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Focus on LNG Siting: A State Perspective

Congress revamps LNG and storage, giving broad new powers to FERC. Why the Feds still must consult with local authorities.

Fortnightly Magazine - November 2005

matters, at least over the next year or so.

Required Studies and LNG Forums

EPACT requires several studies where a federal entity is designated as the lead agency responsible for conducting the study. 11 In most cases, the lead agency is mandated to confer with the states. Most of the studies required by the act, as they pertain specifically to natural gas, deal with issues that have come to the forefront over the past few years. 12 In addition to studies, the act requires the Department of Energy to hold, within the first year after enactment of the act, at least three forums on LNG in states where LNG terminals are under construction. 13 All of these studies will provide information to policymakers, at both the federal and state level, that could lead to future initiatives. Based on the evidence presented for these studies, future policy initiatives may be taken that can improve natural-gas market conditions and lead to more moderate future gas prices.


  1. As an illustration, if the LNG-siting provision leads to substantially more LNG imports, the benefits from offering financial incentives to domestic gas production would be diminished.
  2. In addition to the underlying rationale for the LNG-siting section of the act, sections of the act involving gas pipeline and electric transmission-line certification are intended to counter the adverse effects that could come from giving local or state agencies primary or exclusive siting authority. These effects, frequently referred to as NIMBYism, can result in socially attractive facilities (although perhaps inimical to local interests) not being built, in many instances, to serve a market beyond the local level.
  3. For example, section 312 of the act allows FERC the authority to allow market-based pricing of storage services even when the natural-gas company fails to demonstrate the absence of market power. With the facilitation of market-based pricing, it is hoped that more investments in storage capacity will ensue, causing a downward pressure on future natural-gas prices. Regarding the certification of interstate gas pipelines, the act intends to shorten the time for siting pipelines, thereby bringing on line sooner additional capacity in different regions of the country.
  4. Overall, the new siting process is depicted by its proponents as both comprehensive and streamlined. Most analyses have shown that LNG will be critical in moderating gas prices in the U.S. over the next 20 years.
  5. The California commission argued that since the LNG terminal is an intrastate facility, FERC has no jurisdiction over its certification. On the other side, FERC contended that since an LNG terminal involves foreign commerce, it has exclusive authority. FERC found in its analysis no difference in pre-empting states in foreign commerce as it does for interstate commerce.
  6. Section 311 requires the governor of a state where a LNG terminal is being proposed to designate a state agency to consult with FERC on safety issues.
  7. These violations will be reported to the Office of Pipeline Safety for further review and determination of action.
  8. Specifically, the section requires the pre-filing process to start at least six months prior to the filing of an