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Bay Takes Broader View of FERC's LNG Jurisdiction

Recently sworn-in FERC Commissioner Norman Bay has articulated a broader view than other commissioners related to the body's authority over liquefied natural gas (LNG) facilities under the Natural Gas Act (NGA) in partial dissent to a recent Commission order.

"The Energy Policy Act of 2005 'explicitly provides the Commission with exclusive authority over LNG terminals subject to our [NGA] Section 3 jurisdiction'..." Bay wrote. "The majority acknowledges that, in doing so, Congress employed 'a very broad definition of LNG Terminal'...namely, 'all natural gas facilities located onshore or in state waters that are used to receive, unload, load, store, transport, gasify, liquefy, or process natural gas' that is imported to, or exported from, the United States, or 'transported in interstate commerce by waterborne vessel.'"

Shell U.S. Gas & Power LLC had petitioned the Federal Energy Regulatory Commission to declare that two LNG projects are non-jurisdictional under NGA [RP14-52]. The company plans to install a liquefaction unit at its Sarnia Manufacturing Centre on the shore of Lake Huron in Sarnia, ON, to import LNG into the United States via truck, train and waterborne vessel to fuel vehicular and non-vehicular uses. The company also plans to engage in ship-to-ship transfer as well as ship-to-shore transfer of Canadian LNG using a planned docking facility in Detour, MI.

Additionally, Shell plans to construct a liquefaction unit at its Geismar Chemical Plant along the Mississippi River in Geismar, LA. It would liquefy domestic gas to be loaded onto waterborne vessels and transported to other vessels to be used as fuel, or to onshore storage facilities in other states for subsequent transfer to other waterborne vessels for use as fuel, or to trucks or trains for transport to fueling facilities.

The Commission majority rejected the vehicular exemption argument, but nevertheless approved the Shell exemption. “We find herein, for reasons that do not rely on the exemption provided by NGA section 1(d) for vehicular gas, that Shell will not need to apply to the Commission for authorization under NGA section 3 or section 7 for any of its planned facilities and activities.”

Bay concurred with the majority determination that the activities proposed by Shell do not fall within the jurisdictional exemption created by section 1(d) of the NGA. That section provides an exemption from jurisdiction for the transportation and sale of natural gas by otherwise non-NGA-jurisdictional persons if the gas will be used as vehicular fuel. Shell had asserted that the Commission has interpreted section 1(d) to also exempt other non-vehicular end uses of gas, and as a result, Shell argued that all the activities and facilities described in its petition should be NGA-exempt, according to the order.

But Bay dissented from the majority in its interpretation of Commission jurisdiction under Sections 3 and 7.

"It is beyond dispute that Shell's proposed Canadian project will involve facilities that will 'receive,' 'unload' and 'store' 'natural gas that is imported [from Canada] to the United States,'" Bay wrote.  "Similarly, the proposed Geismar project would 'receive' and 'liquefy' natural gas and then load it on to 'waterborne vessels' for 'transport in interstate commerce'...Nonetheless, the majority finds that neither involves an 'LNG terminal' within the meaning of section 2(11) of the Natural Gas Act...That conclusion cannot be squared with the plain language of the Act."

Bay argued that the majority opinion is based partly on the fact that the Commission "has generally limited its jurisdiction under Section 7" of the NGA "to facilities that send or receive natural gas by pipeline. But section 7 speaks of the Commission's jurisdiction over 'transportation facilities,'" Bay wrote. "Section 2(11) defines 'LNG terminals' to include 'all natural gas facilities,' not merely natural gas 'transportation facilities.'

"...[H]ad Congress intended a more limited approach it could have used the language of Section 7 in Section 3."

With regard to the planned Geismar facility, Bay argued that FERC authority extends to all natural gas facilities in which gas is transported in interstate commerce by waterborne vessels, not merely when it involves interstate delivery to a facility that is connected to a pipeline (intrastate or interstate), as was the majority's interpretation.

"While one might debate the relative policy arguments for or against a finding of FERC jurisdiction, we are constrained, as we should be, by the language of the statute," Bay wrote. "Here, I believe the plain meaning of the statute compels a different result."

Bay, whose nomination to the Commission had been opposed by Republicans, was sworn in at the Commission last month (see Daily GPIAug. 4); by virtue of a political deal made during the vote on his confirmation by the U.S. Senate, he is slated to take over as chairman next spring (see Daily GPIJuly 15).

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