Battle to (un)leash US gas prompts legal storm: Two major American LNG projects hit a snag as court scraps permits

An ongoing fight to pull the plug on two liquefied natural gas (LNG) export projects at the Port of Brownsville, Texas seems to have yielded a partial win for climate activists, as a U.S. court has axed the previous authorizations and passed the baton back to the Federal Energy Regulatory Commission (FERC). Will the next move in this LNG court saga come from FERC or the affected project developers?

With the ruling to rescind the Federal Energy Regulatory Commission’s reauthorizations over environmental analysis deficiencies, the U.S. Court of Appeals for the D.C. Circuit has put the ball back in FERC’s court in a case concerning two proposed LNG projects whose permits were wiped out on August 6, granting a win to the city of Port Isabel, the Carrizo Comecrudo Tribe of Texas, the Sierra Club and Vecinos para el Bienestar de la Comunidad Costera.

However, the story of the LNG pair and the struggle to get all the regulatory hurdles out of the way to bring these projects online has been running in the background for years. Glenfarne Energy Transition’s Texas LNG Brownsville applied on March 30, 2016, for authorization to construct and operate an LNG export terminal, Texas LNG, on the northern shore of the Brownsville Shipping Channel in Cameron County, Texas.

A little over a month later, NextDecade’s Rio Grande LNG did the same to get authorization to construct and operate its LNG export terminal at a different site on the same shore. Simultaneously, Rio Bravo Pipeline Company filed a related application for authorization to construct and operate a new interstate pipeline system to deliver natural gas from existing grid interconnects in Nueces County, Texas, to the Rio Grande terminal.

As a result, the Rio Grande terminal and Rio Bravo pipeline together form the Rio Grande project. After publishing a final environmental impact statement (EIS) for each project, FERC issued orders authorizing the projects in November 2019.

The move to greenlight these LNG projects did not sit well with environmental groups, residents, and the nearby city of Port Isabel, which decided to intervene in the proceedings and sought a rehearing of the authorization orders, arguing that the U.S. regulator’s analyses of the projects’ ozone emissions and impacts on climate change and environmental justice communities were inadequate and flawed under National Environmental Policy Act (NEPA) and the Administrative Procedure Act (APA).

In addition, the climate activists accused FERC of failing to justify its determinations of public interest and convenience under the Natural Gas Act (NGA). The approval of the Rio Grande project faced further opposition from environmental campaigners as they claimed the decision violated NEPA by failing to adequately analyze alternative project designs.

Since the Federal Energy Regulatory Commission opted to deny their rehearing requests, these climate activists sought review in the U.S. Court of Appeals for the D.C. Circuit, which addressed petitioners’ challenges to the authorization orders on August 3, 2021. The ruling said that FERC failed to adequately justify its decision to examine environmental justice impacts within only a two-mile radius of the projects when some environmental impacts of the projects would extend beyond that area.

In response to the court’s remand, Rio Grande filed a proposal to add a carbon capture and sequestration (CCS) system to its terminal design in November 2021 to remove carbon dioxide emissions during natural gas liquefaction and then transport those emissions by pipeline to a U.S. Environmental Protection Agency (EPA)- and state-authorized underground injection well for sequestration.

The company’s projections showed the system would capture at least 90% of the carbon dioxide produced at the terminal, thus, it asked FERC to consider the CCS proposal at the same time it considered reauthorization of the existing project.

While an environmental assessment of the CCS system was initially anticipated in May 2023, those plans were suspended after what has been described as Rio Grande’s failure to provide “complete and timely responses” to several data requests by the agency.

However, FERC still issued orders reauthorizing the projects on April 21, 2023. The decision prompted opponents of these projects to file requests for rehearing, which were deemed denied by operation of law after the U.S. government agency did not respond within thirty days.

As a result, the climate campaigners asked the court to review the remand order on July 10, 2023, which led to the leave being granted to Rio Grande, Rio Bravo, and Texas LNG to intervene. FERC issued orders addressing the rehearing requests and sustaining the reauthorizations on October 27, 2023, while the petitions were pending.

This sparked the opponents’ ire and they decided to argue in court that the agency’s choice not to issue a supplemental environmental impact statement for its environmental justice analysis was “arbitrary and capricious,” prejudicing the public’s ability to comment meaningfully on the new environmental justice analysis.

After the U.S. Court of Appeals for the D.C. Circuit ruled to vacate the Federal Energy Regulatory Commission’s reauthorizations of both Rio Grande and South Texas LNG projects, deciding to remand its decision to FERC for further proceedings, energy analysts and supporters of these gas projects claim this and similar decisions threaten the legal status of major energy projects that are perceived to be a crucial pillar of energy security for the U.S. and its allies.

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The project developers, Glenfarne and NextDecade, have disclosed their intentions to look into options in response to the ruling. Even though the latest ruling rejected updated ozone and greenhouse gas emission evaluations along with some other challenges to FERC’s reauthorization orders, the judges still pointed out they could not understand the reasoning behind FERC’s decision to skip other “fundamental procedural steps,” after it reworked its environmental justice analysis for the projects, expanding a review from a two-mile radius to a 31-mile radius, but chose not to prepare a supplemental EIS regarding new information and findings.

While FERC previously said there would be no “disproportionate adverse effects” on environmental justice communities, it changed its tune in the new analysis, which found impacts on environmental justice communities would be “disproportionately high and adverse,” with some communities potentially experiencing significant visual impacts, thus, it ordered further mitigation measures to address air quality impacts at some public recreation areas.

As a result, the judges used this to back their judgment on the need for a supplemental EIS and went on to find fault with several other aspects of FERC’s reauthorization orders for the projects, including its failure to review the CCS addition that was proposed at one point for the Rio Grande LNG terminal as either a connected action or a project alternative, along with what has been described as the agency’s flawed explanation for a decision to not consider data from an air quality monitor that showed a potential for particulate matter problems.

“We do not see how the Commission could justify its decision to skip those fundamental procedural steps. We appreciate the significant disruption vacatur may cause the projects,” Circuit Judge Bradley N. Garcia wrote in the opinion, joined by Chief Judge Sri Srinivasan and Circuit Judge J. Michelle Childs, “but that does not outweigh the seriousness of the Commission’s procedural defects,” given the court’s previous order to FERC to strengthen its review of their environmental justice and climate change impacts.

Juan Mancias, Tribal Chairman of the Carrizo/Comecrudo Tribe of Texas, stated: “We continue to resist ongoing colonization by the fossil fuel industry and against the Rio Grande LNG and Texas LNG projects. Fossil fuel companies habitually lie to regulators in order to get permits to make their money and to destroy the earth and our future generations as well.

“FERC and other regulatory agencies must stop listening to oil and gas companies and must instead listen to the original Native people of the land. Federal agencies must also do their own independent due diligence and research on all permits and not be dependent on false archeological and false solutions reports from gluttonous fossil fuel corporations.”

NextDecade expressed its disappointment with the court’s decision and disagreed with its conclusions since the judges decided to “grant the petitions for review in part, deny them in part, vacate both reauthorizations, and remand to the Commission for further proceedings consistent with this opinion,” issuing an order vacating FERC’s remand authorization on the grounds that the supplemental EIS should have been issued during the remand process.

“The company is reviewing the court’s decision and assessing all of its options. At this time, construction continues on the first three liquefaction trains and related infrastructure (Phase 1) at the Rio Grande LNG facility, and the company is evaluating the impact of the court’s decision on the timing of a positive final investment decision (FID) on Train 4,” emphasizedd the Houston-based firm.

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This ruling comes only a day after NextDecade confirmed a multibillion-dollar deal with Bechtel for the construction of Train 4 and related infrastructure. Following the final investment decision, reached in July 2023 when Bechtel got its second green light in three months to proceed with full construction of the giant LNG project in Texas, the construction of Phase 1 officially started in October 2023.

Recently, a non-binding heads of agreement (HoA) and a sale and purchase deal were secured with Aramco for 1.2 million tonnes per annum (mtpa) of LNG for 20 years on a free-on-board basis, at a price indexed to Henry Hub from Train 4.

This followed a 20-year LNG offtake agreement with ADNOC, which also secured an equity position in the Rio Grande LNG project. The FID for Train 4 was targeted for the second half of 2024 before the court’s ruling. It is still unclear to what extent the latest setback will affect planned activities for the project.

On the other hand, Texas LNG described the court’s ruling as a “procedural decision to correct a technical deficiency,” highlighting that it has “full confidence FERC will address this matter judiciously and efficiently.” The construction of the 4-mtpa facility in Texas’ Port of Brownsville is slated to begin later this year, with the start of commercial operations targeted for 2028. The court’s decision may delay these timelines.

The legal action related to these two LNG projects proves that there is a first time for everything – even the court deciding to vacate FERC approval of an LNG terminal since Sierra Club’s take on the ruling indicates this to be the first time the court has made such a move. Therefore, FERC will now need to reconsider the impacts of these projects, with a new draft supplemental environmental impact statement and a new public comment period, before deciding whether to issue new project permits. 

The advocates and certain residents of South Texas have long opposed these projects due to the alleged impacts on Indigenous land, public health, and the surrounding environment. Sierra Club claims that Rio Grande LNG, Texas LNG, and the Rio Bravo pipeline would destroy endangered species habitats and numerous acres of wetlands that are sacred to the Carrizo/Comecrudo, releasing hazardous chemicals into the air that have been linked to asthma, cancer, and other health conditions.

Aside from this, opponents believe the projects pose explosion and leak risks that harm people and wildlife and would emit millions of tons per year of climate-warming greenhouse gases, thus contributing to climate change.

Nathan Matthews, Senior Attorney for the Sierra Club, commented: “This decision affirms what South Texas communities have long known and been fighting for: Environmental justice matters and FERC absolutely must consider these issues when deciding on such massively harmful projects. Today the court said that FERC must look at impacts on these communities and also ensure that they have a full and meaningful opportunity to participate in the process. FERC failed to do that with these projects.

“FERC also postponed analyzing NextDecade’s proposal to add carbon capture and sequestration, but the court said the agency cannot abdicate its responsibility to decide whether carbon capture is a good idea. Today marks a win for environmental justice in South Texas – and for people across the country pushing FERC to consider environmental justice impacts. This is the third time in a month that the D.C. Circuit has held that FERC failed to exercise oversight over gas infrastructure, suggesting that the days of FERC acting as a rubber stamp could soon be over.”

This decision paired with two others in July is said to call into question the adequacy of FERC reviews, based on the D.C. Circuit Court’s ruling from last week, which said that FERC failed to consider increased greenhouse gas emissions and the market need for a Regional Energy Access Expansion (REAE) fracked gas pipeline project in the Northeast. The same court ruled that FERC failed to adequately assess Commonwealth LNG’s air pollution impacts and greenhouse gas emissions.

Jared Hockema, City Manager for the City of Port Isabel, outlined: “Today’s decision is a great victory in our battle to protect public safety and preserve our environment and quality of life. We are very pleased that the D.C. Circuit Court agreed with our position that the development of these LNG facilities would adversely affect our community, and that the impact of these adverse effects had not been adequately considered. In fact, the court found that the permits for these facilities were issued despite FERC’s recognition of these impacts.

“Furthermore, today’s decision vindicates our longstanding position that the cumulative impacts of functionally dependent facilities must be considered, which removes a polluter’s loophole. This latest setback for corporate polluters is a clear sign that these LNG projects should be abandoned, and the damage that’s already been caused should be cleaned up. We are calling on the LNG developers and the Port of Brownsville to do just that.”

While the war on fossil fuels has become more pronounced lately, leading to a rise in legal challenges to shut down ongoing and prevent new LNG projects in the United States, multiple plans for more LNG infrastructure are underway to meet the growing gas demand and strengthen energy security due to the intermittent nature of renewable energy, which has not yet grown sufficiently to be able to take over the U.S. or global energy mix.