Vol. 14, No. 22 Week of May 31, 2009
Providing coverage of Alaska and northern Canada's oil and gas industry

FERC clarifies Kenai LNG plant order

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In response to request from owners, commission acknowledges site, design, construction grandfathered; requires semiannual reports

Kristen Nelson

Petroleum News

The Federal Energy Regulatory Commission has revised in part and confirmed in part its requirements for Kenai LNG facility reporting.

In a January order FERC said the liquefied natural gas terminal and storage facility at Kenai was subject to the same reporting and inspection requirements as other LNG terminal facilities under Section 3 of the Natural Gas Act.

These were new requirements and ConocoPhillips Alaska Natural Gas Corp. and Marathon Oil Co., the owners of the facility, sought a rehearing and clarification of the order.

The Kenai facility began operations in 1969, liquefying natural gas and shipping LNG to customers in the Far East. When the facility was proposed in 1967 it was the first import or export facility not at the border with Canada or Mexico and after reviewing the situation with the secretaries of State and Defense, and the Office of Legal Counsel of the Department of Justice, the Federal Power Commission, FERC’s predecessor, concluded that executive permission — issued as a presidential permit — was only required for facilities at the border between the United States and a foreign country.

FERC said it has consistently followed that decision for LNG terminals relying on ships, but for the Kenai proposal, the commission did not consider the issuance of a separate authorization for siting, construction, operation and maintenance.

In 1970, however, in response to a second application for an LNG terminal, a Massachusetts import terminal, a judicial review clarified the commission’s authority to regulate siting, construction, operation and maintenance of LNG terminal facilities.

The commission rejected a challenge to its authority to regulate siting, construction, operation and maintenance in 2002 and the Energy Policy Act of 2005 added section 3(e)(1) to the Natural Gas Act, clarifying that FERC “shall have the exclusive authority to approve or deny an application for the siting, construction, expansion or operation of an LNG terminal.”

Clarification requested

ConocoPhillips and Marathon argued in a February request for clarification or rehearing that the Kenai LNG facility was grandfathered and not subject to reporting or safety requirements applicable to recently built facilities.

The companies argued that FERC imposed reporting requirements on the Kenai terminal for the first time “without explaining why such reporting requirements are needed now when they have not been needed for the past forty years.” They also argued that the order appears to require the terminal to provide information on regulatory requirements not applicable to the terminal, and said FERC’s “sole justification for the sudden imposition of these requirements, without prior notice or an opportunity to be heard, is that it imposes similar requirements on other LNG terminals.”

The Kenai facility is an export terminal whose sales are subject to the U.S. Department of Energy, the companies said, unlike LNG import terminals for which FERC approved construction and operation.

The companies also objected to imposition of an annual charge by FERC, saying the commission previously ruled the annual charge does not apply to Kenai terminal.

Standards grandfathered

FERC said in its January order that it did not oversee construction of the Kenai facility and did not apply the same reporting and inspection requirements applied to other LNG terminals, but said the scope of its jurisdiction over LNG terminal and storage facilities has been clarified since the original Kenai LNG application in 1967.

In a May 21 order on rehearing and clarifying, FERC said it does “not expect Kenai’s existing facilities to conform to contemporary standards” and will not subject the facility to an annual charge, but said “ConocoPhillips and Marathon must submit the same reports for Kenai that are submitted for other LNG terminals.”

FERC said the companies maintain that since there has been no change in the Kenai facility’s facilities or operations, there is no cause for change in the commission’s oversight.

“We acknowledge that there has been no change to Kenai, and stress that our January 2009 Order does not indicate that Kenai is not in compliance with all applicable federal safety standards,” FERC said.

But FERC said that over the last few years, “prompted in part by the Energy Policy Act of 2005,” the commission has reviewed its regulation of LNG terminals, “particularly as it relates to safety and security issues.” FERC said because of it the revisions of its statutory obligations it found it appropriate to bring the Kenai LNG facility “in line with the regulatory regime that we apply to every other LNG terminal.”

The January 2009 order informed the companies that in the future the Kenai LNG facility would be “subject to routine reporting and inspection procedures, including a technical design review. The order does not mandate any change to Kenai’s current facilities or operations,” FERC said, but merely “... clarified how we intend to exercise our regulatory jurisdiction over Kenai going forward.”

The companies had the opportunity to address their concerns in their request for rehearing and clarification, FERC said, and those concerns are addressed in the order on rehearing and clarification.

“Given this, we do not believe the parties have been deprived of notice and the opportunity to comment via this paper hearing procedure.”

What is grandfathered?

FERC said aspects of the Kenai facility related to siting, design and construction are grandfathered, but said that “as a result of technical review or inspections,” its staff may recommend changes “to ensure the continued reliability, operability, safety and security of the facility.”

If the companies seek to modify or expand the facility in the future, standards then in effect would be applied to those modifications or expansions, FERC said.

On the issue of regular reports, FERC said ConocoPhillips and Marathon argued they should be exempt from Resource Reports 11 and 13, “because the reports state they are to apply to new and recommissioned facilities.”

FERC said the introduction section of Resource Reports 11 and 13 specifies new and recommissioned facilities “because reports are presumably already on file for existing facilities,” and said that description is not intended to exempt an existing facility from reporting requirements when it has not yet complied with the requirements.

“Thus, when an existing LNG facility that has been exempt from our jurisdiction becomes subject to our jurisdiction, we require that the information contained in Resource Reports 11 and 13 be submitted for that existing facility. Kenai is in the position of a new, recommissioned or newly jurisdictional facility in that we do not have the resource report information on file.”

FERC said the information in the report is necessary for technical and cryogenic design review of facility operation and maintenance.

Not all information relevant

FERC said it agreed with ConocoPhillips and Marathon that not all of the information specified in the resource reports is relevant to the existing Kenai LNG facility, but said the companies have not presented an itemized listing of data they deem inappropriate, and urged the companies to submit such a listing along with a rationale for excluding it.

FERC said that in light of previous commission action, finding the companies exempt from annual charges, it will revise the January 2009 order and the companies “will not at this time be subject to an annual charge with respect to volumes moving through the Kenai facilities.”

However, FERC said it would require the companies to submit page 520 of FERC form 2, showing total LNG volumes transported, “since the submission of this information will enable us to better monitor Kenai’s operations.”

Operational reports are due semiannually, but because form 2 is filed annually, the page 520 data need only be updated annually.

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