by Nicholas Cunningham, Gas Outlook, submitted by Mary Helen Flores, Citizens Against Voter Abuse
Fishermen on South Padre Island, Texas, near where Rio Grande LNG might be built (Nicholas Cunningham/Gas Outlook)
Two major LNG projects in South Texas suffered a major setback in early August, with a U.S. court tossing out their construction authorisations. The full impact of the decision is unclear, but the projects— Rio Grande LNG and Texas LNG — may now see delays and increased financial risk.
On August 6th, the U.S. Court of Appeals for the D.C. Circuit rescinded federal authorisations for the two gas export terminals located in Brownsville, Texas near the U.S.-Mexico border. The $18 billion Phase 1 of Rio Grande LNG is the larger of the two projects, and it is currently under construction. Texas LNG is still awaiting financing and remains on the drawing board.
The court scrapped a key authorisation issued by the U.S. Federal Energy Regulatory Commission (FERC), concluding that the federal agency violated the law by not adequately assessing the environmental and climate impacts of the two projects. FERC had previously found that the LNG terminals would emit hazardous air pollutants into nearby communities, and that they would also create substantial greenhouse gas emissions, but nonetheless gave the projects a greenlight in 2023.
The court said FERC erred in not conducting a supplemental environmental impact statement, and ordered the agency to go back and do that analysis. That process could take several months or longer to complete.
NextDecade, the company behind Rio Grande LNG, saw its stock price plunge by more than 35 percent in the days following the court decision.
“Today’s decision is a great victory in our battle to protect public safety and preserve our environment and quality of life,” Jared Hockema, the city manager for Port Isabel, located just a few miles fromthe LNG projects," said in a statement.
The court also ruled against FERC on several other points. FERC did not look at data from a nearby air monitor in Port Isabel, which might have resulted in air pollution data that would exceed federal standards.
“During our litigation, no one disputed that if FERC did use that monitor, it would have shown a violation of EPA’s air quality standards,” Nathan Matthews, a senior attorney for the Sierra Club, who argued the case in the DC Circuit Court, told Gas Outlook.
“FERC is going to need to get some new air modelling done, and do some new analysis about why it is approving projects that would increase particulate pollution, even though cumulative pollution would likely exceed the federal standard,” Matthews said.
NextDecade backs away from CCS
The court also said that FERC would have to assess Rio Grande LNG’s proposed carbon capture and sequestration (CCS) proposal.
In 2021, in response to a prior legal setback, Rio Grande LNG said that it would build a CCS facility to capture 90 percent of the emissions from the LNG export terminal, describing the project as the “world’s greenest LNG.”
In early 2023, Gas Outlook investigated some of the problems with these claims.
In regulatory filings, Rio Grande LNG had admitted that the CCS component was a “voluntary undertaking,” and also indicated that CCS may not work out for a variety of reasons, but that the LNG terminal would move forward with or without CCS. In the spring of 2023, FERC halted its regulatory review of the CCS proposal because Rio Grande LNG had not provided enough information.
In its recent decision, the DC Circuit Court said that FERC must review the CCS application because NextDecade positioned CCS as a crucial part of the company’s ability to address concerns about excessive greenhouse gas emissions.
“Indeed, Rio Grande implored [FERC] to consider the CCS proposal as part of the re-authorisation process precisely because it viewed the two actions as related and thought that the CCS proposal’s ability to capture most of the terminal’s GHG emissions would make re-authorisation more likely,” a judge for the DC Circuit wrote in his opinion.
NextDecade could say that it won’t work,” Matthews said in an interview with Gas Outlook in mid-August.
That’s precisely what they did. On August 20th, NextDecade withdrew its application for CCS entirely. “The CCS project at RGLNG is not sufficiently developed to allow FERC review to continue at this time,” the company said.
CCS has a dismal track record, and NextDecade’s concept was very thin on details. But, not moving forward with CCS could pose problems to NextDecade’s reputation with buyers of its gas overseas, who have been told they will be purchasing “green” LNG.
In a follow-up email, Matthews said it’s not clear that NextDecade can simply walk back its CCS concept.
“For three years, NextDecade has insisted to FERC and the public that it would implement a carbon capture and sequestration project that would reduce Rio Grande LNG’s egregious greenhouse gas emissions by at least 90%,” he said.
As a result, FERC must look at CCS “whether or not NextDecade would prefer to move on,” he said.
“Industry doesn’t get to decide for itself how much pollution control is enough. Numerous other LNG terminals—including Commonwealth LNG, Cameron LNG, and CP2 LNG—plan to implement at least some carbon capture and sequestration, and NextDecade hasn’t offered any explanation as to why it can’t do so as well.”
Potential delays for Rio Grande
NextDecade did not respond to several inquiries from Gas Outlook, but issued a commercial update on its website on August 14th.
“We do not agree with the D.C. Circuit Court’s recent decision to vacate the Federal Energy Regulatory Commission’s (FERC) remand authorisation of the Rio Grande LNG Facility,” NextDecade CEO Matt Schatzman said in a statement.
“We are committed to taking any and all available legal and regulatory actions to ensure that Phase 1 will be delivered on time and on budget and that FID of Trains 4 and 5 will not be unduly delayed.”
Phase 1 includes the first three liquefaction trains, which are under construction, while Phase 2 consists of a proposed fourth and fifth train. NextDecade was hoping to make FID on Phase 2 later this year.
The smaller Texas LNG project also said it hopes to address the issue as quickly as possible.
“We are studying the opinion, which is a procedural decision to correct a technical deficiency,” a spokesperson for Texas LNG told Gas Outlook. “Our team is committed to resolving this issue quickly and completely to continue our progress toward FID and construction in the near term.”
But the delays could be lengthy, and the loss of FERC approval injects a degree of risk into the LNG projects that could rattle investors.
In a note to clients, equity research firm Webber said that NextDecade could take a “two-pronged approach” to keep its construction schedule on track, consisting of getting FERC to finish its supplemental environmental impact statement as fast as possible while also appealing the DC court decision. Withdrawing its CCS proposal may shorten the time it takes FERC to do its analysis. In the meantime, NextDecade should continue with construction, Webber said.
“While a RGLNG T4 expansion is certainly delayed, we see a path where Phase 1 is still completed vaguely on time, with eventually T4 & T5 following,” Webber said in its report, referring to the fourth and fifth liquefaction trains.
“However – we’d also note that if things [go] sideways from here, the risks to the timeline and broader viably of the project could mount quickly, as the technical options for RGLNG are very limited.”
The firm added that the court decision “will likely have a chilling effect on the entire U.S. LNG market, as underwriting new projects – either via off-take or capital gets riskier and more expensive.”
“Unless it’s self-funded…we think any new project or expansion in the U.S. may be in a holding pattern until this is resolved and the uncertainty created around the regulatory process is eased,” the firm concluded.
FERC has 45 days to seek a rehearing, during which Rio Grande LNG can temporarily continue construction. After that, things get murkier. While it is not a foregone conclusion, it is conceivable that construction may have to come to a halt in the coming weeks or months.
“This ruling therefore has the potential to delay Rio Grande’s construction schedule and Texas LNG’s progress to FID this year and into service in 2028 since the certificates could be invalid in six weeks and construction cannot take place without them,” ClearView Energy Partners, a Washington-based consulting firm, wrote in a note to clients.
One of the project’s main investors is a private equity firm called Global Infrastructure Partners (GIP). GIP helped push Rio Grande LNG to a final investment decision in 2023 when it injected capital into the project.
TotalEnergies also took a 16.67 percent stake in the terminal.
But following the latest court decision, the Private Equity Stakeholder Project, an investor advocacy group, warned that GIP is putting institutional investors at risk by continuing to invest in Rio Grande LNG.
“The setbacks facing the Rio Grande LNG terminal serve as an additional warning sign for investment funds with hundreds of millions exposed to this GIP-backed terminal,” Alissa Jean Schafer, PESP climate director, said in a statement.
“Given the mounting number of issues with the project, the Rio Grande LNG terminal represents a highly risky investment for GIP.”
Global Infrastructure Partners declined to comment.
NextDecade vowed to keep the project on track, but appeared rattled by its new regulatory problems.
Schatzman warned that the court decision would have “far-reaching implications,” posing threats to many other LNG projects. It is the first time that a federal court has vacated a FERC approval for an LNG terminal.
“If the ruling stands, the precedent that would be set by the Court’s action has the potential to impact viability of all federally permitted infrastructure projects because it will be difficult for these projects to attract capital investments until they receive final unappealable permits,” Schatzman said.
One day before the court decision, NextDecade signed a $4.3 billion engineering, procurement and construction (EPC) contract with Bechtel Energy for the construction of Train 4, reiterating its intention of issuing a greenlight on the expansion in the second half of the year. But that is now in doubt.
“I don’t know whether the investors are going to want to put money into this project while they’re waiting to see how this goes,” Matthews said. “That’s a risk that they could take. Further invest in this project even though they know that they may lose their authorisation.”
The "greenest" LNG project? That is like being the "safest" bullet.
ReplyDeleteIn a couple of months, all will continue as usual. Just wait and see.
ReplyDelete