authority “to obtain virtually all of the property rights needed for the project from unwilling property owners.”  Such is most certainly not the case here, declared Wyoming.

Among other things, the Wyoming petition argued finally, the Commission generally does not require the same showing of “need” for LNG export facilities as it requires for interstate pipeline certificates under section 7(c).  In this case, the Commission’s determination respecting Jordan Cove’s section 3 application was impermissibly influenced by factors improperly relied upon as the basis for rejection of Pacific Connector’s certificate application.

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[1]    AltaGas halted development of the 500,000 tonne per year Douglas Channel LNG project in Kitimat, B.C., after failing to find buyers, while Royal Dutch Shell postponed an investment decision until later this year on its LNG Canada project that could scale to 2.4 million tonnes a year of LNG.  A Petronas-led Pacific NorthWest LNG project is undergoing study of its potential environmental impacts.

[2]   Wellinghoff also had voted against NorthernStar Natural Gas Inc.’s proposed Bradwood Landing LNG facility on the Columbia River in Clatsop County, near Astoria, which was approved by FERC in 2008.

[3]  The Jordan Cove import project, a limited partnership of an affiliate of Alberta-based Fort Chicago Energy Partners LP and Energy Projects Development LLC, was conceived at the time to provide up to 1 Bcf/d of regasified LNG to customers in the Pacific Northwest and California.   The Pacific Connector had entered agreements with 7 customers for the full capacity to be operated by a limited partnership of Williams Pacific Connector Gas Pipeline LLC, PG&E Strategic Capital Inc. and an affiliate of Fort Chicago Energy Partners, Fort Chicago LNG II US LP.

[4]  The Council cited Jordan Cove LNG estimates that there will be approximately 2,100 new family-wage jobs at the peak of construction of the Terminal and 1,400 new jobs at the peak of construction for the Pacific Connector Gas Pipeline.  Construction jobs are estimated to pay more than $80,000 per person per year plus benefits in a region where the average per capita salary is less than $27,000/year.

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