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NGSA, INGAA File In Support of FERC Jurisdiction Over LNG Terminals

The U.S. needs to "speak with one voice" when it comes to approving and regulating liquefied natural gas (LNG) import terminals, and that "one voice" is found in the federal government, two gas industry associations told the U.S. Court of Appeals for the Ninth Circuit Wednesday in an amicus brief filed in support of FERC in its jurisdictional battle with the California Public Utility Commission (CPUC).

The Natural Gas Supply Association, which represents the nation's major producers, and the Interstate Natural Gas Association of America, said if LNG regulations fall under state control then desparately needed infrastructure might not be built and essential gas supply might not be available to U.S. consumers.

"A decision by a state to delay or reject a facility that could import a large amount of natural gas will have impacts on the natural gas market not only within that state but across the nation," they said. "Uniform federal regulation is critical to avoid patchwork regulation and the detrimental effects of such disparate regulation on compliance and operating costs, competition and consumer prices."

The case involves the 700 MMcf/d Long Beach LNG terminal proposed by Mitsubishi subsidiary Sound Energy Solutions and ConocoPhillips. In 2004, FERC denied the CPUC's claim of sole jurisdiction over the proposed terminal in the Port of Long Beach and asserted its own "exclusive" jurisdiction over the terminal under Section 3 of the Natural Gas Act (NGA). "Because importing LNG is a matter of foreign commerce, not intrastate commerce, importing LNG is subject to federal, not state, control," the FERC order said [CP04-58].

It noted that states and other federal agencies are responsible for providing certain permits, approvals and licenses, and the Commission also pledged to "work cooperatively" with the CPUC and other state and local authorities to "protect the safety of residents and minimize adverse environmental impacts" associated with the project.

FERC Commissioner Joseph Kelliher recently warned that the "biggest threat" to the development of new LNG import terminals in the United States is the CPUC's challenge to FERC's jurisdiction.

The associations told the court last week that the CPUC's assertion of jurisdiction creates "precisely the sort of regulatory uncertainty that can delay or even prevent the siting of new import terminals and discourage the substantial capital investment required to develop an LNG project to bring supplies to the United States.

"The risk of inconsistent state siting decisions, delays in siting decisions or state rejection of sites will place the United States at a significant disadvantage vis-a-vis other countries when competing for gas supplies in the worldwide LNG market."

The associations noted that North America currently is experiencing extremely high gas prices because gas demand is outpacing supply. Increased imports of LNG are widely viewed as a significant component of any solution to the current supply-demand imbalance. Ninety-six percent of the world's proven natural gas reserves are located outside North America, NGSA and INGAA noted.

In light of the more than 50 proposed LNG import terminals in North America, the U.S. Energy Information Administration has projected that LNG could make up 21% of U.S. gas supply by 2025.

"In order to meet demand, the United States needs to construct, expand and operate more LNG import terminals to bring natural gas to this country," NGSA and INGAA said. "A uniform and coordinated national policy is indispensable to facilitate the construction of this critical infrastructure."

They noted that FERC or its predecessor agency has regulated LNG for several decades. "When Congress amended NGA Section 3 in 1992, it gave no indication that it intended -- as CPUC claims -- to alter the previously unquestioned authority of FERC to regulate LNG import facilities. Clear federal authority to regulate LNG in foreign commerce existed before the 1992 amendments and still exists today. That authority preempted regulation by the CPUC or any other state before [the Environmental Policy Act] and does so now."

The associations noted that the states have significant authority over LNG terminals through the Clean Water Act, the Clean Air Act and the Coastal Zone Management Act, which give them authority to reject an LNG project if it does not meet their "consistency" requirements.

"The CPUC's contentions present a direct challenge to FERC's ongoing regulation of import terminals that casts a shadow over all FERC onshore regulatory activity to date," NGSA and INGAA said. "If FERC's orders were to be set aside by this court on the grounds the CPUC asserts, longstanding federal programs for review and authorization of the siting, construction and operation of onshore LNG import terminals could be gravely impaired if not eliminated..."

A court decision in the case isn't expected for several months.

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