While LNG may be viewed as a "bridge fuel" in the energy transition by some, climate activists have deluged the industry with ESG-related litigation even as the Biden administration has brought export permitting to a halt.

From greenwashing claims to project permitting disputes, the U.S. LNG sector is facing an evolving legal landscape that threatens to disrupt operations and export capacity, industry experts said.

"ESG litigation is a relatively new and rapidly growing class of litigation where claims are being used as a [way] to change state and corporate behaviors when it comes to ESG issues, and most notably related to climate change," said Holly Stebbing, partner at Norton Rose Fulbright, at Gastech Houston in September.

Climate-related litigation has surged worldwide, with about 68% of cases — or more than 1,700 of 2,500 cases filed globally— brought in the U.S., Stebbing said.

Permitting and financing disputes, along with courts putting additional weight on climate change considerations into project approvals, has left LNG infrastructure projects vulnerable, attorneys said.

While some cases have had limited success in directly impacting corporate behavior, the threat of reputational damage and the costs associated with defending the claims have made companies more cautious in their environmental and investment decisions, Stebbing said.

In August, the U.S. Court of Appeals for the D.C. Circuit overturned approval of a pair of LNG terminals in Brownsville, Texas, including NextDecade’s Rio Grande LNG. The court remanded the permits back to the Federal Energy Regulatory Commission’s (FERC).

The ruling was backed by activists, primarily the Sierra Club, which argued that the FERC should have conducted supplemental environmental impact statements for each project.

In July, the appeals court agreed with separate claims that the FERC failed to adequately assess the direct environmental and health impacts from the Commonwealth LNG project in southwest Louisiana. That project was also sent back to FERC for reconsideration.

RELATED

FERC Chair: DC Court ‘Erred’ by Vacating LNG Permits

Exclusive: Kimmeridge’s Dell on Advancing Commonwealth LNG Amid DOE Pause

NextDecade CEO: LNG Ruling Risks Viability of All FERC Projects

ESG regulations in the U.S. typically take a “voluntary approach” for individuals and organizations, said Debra Hatter, partner at Norton Rose Fulbright. However, a climate disclosure bill in California will require companies in the state that generate $500 million or more in annual revenue to disclose their climate-related financial risk, as well as measures to reduce and adapt to that risk.

The reporting requirements start in 2026 and 2027 and will apply to both public and private companies, Hatter said.

“This will impact a lot of companies who are at least national, let alone international, given that California’s market is pretty large,” Hatter said.

The regulations will cover Scope 1, 2 and 3 emissions.

Operators are facing other regulatory hurdles since the Biden administration announced in January a pause on pending and future permits to export LNG to non-Free Trade Agreement countries.

Some projects that were pre-final investment decision are expected to be delayed until around 2028 to 2029, jeopardizing billions in investments and other operational benefits, according to the American Energy Alliance’s website.

As Stebbing noted, "ESG seems to be having a tightening effect on not only public finance, but also private finance for LNG.”

LNG at a crossroads

To meet forecasted growth in LNG exports from North America, significant new natural gas processing capacity, around 50 Bcf/d, will be required by 2035, said Bob Kubis, Wood Mackenzie’s vice president of Americas gas and LNG consulting.

Much more capital is needed to reach the capacity, but Kubis noted that funding will also be centered on ESG considerations— largely focusing on flaring and emissions across basins in the U.S.

ESG considerations are driving changes in how new infrastructure, and more specifically LNG, is developed, with a focus on mitigating emissions through renewable energy integration and carbon capture.

“When you think of one of the largest North American midstream players, Targa [Resources], they’re already putting solar panels on some of their processing units in the Midland and Delaware basins, just to tackle this ESG issue,” Kubis said.

The LNG sector is at a crossroads as operators having to reshape their strategies and public image. Experts add that successfully navigating those challenges is critical to the long-term viability of the industry and its role in the global energy mix.

“Much of the LNG infrastructure being approved or constructed today has an expected lifespan of several decades,” Stebbing said. “And climate litigants see this as locking LNG into the energy mix for the long term, and they see that as being, frankly, inconsistent with it [LNG] being branded as a bridging or transition fuel.”

Comments