FERC denies Sierra Club rehearing over Magnolia LNG

The US Federal Energy Regulatory Commission (FERC) has denied environmental group Sierra Club's request for a rehearing over the agency's April approval of the Magnolia LNG export project near Lake Charles, Louisiana.

The ruling will allow the US Department of Energy (DOE) to decide whether to grant Magnolia LNG a license to export to countries that do not have a free trade agreement (FTA) with the US. The DOE can only grant non-FTA export licenses to LNG projects that have received FERC approval and after properly filed requests for rehearings have been denied.

"We are pleased with the FERC's decision on this matter and look forward to the US DOE processing Magnolia LNG's pending application to export LNG to non-FTA countries," said Gregory Vesey, chief executive of Australian firm Liquefied Natural Gas Limited (LNGL), which owns Magnolia LNG.

Although the DOE can deny or limit LNG exports to non-FTA countries if such exports are considered to be against the national interest, the agency likely will approve Magnolia LNG's non-FTA application to export up to 8mn t/yr, equivalent to 1.08 Bcf/d (31mn m³/d) of gas. The project has already been licensed to export that much to FTA nations, as such exports are presumed to be in the US interest.

The DOE has so far not limited non-FTA LNG exports based on national interest, as studies it has commissioned have said that LNG exports at any level would benefit the US because of the country's massive shale gas reserves. Non-FTA licenses are crucial for US LNG projects because most of the world's major LNG consuming nations by volume, including Japan, do not have FTAs with the US.

LNGL initially planned to make a positive final investment decision this year for the $4.4bn project and start exporting in 2019. But LNGL in April said the timeline is unclear because of low oil prices. The economics of US LNG export projects are based on a wide differential between domestic gas prices and global LNG prices. Most long-term Asian LNG contracts are linked to oil prices.

Magnolia has signed a binding 20-year deal to sell up to 2mn t/yr of liquefaction capacity to Meridian LNG Holdings but has said it needs to sign additional long-term deals of at least 4mn t/yr, for a total of 6mn t/yr, to build the project.

The Sierra Club on 16 May asked FERC for a rehearing over construction approval, claiming FERC did not adequately examine indirect and cumulative effects from the project.

In last week's denial of the request, FERC said it is only required to examine impacts that would be reasonably caused by the project. It added that the DOE must address indirect effects of exports, as only the DOE has authority to approve exports.