April 9, 2015 The LNG Export Review Process: A Projectby-Project

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1 April 9, 2015 The LNG Export Review Process: A Projectby-Project Analysis for April What's Happening: Royal Dutch Shell announced a deal yesterday to buy BG Group, a move that will make Shell a major competitor in the liquefied natural gas (LNG) export space and could prove to be a model for future deals. This note the seventh in a series of regular updates outlines the major regulatory hurdles LNG export facilities face, as well as the individual timelines of each facility that has begun the long, complex, and expensive environmental review process, which is often considered a sign that a company is serious about developing a terminal. To date, five LNG export facilities have received final approval, 18 are working through the Federal Energy Regulatory Commission's (FERC) environmental review process, and two approved terminals have applied for expansion, one of which, the Cheniere Sabine Pass expansion, was approved earlier this week. Please click here to view a full summary table of where each LNG terminal that has applied to FERC stands in the process. Why It Matters: Under the Energy Policy Act of 2005, FERC s role is to lead the environmental review process for the majority of proposed LNG export facilities. The commission is empowered to set a schedule for all federal and state permitting agencies involved in the environmental process, coordinate and consolidate decisions and actions in the process, and provide a final decision for each terminal. The FERC environmental review incorporates input at the local, state, and federal levels and, depending on the site of the proposed facility, may require the facility to meet requirements under the Clean Water Act, Clean Air Act, Endangered Species Act, National Historic Preservation Act, and the Rivers and Water Act, among others. The full application process can take one to two years - sometimes longer - and cost as much as $100 million. For more detailed information on how FERC s process works, please click here. Projects also require a second approval in the form of a national interest determination from the Department of Energy (DOE). As of September, the DOE now only grants national interest determinations on a case-by-case basis after a facility has first received its FERC approval. What's Next: Although a Moody s report this week predicted that the vast majority of proposed US LNG export projects will not be built due to low oil prices and increased competition, only one developer (Excelerate Liquefaction Solutions in Port Lavaca, TX)

2 has so far halted the environmental review process citing market constraints. In fact, four developers filed requests with FERC in March to begin the permitting process, when typically months pass without a single project filing. The Jordan Cove Project in Oregon remains the closest to a final FERC decision at the moment, having received a Draft Environmental Impact Statement (EIS) from FERC in November However, the project is relatively controversial, and FERC has delayed a decision until later this summer as it handles a large influx of comments. Meanwhile in Congress, the House passed legislation in January to expedite the DOE s review process for terminals that have not yet received an approval, and the Senate is expected to eventually pass a similar bill. It will provide a boost for LNG exports by creating a more certain timeline, but does not materially change the approval process. The Continuing FERC and Environmental Review Process FERC Approves Cheniere's Sabine Pass Expansion On April 6th, FERC approved Trains 5 and 6 of the Sabine Pass Terminal in Cameron Parish, LA. The approval will increase capacity at the terminal by 50 percent. The permitting process took a little over two years, beginning from Cheniere's application to enter the pre-filing stage in February 2013 through this week. Cameron LNG, which applied to begin its pre-filing process in February 2015, is now the only expansion awaiting approval. Four Developers Apply to Begin the Permitting Process Entering the permitting process requires a significant amount of cash, as the one to two year-long review can cost as much as $100 million, and it is typically seen as a sign that a developer is taking a serious step on the project. Consequently, it is unusual to see a significant number of applications in any one month. Four developers applied to begin the environmental review process this month, with three of those four proposed terminals located in Brownsville, TX. According to the port of Brownsville, three other companies, Gulf Coast LNG, NextDecade LNG, and SEG Sideco LNG, are also considering building export facilities in the same area, which is near the Eagle Ford shale. On March 9th, Texas LNG applied for the FERC pre-filing process for its project in Brownsville, TX. Texas LNG has approval from the DOE for the project s proposed LNG exports to nations with Free Trade Association (FTA) agreements with the US and is awaiting approval for non-fta nations until after it has received final FERC

3 approval. On March 15th, Annova LNG applied for the FERC pre-filing process for its project in Brownsville, TX. Annova LNG has approval from the DOE for the project s proposed LNG exports to nations the US has an FTA agreement and has not proposed any exports to non-fta nations. On March 20th, Port Arthur LNG applied for the FERC pre-filing process for its project in Port Arthur, TX. Port Arthur has not yet filed for DOE approval. On March 20th, Rio Grande LNG applied for the FERC pre-filing process for its project in Brownsville, TX. Rio Grande has not yet filed for DOE approval. Only One Developer Has Requested a Pause Excelerate Liquefaction requested that FERC extend a hold on its application for its Lavaca Bay LNG project in abeyance through September 1st, On December 23rd, 2014, Excelerate originally requested an abeyance for its application through April 1st, 2015, citing the Recent global economic conditions including, among other things, a steep decrease in the price of oil, as having created uncertainty regarding the economics of the Project. Trouble Continues at the State Level for Jordan Cove and Oregon LNG Projects Two proposed LNG export terminals in Oregon would be ideally situated for shipping to Asia, but have both faced pushback from local communities in the state, resulting in delays in the approval process. Although final citing authority rests with FERC, state authorizations are required for some air and water permits. The Oregon Department of Land Conservation and Development (OLCD) entered agreements with both projects in January to stay their state-based permitting deadlines. The agreements move the Jordan Cove Energy Project in Jordan Cove, OR deadline back to July 30th, 2015 and the Oregon LNG Project in Warrenton, OR deadline back to April 27th, This is the sixth time the OLCD has stayed its deadline for the Oregon LNG project. The Jordan Cove project also faced a delay when the Oregon Department of Environmental Quality (DEQ) extended the comment period for the export terminal s Air Containment Discharge permit by 30 days, through April 4th. Despite this setback, DEQ s initial review was favorable to the terminal. The Oregon LNG project has also faced a setback in the courts, losing a case in

4 December when the Oregon Court of Appeals upheld a county commission s decision to reject an important county land use permit for the project. The project is involved in another suit, with Oregon LNG having sued the Army Corps of Engineers in August for the right to build on Warrenton s Easy Skipanon Peninsula. The Army Corps of Engineers holds a land-use easement that allows them to hold the site as a dumping spot for dredged materials. Oregon LNG will need to win this case to build a terminal in its proposed location. The Jordan Cove Project is farther along in its process, having received its draft Environmental Impact Statement (EIS) from FERC in November Because the project has been contentious, FERC extended the comment deadline from 45 to 90 days, and received hundreds of comments during that period, compared to the handful of comments it will receive for a typical project. Due to the influx of comments, FERC has also moved the expected date of the issuance of the Jordan Cove final EIS from February 27th, 2015 to June 12th, Where Each Project Stands The typical FERC timeline has four major events: Pre-Filing Formal Application Release of Environmental Impact Statement/Environmental Assessment Final Decision. For more detailed information on how FERC s process works, please click here. Projects in the Pre-Filing Stage: CE FLNG (Plaquemines Parish, LA) Gulf LNG Liquefaction Company (Pascagoula, MS) Louisiana LNG (Plaquemines Parish, LA) Downeast LNG (Robbinston, ME) Alaska LNG Project (Nikiski, AK) Venture Global Calcasieu Pass (Cameron Parish, LA) Eagle LNG (Jacksonville, FL) Texas LNG (Brownsville, TX) Annova LNG (Brownsville, TX) Port Arthur LNG (Port Arthurt, TX) Rio Grande LNG (Brownsville, TX) Projects that have filed a Formal Application: LNG Development Company, d/b/a Oregon LNG (Warrenton, OR) Excelerate Liquefaction Solutions (Port Lavaca, TX) Lake Charles LNG Export Company (Lake Charles, LA)*

5 Southern LNG Company (Elba Island, GA) Magnolia LNG (Lake Charles, LA) Golden Pass Products (Sabine Pass, TX) Projects for which FERC has released a draft Environmental Impact Statement: Jordan Cove Energy Project (Jordan Cove, OR) Projects that have been authorized: Cheniere Sabine Pass Liquefaction (Cameron Parish, LA) Cameron LNG (Hackberry, LA) Freeport LNG Expansion and FLNG Liquefaction (Freeport, TX) Dominion Cove Point LNG (Cove Point, MD) Cheniere Marketing, LLC (Corpus Christi, TX) For a more detailed timeline of where each project stands, please click here to view a full summary chart. *Formerly under Trunkline LNG Exports