US court ruling threatens delay for Rio Grande LNG, Texas LNG projects

A recent US federal appeals court ruling overturning the Federal Energy Regulatory Commission's approval of a pair of LNG terminals in Brownsville, Texas, could significantly delay project sponsors' targets of commercially sanctioning new export capacity this year, according to market analysts.

One of them, NextDecade, is already building the first phase of its Rio Grande LNG project and faces the additional threat of being forced to stop construction on the facility that will be able to produce 17.6 MMt/year of LNG, analysts said.

The Aug. 6 ruling by the US Court of Appeals for the District of Columbia Circuit marked the first time a court has vacated a certificate order for an LNG export terminal, a decision industry representatives said created new permitting uncertainty for the US LNG sector. The ruling invalidated the approvals for Rio Grande and the associated Rio Bravo pipeline and for Glenfarne Group's proposed Texas LNG terminal (City of Port Isabel v. FERC, 23-1174).

The decision gives the LNG developers and FERC a 45-day deadline to seek rehearing or en banc review by the full DC Circuit. The court said it would not issue the mandate making the court's decision effective until seven days after that, or 52 days total.

The court's decision could "significantly push back" the developers' final investment decision targets, according to analysts at S&P Global Commodity Insights. The Rio Grande project also "faces a serious risk that it will be required to stop construction."

Tom Sharp, director of permitting intelligence at research and consulting firm Arbo, said the ruling "could have immediate and significant impacts on the Rio Grande LNG project timeline, potentially forcing a halt to ongoing construction activities."

The developers of the projects said they were studying the ruling and considering next steps. FERC declined to comment.

NextDecade has been targeting an FID on a fourth liquefaction train at the terminal, having made significant commercial progress in recent months. Texas LNG has also built commercial momentum behind its proposed 4 MMt/year terminal.

Sierra Club senior attorney Nathan Matthews – who argued the case on behalf of a coalition of environmental groups, residents and the nearby city of Port Isabel – said FERC should not wait to halt construction on Rio Grande.

"FERC doesn't need to wait for a court mandate," Matthews said. "In 2018, when the Fourth Circuit found that the US Forest Service had improperly approved the Mountain Valley Pipeline, FERC issued a stop work order the following week, without waiting for the court to issue a mandate. FERC should do the same here."

The DC Circuit set aside FERC's certificate orders in the case after agreeing with the challengers that the commission fell short in its analysis of environmental justice impacts associated with the facilities, along with its consideration of proposed carbon capture and sequestration system at Rio Grande, and that it should have considered data from a nearby air monitor.

The court said FERC should have conducted supplemental environmental impact statements for each project.

FERC reviews

Developing the supplemental reviews usually takes FERC at least six months, and it is unlikely FERC could have enough time to complete them if the DC Circuit decisions are remanded in the event of unsuccessful appeals, analysts at ClearView Energy Partners said in an Aug. 7 note to clients.

"Delay to construction schedules look very likely," ClearView analysts said, adding that the duration of the delay is unclear.

Because the court found FERC needed to consider NextDecade's proposed carbon capture project in the review for Rio Grande, addressing the errors identified by the court might also take FERC than if it were only supplementing its environmental justice for the terminal alone, Sharp said.

Experts said it was also unclear whether NextDecade could win a temporary approval to continue construction, as some pipeline developers have done in cases where projects already transporting gas had their FERC permit vacated.

In the meantime, construction on Rio Grande continues, NextDecade said in a statement after the ruling. The company said it was "disappointed in the court's decision and disagrees with its conclusions" and that it was "assessing all of its options."

NextDecade added it is "evaluating the impact of the court's decision on the timing of a positive final investment decision" on the Train 4 expansion.

Glenfarne Group in a statement described the DC Circuit ruling as "a procedural decision to correct a technical deficiency" and said it was "committed to resolving this issue quickly and completely to continue our progress toward FID and construction in the near term."

FERC originally approved the Texas LNG and Rio Grande LNG projects in November 2019. But the DC Circuit in 2021 found fault with FERC's explanation on climate considerations, as well as its environmental justice analysis. The court remanded those approvals back to FERC without vacating them, and the commission reauthorized the projects in April 2023.

"Given the nature and severity of the flaws in the Commission's second effort to properly assess the projects, we vacate the reauthorization orders and remand to the Commission for further consideration," the DC Circuit said.

Series of decisions

An appeals court vacating a FERC certificate is relatively rare. But the decision involving the LNG projects came just a week after the DC Circuit vacated FERC's approval for Transcontinental Gas Pipe Line's Regional Energy Access expansion in the Northeast, finding flaws with the commission's consideration of market need and climate impacts associated with the 36-mile, 829,000 Dt/d project.

"It's causing uncertainty and creating unnecessary ambiguity in the regulatory space," Charlie Riedl, executive director of the industry group the Center for Liquefied Natural Gas, said of the recent decisions. "The exact opposite is what the industry is looking for, which is regulatory certainty and predictability, and that's what the market is looking for as well."

The recent orders vacating FERC certificates on the Transco expansion and the LNG projects shows the court is getting frustrated with FERC not being more thorough in its reviews of applications and careful in addressing arguments of project opponents, said Carolyn Elefant, an attorney with her own law practice.

Elefant, who has represented landowners and groups that challenge FERC orders, said the DC Circuit's Aug. 6 decision on the LNG projects highlights the commission not following procedures under the National Environmental Policy Act. That statute "is all about procedures and notifying the public and giving them a chance to weigh in," so blowback from the court could be expected when procedural steps are not taken, Elefant said.

Former Democratic FERC Chairman Richard Glick said appellate court decisions over the past seven year suggest the courts "have often been frustrated that the commission hasn't sufficiently analyzed various issues the first time around."

"You would think industry would want the analysis done right initially to avoid delays that potentially will add billions to projects," Glick said.