EPA Regulation Threatens Operations at Cheniere’s LNG Terminals and Could Impact Pipelines

Originally published for customers July 13, 2022.

What’s the issue?

On March 9, the EPA lifted a stay on the effectiveness of a regulation that was first issued in 2004.

Why does it matter?

The regulation at issue required certain types of new or reconstructed stationary combustion turbines to meet a formaldehyde limit of 91 parts per billion by volume, dry basis. Compliance must be demonstrated through initial and annual performance testing and continuous monitoring of operating parameters. Since 2004, a number of these types of turbines have been installed around the country that did not meet this standard and relied on the stay of enforcement that was in place. With the lifting of the stay, the EPA gave the owners of those turbines just 180 days to come into compliance with the regulations.

What’s our view?

Cheniere has over 62 of these turbines operating at its LNG facilities at Corpus Christi and Sabine Pass and according to press reports has requested an exemption from the regulations to avoid having to shut down those facilities when the LNG they are producing is most needed in Europe. But Cheniere is not the only company with such turbines, and TC Energy and Williams have jointly appealed the decision to lift the stay to the DC Circuit. The EPA appears prepared to provide some relief from the regulations on a case-by-case basis but is unlikely to reimpose the former stay, so companies will likely need to negotiate individual stays of enforcement to continue operating these turbines.

 


 

On March 9, the Environmental Protection Agency (EPA) lifted a stay on the effectiveness of a regulation that was first issued in 2004. The regulation at issue required certain types of new or reconstructed stationary combustion turbines to meet a formaldehyde limit of 91 parts per billion by volume, dry basis. Compliance must be demonstrated through initial and annual performance testing and continuous monitoring of operating parameters. Since 2004, a number of these types of turbines have been installed around the country that did not meet this standard and relied on the stay that was in place. With the lifting of the stay, the EPA gave the owners of those turbines just 180 days to come into compliance with the regulations.

Cheniere has over 62 of these turbines operating at its LNG facilities at Corpus Christi and Sabine Pass and, according to press reports, has requested an exemption from the regulations to avoid having to shut down those facilities at a time when the LNG they are producing is most needed in Europe. But Cheniere is not the only company with such turbines and TC Energy and Williams have jointly appealed the decision to lift the stay to the DC Circuit. The EPA appears prepared to provide some relief from the regulations on a case-by-case basis, but is unlikely to reimpose the former stay, so companies will likely need to negotiate individual stays of enforcement to continue operating these turbines.

 

The EPA Regulation

In 2004, the EPA issued regulations that limited the amount of hazardous air pollutants that could be emitted from eight classes of stationary combustion turbines. However, in response to industry arguments at the time, the EPA also proposed to delist lean premix gas-fired turbines as well as three additional subcategories of turbines: diffusion flame gas-fired turbines, emergency turbines, and turbines located on the North Slope of Alaska. While it considered this delisting, the EPA stayed the effectiveness of the regulations for new lean premix gas-fired and diffusion flame gas-fired turbines to ‘‘avoid wasteful and unwarranted expenditures on installation of emission controls which will not be required if the subcategories are delisted.’’

The proposed delisting of these subcategories never took place because of a 2007 court decision regarding other EPA regulations relating to hazardous air pollutants that found the EPA had no authority to create and delist such subcategories. In 2019, the EPA revisited the rules relating to hazardous air pollutants from stationary combustion turbines and determined that there was no need to change those standards, but also proposed removing the stay of the effectiveness of the standards for new lean premix and diffusion flame gas-fired turbines. However, when those regulations were finalized in 2020, the stay was left in place to allow EPA time to review comments filed on the proposed removal of the stay, as well as to review information in a new petition that was submitted in August 2019 to delist the entire stationary combustion turbines source category.

That stay remained in effect until March 9 of this year when the EPA issued a final regulation that removed the stay effective as of that day. However, in the original 2004 rulemaking that created the stay, the EPA had indicated that if the subcategories are not ultimately delisted, all sources in the subcategories constructed or reconstructed after January 14, 2003 would be given the same time to demonstrate initial compliance with the emission standards after the stay was lifted as they would have had if there had been no stay, 180 calendar days for the initial compliance demonstration, which would be September 5, 2022.

Despite numerous comments indicating to the EPA that compliance within such a short period of time would likely be impossible for all owners of such turbines that had been installed during the stay period, the EPA refused to establish a special administrative noncompliance procedure for this action. Instead, for a source that fails to comply with the applicable requirements once the stay is lifted, the “EPA will determine an appropriate response, if any, based on, among other things, the good faith efforts of the source to comply.”

 

Reports of Issues for Cheniere

As far back as April of this year there were press reports indicating that Cheniere had petitioned EPA Administrator Michael Regan for additional time to bring its facilities into compliance with the new regulations because the 180 days was simply not long enough given the complex technical and engineering issues presented. In press reports last week, the situation was painted as being even more dire in that Cheniere could be forced to reduce shipments of LNG for months or maybe years without relief from the 180-day compliance period. A decision that reduced shipments of LNG by Cheniere would be especially surprising given the Biden administration’s recent promises to help Europe reduce its dependency on Russian gas, particularly this winter, by providing it with U.S.-produced LNG.

 

Cheniere is Not Alone

The data relied on by the EPA to assess the impact of lifting the stay, however, shows that while Cheniere certainly owns the most turbines that would be impacted, it is far from alone.

 

Chart-3

 

As seen above, there are a number of other companies, especially pipeline companies, that have a significant number of turbines that will likely need to be made compliant with the new rules according to the EPA’s own data. The companies shown above have subsidiaries that, combined, operate 80% of all of the turbines that will need to become compliant.

 

TC Energy and Williams Have Appealed the Decision

While Cheniere may be most impacted by the EPA decision, it did not appeal that decision, but two of the impacted pipeline companies did. Transcanada Pipeline USA, TC Energy’s U.S. subsidiary, and The Williams Companies jointly appealed the EPA decision to lift the stay on the effectiveness of the regulation. The two companies challenged not only the decision to remove the stay but also the 180-day compliance period, which they characterized as “an infeasible amount of time to receive approval from EPA on operating limits and complete the requisite testing.”

 

The Paths Forward

It is interesting that Cheniere has not appealed the decision. That may be an indication that it believes it can work with the EPA administrator to develop “an appropriate response, if any, based on, among other things, the good faith efforts of the source to comply.” Such a plan would likely need to include a detailed plan with enforceable timelines for the various actions needed to demonstrate compliance.

The two companies that appealed the EPA’s decision have not yet requested the court to impose a stay on the effectiveness of the regulation. That may be an indicator that they are also working with the EPA to develop a compliance plan, or that the need to shut down some turbines while they get them into compliance will not be as critical to their operations as such a shutdown would appear to be for Cheniere.

All 62 of Cheniere’s turbines are located at just two of its facilities and 54 of them appear to be directly involved with the process for cooling the LNG, while the other eight appear to be used for power generation. Conversely, the turbines owned by Williams and TC Energy are scattered among various subsidiaries they own and even across various locations of those subsidiaries, so they may be able to work more easily without such turbines while they demonstrate compliance. However, it will be worth watching to see how all of the companies with a large number of such turbines deal with this newly imposed requirement on their operations.

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