US FERC backs Rio Grande, Texas LNG projects in court appeal

The US Federal Energy Regulatory Commission said a federal appeals court should reconsider its decision invalidating key approvals for the Rio Grande and Texas LNG projects, arguing the ruling was flawed and could set a precedent threatening large-scale energy infrastructure.

The filing by FERC from late Dec. 9 at the US Court of Appeals for the District of Columbia Circuit supported the export developers' requests for hearing by the three-judge panel that decided the case in August or by the full court.

"The procedural errors identified by the panel do not touch on the commission's conclusion, now reached twice, that the Projects are in the public interest," FERC argued. "Nonetheless, the panel vacated the commission's orders. It did so under a legal test that conflicts with precedent and ignores the particular facts of this case."

The project opponents who won the original case, including local and environmental groups, also submitted arguments to the DC Circuit Dec. 9, saying the court should deny the requests for rehearing.

The August ruling marked the first time the DC Circuit has set aside, or vacated, a federal authorization for an LNG export facility (City of Port Isabel, et al., v. FERC, et al., 23-1174).

FERC, like the LNG developers, said the court's ruling conflicts with the approach it has traditionally used drawn from the case Allied-Signal v US Nuclear Regulatory Commission, which weighs the seriousness of the flaws of an order against the disruptive consequences of vacating it. The court has typically declined to vacate a permit when it was "reasonably likely" FERC could fix a procedural error with an environmental review and arrive at the same result.

"The purported errors were not the sort of 'fundamental' failures that would outweigh the disruption vacatur would cause," FERC said.

The three-judge panel determined FERC "erroneously declined to issue supplemental environmental impact statements addressing its updated environmental justice analysis for each project and its consideration of a carbon capture and sequestration system for one of the terminals," referring to a proposed carbon capture and storage project at Rio Grande that NextDecade has since abandoned.

The court also found FERC failed to explain why it chose not to consider air quality data from a nearby air monitor.

In response, FERC said the court's finding about the need for an added environmental review was "unmoored from the record" and departs from court precedent, that the CCS issue is now moot, and that the test applied by the court in deciding to remand and vacate the authorizations conflicts with the traditional framework it has used and "would threaten vacatur in virtually any case involving the National Environmental Policy Act."

The LNG developers argued in seeking rehearing in October that, at a minimum, the court the DC Circuit should clarify that the original authorizations remain in effect for the projects.

FERC issued those approvals in 2019. The DC Circuit in 2021 remanded the approvals back to FERC without vacating them, finding the commission could fix flaws in its climate and environmental justice analyses and reach the same result. FERC reauthorized the projects in April 2023.

The project opponents argued that the DC Circuit's decision in August did not reinstate the 2019 approvals.

The industry is closely watching the case, with proponents of rising LNG exports having described the ruling as creating new regulatory uncertainty that could undermine investor confidence in US permits in addition to threatening both of the projects planned in Brownsville, Texas.

The risks for NextDecade are particularly acute because the developer has already begun major construction work on Rio Grande after commercially sanctioning the phase of the project in 2023, which includes three trains with a combined capacity of about 17.6 million mt/year. The developer is trying to avoid a construction halt on the Texas facility that it has warned could be devastating, saying it is prepared to take the case to the Supreme Court.

NextDecade in a Dec. 10 statement welcomed FERC's response supporting the legal arguments it outlined in its appeal and previous amici briefs filed in October, including by LNG offtakers, that also urged the DC Circuit to grant rehearing.

"We believe we have great support for a hearing en banc," NextDecade spokesperson said.

NextDecade said it hopes to receive a response from the court on its rehearing request by early 2025. Texas LNG developer Glenfarne Energy Transition declined to comment on the Dec. 9 filings.

"A timely decision from the court on this is really what everyone is hoping to see," Charlie Riedl, executive director for the Washington-based trade group the Center for Liquefied Natural Gas, said, adding that FERC's support "only strengthens the argument that NextDecade is making for an en banc rehearing."