Originally published for customers April 6, 2022
What’s the issue?
On March 31, New Fortress Energy announced that it had filed applications with the U.S. Maritime Administration, the U.S. Coast Guard and the U.S. Department of Energy to request all necessary permits and regulatory approvals to site, construct and operate a new offshore LNG liquefaction terminal off the coast of Louisiana with a capacity of exporting approximately 145 billion cubic feet of natural gas per year, equivalent to approximately 2.8 million tons per annum of LNG. The announcement also noted that the company anticipated it could begin commercial operations as early as the first quarter of 2023.
Why does it matter?
With the continuing war in Ukraine and Europe’s desire to wean itself from Russian gas, the ability to quickly ramp up additional supplies of LNG will be critical. After Calcasieu Pass completes construction, the next anticipated increase in U.S. export capacity is the Golden Pass terminal, with trains starting up in late 2024 and early 2025, so the creation of additional capacity as early as 2023 would be significant.
What’s our view?
While there is certainly an incentive for the U.S. to quickly bring additional LNG capacity online to assist Europe, our review of the regulatory process that is required for approval of this new facility raises substantial doubt about its ability to be operational in less than one year following the filing of its application for a license. In fact, it seems commercial operation in early 2024 would be challenging unless much of the construction work can be done on land and in parallel with the regulatory review process.
On March 31, New Fortress Energy (NFE) announced that it had filed applications with the U.S. Maritime Administration (MARAD), the U.S. Coast Guard and U.S. Department of Energy to request all necessary permits and regulatory approvals to site, construct and operate a new offshore LNG liquefaction terminal off the coast of Louisiana with a capacity of exporting approximately 145 billion cubic feet of natural gas per year, equivalent to approximately 2.8 million tons per annum of LNG. The announcement also noted that the company anticipated it could begin commercial operations as early as the first quarter of 2023.
With the continuing war in Ukraine and Europe’s desire to wean itself from Russian gas, the ability to quickly ramp up additional supplies of LNG will be critical. After Calcasieu Pass completes construction, the next anticipated increase in U.S. export capacity is the Golden Pass terminal, with trains starting up in late 2024 and early 2025, so the creation of additional capacity as early as 2023 would be significant. While there is certainly an incentive for the U.S. to quickly bring additional LNG capacity online to assist Europe, our review of the regulatory process that is required for approval of this new facility raises substantial doubt about its ability to be operational in less than one year following the filing of its application for a license. In fact, it seems commercial operation in early 2024 would be challenging unless much of the construction work can be done on land and in parallel with the regulatory review process.
Regulatory Oversight
Unlike land-based LNG terminals that must be approved by FERC, such facilities located in waters beyond the territorial limits of the states are regulated under the Deepwater Port Act of 1974 (DWPA), which designates the Secretary of Transportation as the person responsible for approving any applications. In 2003, the Secretary of Transportation delegated the authority for processing such applications to the administrator of MARAD. MARAD has issued decisions in only eight of the twenty-five applications that have been filed with it.
Anyone familiar with the lengthening timelines at FERC will understand how seemingly amazing NFE’s proposed commercial operation date is. Our data shows that for FERC-regulated LNG terminals, the median timeline for a decision on an application is over two years and from application to commercial operation is over five years. Proposing to be operational within one year following the filing of an application is therefore simply astonishing.
However, the DWPA has one key feature missing from the Natural Gas Act and that is time limits on the review period for an application. The DWPA provides that when an application is filed, the agency must review it for completeness within twenty-one days and if it finds that the application is complete, it must publish notice of the application within five days. Following publication of the notice, the agency must complete all public hearings within 240 days and must issue its record of decision (ROD) within ninety days following that. Therefore on its face, the DWPA obligates MARAD to issue a decision by April 1, 2023. However, even if it abided by that timeline, that would leave no time at all for the actual construction of the facility. And as we discuss below, MARAD almost never abides by these statutory deadlines.
Did Someone Say Deadline?
The first deadline applicable to MARAD’s review is the twenty-one days it has following receipt of an application to determine whether it is complete. The key variable in this deadline is a decision that the application is not complete, which means the applicant must submit additional information and then the twenty-one days begin upon the date the supplemental information is provided. Looking at the historic timelines, this means the actual median time from when an application is received to when it is deemed complete is 65 days, more than three times the statutory limit. Following its determination that an application is complete, MARAD has five days to publish notice of the application. Even here, the history shows MARAD fails to meet this deadline, with the median being thirteen days. Again about three times what the statute allows.
The publication of the notice starts the next two deadlines, which requires all public hearings to be concluded within 240 days of the notice’s publication, and following the last public hearing ninety days for the issuance of the ROD, or a combined maximum of 330 days from the notice to the decision. This is where MARAD uses a trick not mentioned anywhere in the statute but is one that has been used by both Democratic and Republican administrations to avoid the statutory deadline. While it is reviewing an application, MARAD and the Coast Guard will often issue a letter referred to as “stop clocks,” which “suspends” the 240 day review period until a “start clock” letter is issued. MARAD states that some of the reasons for issuing a stop clock letter include inadequate information regarding: project financing; proposed re-gasification and liquefaction technologies; fisheries analysis; air quality review; endangered species consultations; marine habitats; and cultural resources.
These stop clocks were even issued during the Trump administration that prided itself on promoting the U.S. energy industry and on the speed with which its agencies acted. That administration was asked to review two crude export terminals, with application dates in May 2019, which according to the statute should have been completed before the Biden administration took office. However, on November 7, 2019 with respect to the Bluewater Texas Terminal, MARAD stopped the clock because it deemed the applicant’s response to a number of information requests to be incomplete. The clock was not started until a letter was sent on January 8, 2021. While there have been no further stop clocks issued by the Biden administration, the application remains pending almost three years after it was filed. The second export terminal, Texas GulfLink, suffered a similar fate with a stop clock letter issued on November 8, 2019 on similar grounds. Its clock was restarted on April 27, 2020, but then stopped again on September 15, 2020 and restarted on November 10, 2020. But this application also remains pending almost three years after it was filed. Neither project has even received its Final Environmental Impact Statement, which is typically required before the last public comment period concludes.
History Says NFE is Certainly Optimistic
If we look at the history of the timeline for MARAD’s review of projects under the DWPA, it would appear that NFE is being very optimistic about the fact that MARAD will actually comply with the timelines in the statute, and perhaps even beat them.
As seen above, the combined median time period from application to issuance of the notice and from the notice to the ROD is over 500 days. But even that time period does not allow the start of construction, because the license to construct based on the ROD must still be issued. As shown above, the decision process adds about ninety more days to the timeline — meaning just for the MARAD process, based on historical norms, NFE is more realistically looking at a decision in November 2023 and not the first quarter of 2023. Even if it can build most of the facility onshore while it waits for the review of its license to construct in offshore waters of the U.S., the MARAD review time alone most likely takes it beyond 2023.
But the Project Also Will Need Gas
NFE did not specify how it intends to source the almost 400,000 dth/day of gas that the facility will need for its operations. It did indicate that it had signed an agreement with a pipeline for the needed capacity. Based on the location of the project, we suspect that the pipeline it will be connecting to is Kinetica Energy Express, which connects onshore with Tennessee Gas Pipeline. If Kinetica Energy Express needs to construct an offshore interconnect, it will need FERC approval to do that. If such an interconnection can be constructed for less than $13.1 million, then Kinetica could simply construct it under its blanket certificate and inform FERC about it in its annual report of blanket certificate activities. However, if the interconnection will cost more than $13.1 million, then even under Kinetica’s blanket certificate it would need to file a prior notice of the activity with FERC.
As we discussed in Are Intrastate Pipelines the Future?, the risk of prior notice activities is that environmental groups will object to some aspect of the project and FERC will determine it needs to complete a full Environmental Impact Statement for the project. Thus, even if the terminal that NFE is building can avoid FERC jurisdiction by being built offshore, its gas supply may be subject to delays due to the review of any required interconnection unless the cost of that interconnection is less than $13.1 million.
We will be following the process at MARAD and seeking to conclusively identify the pipeline to which the terminal will be connecting to help our customers determine when this project is likely to be operational, but for now we think first quarter 2023 seems pretty aggressive.