Cheniere says an EPA rule hurts Ukraine response. EPA says Cheniere made a risky bet and lost.

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"It was an unusual solution to an unusual problem, said Gary Kruse, who tracks policies affecting the energy industry for the firm Arbo. He said he expects the EPA will work to make case-by-case exceptions to companies based on “good faith efforts” to comply.

“For the Biden administration to force Cheniere to reduce shipments at this critical time, coming into the winter, given what is going on in Ukraine and Europe,” he said, “it would be very harmful for all kinds of reasons.”

 


 

New emissions limits on formaldehyde and other toxic pollutants are shaking up the energy industry at a time when it is running full-steam ahead to send supplies to Europe.

In letters and emails between the Environmental Protection Agency and Cheniere Energy’s attorneys, the Houston company argues the agency’s new limits are poorly timed and unnecessary given the “minimal” risks associated with its emissions. (The EPA’s formaldehyde limit is set to 91 parts per billion; symptoms such as watery eyes, burning throat and wheezing are associated with breathing in levels exceeding 100 parts per billion.)

The dangerous chemical is prevalent in society — car exhaust is the main culprit — and is also emitted by the kinds of gas-powered turbines Cheniere uses at its LNG facilities in Texas and Louisiana. The turbines are also used by power plants, chemical facilities and by pipeline companies at compression stations.

The liquefied natural gas giant made a bet when it built its facilities using the questionable kind of gas-powered turbines that emit formaldehyde at levels in violation of the new rule, the EPA said. It lost. Now, Cheniere is leveraging its outsize role in supplying gas to Europe to fight the rule.

“Potentially imposing significant costs and operational disruption on the U.S. LNG industry at the same time the administration is focused on Europe’s strategic need to break its reliance on Russian gas is counterproductive,” a Cheniere attorney said in a letter addressed to EPA Administrator Michael Regan.

The EPA initially exempted the type of gas-powered turbines Cheniere uses in a stay of enforcement when the formaldehyde limits were set in 2004. The grounds: The agency at the time aimed to remove the category of turbine from the rule, preferring to regulate the turbines with “site-specific demonstrations” of safety. But that effort failed in 2007 when courts ruled it did not have the authority to offer the exception.

Still, the stay of enforcement — intended to be temporary — remained in place for another 15 years until earlier this year, when the EPA dropped the stay, citing a lack of legal standing for extending it any longer.

“Turbine owners and operators have known since the 2007 decision that the basis for the stay was in question,” the EPA said during a comment session after it decided in March to remove the stay.

The tighter formaldehyde limits now apply to 250 turbines in the U.S. that had been exempt under the stay since 2004, including 62 at Cheniere’s Sabine Pass and Corpus Christi facilities, the majority of whose cargoes are bound for Europe. The EPA gave companies until September to comply.

It was an unusual solution to an unusual problem, said Gary Kruse, who tracks policies affecting the energy industry for the firm Arbo. He said he expects the EPA will work to make case-by-case exceptions to companies based on “good faith efforts” to comply.

“For the Biden administration to force Cheniere to reduce shipments at this critical time, coming into the winter, given what is going on in Ukraine and Europe,” he said, “it would be very harmful for all kinds of reasons.”

The rule change took an unusual course because of the decades-long stay, Kruse said. Typically when a change of this magnitude is made, existing turbines would have more time to comply even as new turbines coming online must immediately comply.

Cheniere may be the loudest but is not the only company balking at the change. Pipeline companies Williams Cos. and TC Energy of Canada have filed a joint petition with the U.S. Court of Appeals to review the decision.

“Unfortunately the rule creates some significant operational uncertainty at a time when Russia’s invasion of Ukraine has shaken global energy markets and threatens to disrupt energy supply to Europe, where U.S. LNG has a significant role to play in providing reliable supplies of natural gas,” Scott Segal, partner of the Houston law firm Bracewell on Cheniere’s behalf, said in a March email to the EPA.

In a follow-up email nine days later, Segal poked the energy elephant in the room. He said he “couldn’t help but notice” that President Joe Biden planned to make an announcement about increasing LNG exports to Europe.

“Resolving this regulatory uncertainty seems consistent with that goal,” he wrote.

Jeffrey Jacoby, deputy director of the Texas Campaign for the Environment, said it’s evidence of how the energy industry believes “they’re above the law.”

“This,” he said, “is an example of the LNG industry taking advantage of the geopolitical moment to get whatever they want.”

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