Talk of the Town - An LNG Audit and FERC and PHMSA Coordination
The growing interest in LNG isn’t purely commercial. The industry has become the subject of legislation, such as the Senate’s LNG Permitting Certainty and Transparency Act, as well as regulatory efforts, including, primarily, a Memorandum of Understanding (MOU) between FERC and PHMSA to improve project review time frames and safety at existing and future facilities. As a surprise to many, PHMSA recently announced in a broadly phrased issuance that it has initiated an audit of the oversight of LNG facilities.
This announcement comes several months after FERC and PHMSA executed the MOU. As we discussed in Second Wave LNG Schedules Trumpeted by FERC - Smooth Sailing Ahead? , with a significant year over year increase in the number of LNG projects filed at the FERC, the effort to drive efficiencies in the review of LNG projects could not have come at a better time. But with PHSMA recently releasing LNG project letters of determination outside the agreed upon time frames, legitimate questions remain about whether actions tied to the MOU will fall short of industry expectations. And, while more needs to be learned about the scope of the audit, it’s possible that it will lead to new regulations, which haven’t been revised substantively in decades, to account for the expected increase in U.S. export terminals.
LNG Projects Under FERC Review
MOU Talk Turns into Action
PHMSA’s participation in LNG design review and oversight is not new. And confusion between FERC and PHMSA surrounding the safety review sign-off is also not new. The MOU, although not legally binding, seeks to kick-start a more coordinated process that is designed to eliminate duplicative efforts.
The key feature of the agencies’ coordination efforts will be a Letter of Determination (LOD) issued by PHMSA for each LNG project that confirms to FERC that the facility under review will be in compliance with DOT safety standards. PHMSA’s safety review is intended to inform the environmental review managed by the FERC. Following the receipt of an application for a liquefaction facility, the FERC is to notify PHMSA that it has received the application, and will also inform PHMSA of its planned environmental review completion date. PHMSA will issue its LOD at least 30 days in advance of that scheduled environmental review completion date.
Since the signing of the MOU on August 31, 2018, two projects have been the subject of a LOD, Freeport LNG’s Train 4 Project and UGI LNG’s Temple Truck Rack Expansion Project. The Train 4 Project was scheduled to complete its environmental review on November 2, 2018 per the FERC’s “Notice of Schedule.” PHMSA issued an LOD on October 4, but it was not posted until October 12 -- just shy of the 30-day requirement set out in the MOU. UGI LNG’s project, on the other hand, was scheduled to complete its environmental review on Sept 18. The LOD for the Temple Truck Rack Expansion Project both fell short of meeting the 30-day standard and was not issued before the completion of the project’s environmental review.
On the one hand, given that the staff of PHMSA only had 18 days from the MOU to the scheduled issuance of the environmental review, completing the LOD within the 30-day time frame may be understandable. On the other hand, the inability of PHMSA to meet deadlines at the outset doesn’t inspire confidence in the future. But while the kinks are being worked out, LNG stakeholders should watch the ongoing audit for signs that new safety regulations will emerge.
Project Duration Until Notice of Schedule
LNG Audit Audible
It is unclear if the review conducted by PHMSA, and formalized by the MOU, was detrimentally impacting the broad timeline of project review. Liquefaction terminal projects are generally subject to longer and more involved environmental reviews, as they typically involve an environmental impact statement rather than an environmental assessment. On the flip side, it is difficult to say whether PHMSA’s audit, at least at this early stage, will impact the permitting timeline for projects.
If history is any indicator, the latest LNG terminal projects to be placed in-service, (all pre-MOU) -- Temple LNG Liquefaction Upgrade Project and Cove Point Liquefaction -- were the subject of data requests from FERC and supplemental filings seeking details on each facility’s spill mitigation measures. These types of analyses are conducted in an effort to identify the extent of risk in the case of facility failure. And such data requests issued by the FERC, more broadly, may be an indicator that PHMSA was failing to collect the data in a timely fashion during the course of the environmental review.
Similarly, the rationale for PHMSA’s “self-initiated” audit of its oversight was not provided. Upon announcing the audit, PHMSA noted that:
To successfully meet its future challenges, PHMSA will need effective and efficient oversight of these facilities. Accordingly, our objectives for this self-initiated audit are to assess PHMSA’s oversight of (1) LNG facility operators’ compliance with Federal regulations, and (2) States that conduct inspections of LNG facilities.
With the shift from importing to LNG, there may be concerns regarding the extent to which PHMSA’s compliance measures sufficiently address the increasing use of gasification technology. Not to mention that with the increased investment in export terminals, technology is likely changing. It's difficult to say which elements of the dozens of PHMSA’S LNG requirements may be subject to change, especially since they often relate to engineering technicalities. But with the recent effort to coordinate review, any changes in requirements may insert unnecessary uncertainty into the certification and compliance review process.
Insights Coming Soon
- Learnings from this quarters earnings calls
- Payback period on new pipelines