Divided US FERC grants new approval for NextDecade's Rio Grande LNG project

The Federal Energy Regulatory Commission voted to reissue a key authorization for NextDecade's proposed Rio Grande LNG export terminal in Texas and related pipeline in a decision that could be critical in the company's efforts to commercially sanction the facilities in the coming months.

FERC's April 20 decision on the project and another proposed LNG facility in Brownsville, Texas—The Texas LNG project—came 20 months after the US Court of Appeals for the District of Columbia Circuit remanded FERCs original project authorizations back to the agency without vacating them (CP16-454 and CP16-116). The federal appeals court in its August 2021 decision found it was "reasonably likely" that FERC could reach the same conclusion after remedying its orders to address deficiencies related to the regulator's consideration of climate impacts and environmental justice.

But FERC's 3-1 approval of the amended orders, with Democratic Commissioner Allison Clements dissenting, made clear that divisions remain over how FERC should approach the two issues that have been a central part of the commission's ongoing efforts to modify its approach to permitting natural gas infrastructure.

"Some people wanted more review, and some of my colleagues wanted even less review," FERC Chairman Willie Phillips told reporters after FERC's monthly open meeting. "I think that what we did in the past year strikes an appropriate middle ground and adequately addresses what the court directed the commission to address regarding its deficiencies."

FERC's approach

Clements said that FERC's response to the federal appeals court decision amounted to "procedural corner-cutting" that ran afoul of federal law. Clements said previous commissioners were responsible for the timing of FERC's response and argued that FERC should have pursued a supplemental environmental impact statement instead of incorporating a "revised safety and environmental analysis" that she said was inadequate.

"What I see happening here is an insufficient order that creates a lose-lose situation," Clements said. "It's going to invite further litigation and further delay for the project sponsors who want to get this done. And it is a loss for the potentially impacted communities who haven't had the chance to comment on the proceedings."

The FERC orders on the LNG projects were not immediately released after the April 20 meeting. The DC Circuit had directed FERC to address the argument of whether it was required to use the social cost of carbon or some other generally accepted method to analyze the climate impacts associated with the projects. The court had also directed FERC to explain the scope of its environmental justice analysis, after finding its original decision to focus its assessment on census blocks within two miles of the projects was arbitrary, given the regulator's determination that environmental effects would extend well beyond two miles.

Phillips said the FERC addressed the emissions issue using the approach it has taken for a series of other gas projects in the time since the DC Circuit decision, which entails estimating planet-warming emissions associated with a project without drawing conclusions about their significance.

Phillips said FERC expanded the scope of its environmental justice assessment to look analyze impacts in a bigger radius around the LNG projects. Phillips also touted what he described as a first-of-its-kind requirement from FERC for project sponsors to ensure the facilities "do not cause any significant air quality impacts on environmental justice communities."

"We took the unprecedented step to make sure that the applicant has a plan, and if there's an issue during construction that they have to come back to the commission to address that issue," Phillips said. "This is a major and significant step in the right direction."

NextDecade targets FID

NextDecade, which did not immediately respond to a request for comment about FERC's decision, recently pushed back its target for commercially sanctioning the first phase of the Rio Grande project from March to before the end of June. The $11.5 billion first phase involves three liquefaction trains that will have a combined capacity of about 16 million mt/year.

NextDecade CEO Matt Schatzman complained in February of "inexcusable" inaction by the regulator in correcting "two minor issues." But despite the regulatory holdup, NextDecade was able to build significant commercial momentum behind the Rio Grande project over the past year.

The company has executed eight long-term sale and purchase agreements for a total of nearly 11 million mt/year.

The Washington-based Center for Liquefied Natural Gas trade group praised FERC authorization for the Rio Grande project as potentially paving the way for billions of dollars in investment.

"As the world continues to look to US LNG as a way to enhance energy security and reduce emissions, this news is welcome," Charlie Riedl, executive director of the center, said in a statement.