Originally published for customers May 24, 2024.
What’s the issue?
The Commission had a quiet open meeting yesterday, apart from some interruptions from protestors. The most notable gas order authorized a construction and operation extension for the Gulf LNG terminal. Commission staff also conducted a presentation on the 2024 summer energy market and electric reliability assessment.
Why does it matter?
Construction and operation extension requests for LNG terminals are particularly important in light of the Department of Energy’s (DOE) pause on granting authorizations for export to non-Free Trade Agreement (non-FTA) countries, as corresponding extensions to these authorizations are often also necessary. The 2024 summer energy assessment is useful for predicting natural gas demand, pricing, and potential grid constraints.
What’s our view?
Extensions of construction and operation authorizations for LNG terminals are relatively common at the Commission, ranging from one to seven years. While Gulf LNG obtained its extension, it will likely also require an extension from DOE for its non-FTA authorization, which injects some delay risk given DOE’s recent LNG pause, heightened standard for granting extensions, and a presidential election on the horizon. The 2024 energy outlook forecasted lower natural gas prices, slowing but stable demand, and regional reliability issues.
The Commission had a quiet open meeting yesterday, apart from some interruptions from protestors. The most notable gas order authorized a construction and operation extension for the Gulf LNG terminal. Commission staff also conducted a presentation on the 2024 summer energy market and electric reliability assessment.
Construction and operation extension requests for LNG terminals are particularly important in light of the Department of Energy’s (DOE) pause on granting authorizations for export to non-Free Trade Agreement (non-FTA) countries, as corresponding extensions to these authorizations are often also necessary. The 2024 summer energy assessment is useful for predicting natural gas demand, pricing, and potential grid constraints.
Extensions of construction and operation authorizations for LNG terminals are relatively common at the Commission, ranging from one to seven years. While Gulf LNG obtained its extension, it will likely also require an extension from DOE for its non-FTA authorization, which injects some delay risk given DOE’s recent LNG pause, heightened standard for granting extensions, and a presidential election on the horizon. The 2024 energy outlook forecasted lower natural gas prices, slowing but stable demand, and regional reliability issues.
The main gas orders of consequence at the Commission meeting were one granting Gulf LNG’s extension request to construct and operate its facilities, and another granting the Rio Bravo Pipeline Project (Rio Bravo) authorization to amend its certificate to account for minor route adjustments. For our purposes today, we focus primarily on the former, as these extensions for LNG facilities can have a domino effect that increases risk of delay.
Gulf LNG requested an extension on February 22, 2024 to delay the project completion to July 16, 2029, citing global events, the COVID-19 pandemic, and complex litigation as challenges. Public Citizen, Inc. protested, arguing that the companies have not demonstrated good cause for an extension.
The Commission examines whether a project has demonstrated “good cause” for an extension on a case-by-case basis. A common way project sponsors show this is by demonstrating good faith efforts to meet the deadline despite encountering circumstances beyond its control. In this case, despite the pandemic, the Commission found good cause based on the project's advancement in seeking long-term offtake partners, securing most federal, state, and local approvals, progress toward obtaining the remaining approvals, and concrete steps towards construction, such as finalizing the engineering design.
For further context, we looked back over previous LNG projects and found that extension requests are relatively common, which is not particularly surprising given the myriad of potential intervening circumstances that can change timelines for projects this complex and costly. A few projects needed multiple extensions, and requests ranged from one year to seven years as you can see in the chart below.
What has changed recently is the impact of extension requests in light of DOE’s recent non-FTA policy changes. Turning back to Gulf LNG, it received its DOE non-FTA authorization on July 31, 2019, and like many others, is required to commence operation within seven years of this date — by July 31, 2026, which is well before the new project completion date. Additionally, as detailed in DOE Changes Rules on LNG Export Licenses, But Will It Matter?, DOE’s new policy on extensions requires showing real physical progress on the project’s construction. There is a good chance Gulf LNG will need an extension of its non-FTA authorization, and the new standard, combined with DOE’s non-FTA authorization pause, the upcoming presidential election, and potential resulting changes to policy on new export authorizations, injects some significant uncertainty with respect to whether Gulf LNG could obtain one.
In other gas orders, the Commission granted the Rio Bravo Pipeline Project (Rio Bravo) authorization to amend its existing certificate to account for four minor route adjustments. We discussed the associated Rio Grande LNG project in our previous article “Juuuuust a Bit Outside” — Recent LNG Curveballs focusing on the recent oral arguments. Unsurprisingly, Commissioner Clements dissented to this Rio Bravo order, rehashing the major arguments from the Rio Grande LNG orders — insufficient opportunity for the newly identified environmental justice (EJ) communities leading to an unsupported determination of project need. In her view, “because the certificate itself is invalid, any amendment to the certificate is invalid.” Clements also asserted that the order fails to consider significant adverse air pollution impacts.
In the remaining two gas orders, the Commission authorized Port Arthur Pipeline, LLC to amend its existing certificate to modify the pipeline route and construction methods at specific locations, and rejected a challenge to the restoration and remediation plan for two tracts of land impacted by the NEXUS Project.
In summary, the presentation on the summer 2024 energy outlook highlighted that, while there are promising increases in generation capacity, the potential for reliability issues remains significant due to weather impacts, infrastructure changes, and regional challenges. In particular, a warmer-than-average forecast is expected to drive up demand for cooling, with the Energy Information Administration projecting a total load increase of 4.4% compared to summer 2023.
Looking at the report through a natural gas focus, the bottom line is that prices will be lower and the rate of demand is slowing but stable. Prices are anticipated to be lower due to inventory levels, which are 23% higher than in 2023. Demand growth is forecasted at 1.7%, primarily from export demand, with average export volume of 14 BCF/D, up by 1.4 BCF/D from last summer.
Regarding generation, net summer capacity is forecasted to rise from 1,167 GW to 1,207 GW, with natural gas representing 42% of this total. Notably, battery storage is expected to grow by just under seven GW and could exceed 1% of summer capacity by the end of summer. Additionally, two offshore wind projects, Vineyard and Southfork, are expected to come online in the Northeast.
The outlook also identified a few regional reliability issues. In the Southwest and New England, NERC highlighted shortfalls due to the loss of dispatchable resources, even though there have been gains in wind capacity, which is variable. Texas is experiencing load growth, with new solar capacity being added, but there remains a risk of insufficient supply during evening hours. In the Southwest, drought conditions and lower snowpack levels could impact hydro generation while also increasing cooling demand.
Beyond regional issues, the summary also highlighted that supply chain disruptions and critical equipment shortages are ongoing concerns. Natural gas has an advantage here with so much infrastructure already in place. Finally, as we have discussed, data center load growth in primary markets could strain resources further.