Objection: Energy Execs Indict DC Appellate Court’s LNG Rulings

NextDecade Chairman and CEO Matt Schatzman is not happy with the District of Columbia Circuit Court of Appeals—which makes him a member of an exclusive but steadily growing group of energy CEOs.

On Aug. 6, the court shot down Federal Energy Regulatory Commission (FERC) permits for the Rio Grande LNG development, along with permits for Glenfarne Group’s Texas LNG project. Both facilities are located in the Brownsville Shipping Channel in South Texas.

“We appreciate the significant disruption vacatur may cause the projects,” Judge Bradley Garcia wrote in the decision. “But that does not outweigh the seriousness of the commission’s procedural defects.”

The court ruled that FERC did not properly consider the environmental impact of the plants. Schatzman said the decision could have industrywide negative implications.

“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,” he said in NextDecade’s August business update.

It was the third time in two months that the same court remanded permits for natural gas projects to the FERC. The reasoning behind the rulings differed, but each admonished the FERC for not taking “public interest” seriously. It’s a phrase that may be familiar to critics of the White House’s LNG permit pause issued at the beginning of the year.

Public interest pause

When the Department of Energy (DOE) announced it was pausing new permits for LNG exports in January, it called the decision a “public interest analysis.” 

“The data and global circumstances relevant to these factors has changed over time, and DOE must reflect these changes when applying the factors to a new public interest determination,” the DOE announcement stated.

Specifically, the public interest update is to consider a broader assessment of “greenhouse gas emissions, including carbon dioxide and methane.” That raised the eyebrows of some analysts.

“The impacts to climate change are global in nature,” said Tom Sharp, director of permitting intelligence at Arbo, following the announcement. “The question is, where do you draw the line? At what point are the climate change impacts from a single proposed project significant enough to warrant not approving it?”

The pause has been criticized an election-year decision made by an administration attempting to appease its environmentalist backers.

A federal judge overturned the LNG pause in July. The judge, a Trump appointee based in Louisiana, said the pause was unnecessary to study the issue and agreed with a suit filed by 16 red states.

The effect of the ruling was unclear, as the DOE was told to rule on a “public interest” standard that was now up in the air. The DOE responded that it was evaluating its next steps.

A couple of weeks later, another court would start ruling in the opposite direction.

Permits, pipes and LNG

The Commonwealth LNG project lost its FERC permits to proceed on July 16.

The D.C. appeals court ruled that FERC needed to review its approval to include climate impacts of the project. The court did not scrap the permits but demanded a re-evaluation of FERC’s “public interest determination.”

Garcia, writing for the three-judge panel, said FERC had “inadequately explained its failure to determine the environmental significance of the project’s greenhouse gas emissions, and it failed to adequately assess the cumulative effects of the project’s nitrogen dioxide emissions.”

Commonwealth LNG, a 9.5 MMmt/y project in Cameron Parish, Louisiana, has not reached FID yet, but has reached commitments for half of its capacity.

On July 30, the court voided FERC’s approval for Williams Cos.’ Regional Energy Access Expansion Project (REA). The court ruled that FERC had dismissed viable studies showing the project was not needed, and that it had failed to determine the significance of greenhouse gas emissions.

REA is an expansion project that would increase the natural gas capacity of Williams’ existing network in the Northeast. The company had brought the project online before the ruling and expected to work with FERC to receive final permit approval.

One week later, the appeals court ruled against the Rio Grande and Texas LNG projects. Leadership from both companies have said they are hopeful of working through the process and eventually getting FERC permits that will stand.

“It’s worth noting that judges (Bradley) Garcia and (Michelle) Childs were on the panel for both the REA and Rio LNG decisions, and that Chief Judge (Sri) Srinivasan was also on the Rio LNG panel, though he did not write the opinion,” Sharp said. “This shows some internal visibility and alignment within the D.C. Circuit on the substance of the decisions, particularly because rehearing requests are likely, and they are rarely granted.”

The court form

All of the FERC suits were brought by a combination of environmental groups and a local civic jurisdiction, and all the cases ended up at the D.C. court by default.

It isn’t that the environmentalist groups are court shopping, but they do have a slight home-field advantage.

When organizations decide to sue FERC, the cases are almost always filed with the D.C. Court of Appeals, unless there’s a specific circumstance to hold the hearing in another jurisdiction, according to FERC.

Appeals court cases are decided by a panel of three judges, randomly assigned. The D.C. court directory lists 15 judges. Democratic presidents appointed nine of them. (There are 11 “active” judges on the court who handle the majority of the work. Democratic administrations appointed seven, four were selected by Republicans.)

The train from Uinta

Ultimately, an earlier decision from the appeals court may point toward the final outcome of the permitting fight.

In August 2023, the court ruled against a railroad project for the Uinta Basin. The rail was a group effort involving seven counties to improve crude takeaway capacity for the basin.

Uinta Basin oil is highly waxy, and producers consider rail the best way to move it. The court shot the project down, saying the project violated the National Environmental Policy Act (NEPA) by failing to fully analyze the railway’s potential harm to wildlife, the Colorado River and the environmental justice of communities downstream of the project.

The county coalition in Utah filed an appeal, challenging whether the NEPA process requires an agency to examine environmental impacts beyond “the proximate effects of an action within its regulatory authority.”

The Supreme Court agreed to hear this case during its 2024-2025 term, which starts in the fall.

Willams Cos. President and CEO Alan Armstrong said the case, coupled with the recent Chevron deference ruling, could halt the court’s ongoing fight with the FERC.

“The problem really revolves around the NEPA process and the handles that it gives to environmental opposition to take up issues that have very little to do with the pipeline construction but have to do with their own fight against fossil fuels,” Armstrong said.

“I’m really excited to see [the Uinta rail Supreme Court case]. That could really reform permitting in a way that’s meaningful and really stop people from being able to just arbitrarily stop projects.”