An Oregon LNG export terminal and feeder pipeline proposed by a Calgary company has been rejected by the U.S. energy regulator because it failed to line up customers to demonstrate need.
In a decision released Friday afternoon, the Federal Energy Regulatory Commission (FERC) denied both Veresen Inc.’s plan to build a $5.3-billion natural gas export terminal at Jordan Cove, Ore., and its Pacific Connector joint proposal with Williams Partners LP to construct a pipeline that would supply it.
The rejection throws into question the future of a project that has waited almost three years for regulatory approval.
On its fourth-quarter conference call Thursday, Veresen executives said the company was working to find customers to buy the liquefied natural gas it would produce at Jordan Cove. The six-million-tonne-per-year project is designed to supercool Canadian and U.S.-sourced natural gas to a liquid state for export primarily to Asian markets.
Veresen president and CEO Don Althoff, in a news release late Friday, said it will request a rehearing of the decision while those negotiations continue.
“Clearly, we are extremely surprised and disappointed by the FERC decision,” Althoff said.
“The FERC appears to be concerned that we have not yet demonstrated sufficient commercial support for the projects. We will continue to advance negotiations with customers to address this concern.”
Analyst Steven Paget of Calgary’s FirstEnergy Capital said the FERC decision was “shocking” but perhaps should not have been given the regulator’s duty to ensure need before giving approval.
“It’s a huge surprise,” he said. “I thought approval was very likely.”
He said Veresen now will have to choose between finding a way to appeal the decision or walk away from the project.
FERC said it was reluctant to allow a project to proceed over landowner protest when it hasn’t demonstrated need.
“The commission’s issuance of a certificate would allow Pacific Connector to proceed with eminent domain proceedings in what we find to be the absence of a demonstrated need for the pipeline,” it stated in its decision.
It left the door open for the companies to try again, however.
“Our actions here are without prejudice to Jordan Cove and/or Pacific Connector submitting a new application to construct and/or operate LNG export facilities or natural gas transportation facilities should the companies show a market need for these services in the future.”
Oklahoma City-based Williams didn’t immediately respond to requests for comment.
In February, Calgary-based AltaGas Ltd. announced it was shelving its Douglas Channel LNG plant proposed for the B.C. coast indefinitely because the company was unable to find customers in Asia for the natural gas.
On Thursday, Althoff said the collapse in oil and gas prices has reduced the cost of building new energy projects, potentially improving Veresen‘s returns on Jordan Cove.
“The current downturn in global energy markets has created an opportunity to optimize capital costs for the project,” Althoff said.
A worldwide glut of liquefied natural gas is meanwhile emerging, threatening the economics of export projects such as Jordan Cove being proposed along America’s coasts. As much as half of U.S. LNG export capacity is at risk of being shut in between 2017 and 2020, according to the research and consulting group Wood Mackenzie Ltd.
Veresen had proposed to build four “trains” at Jordan Cove that would have been capable of producing 6.8 million metric tons of liquefied natural gas a year. The 373-kilometre Pacific Connector gas pipeline proposed to supply the plant would have been owned by Veresen and Williams Partners.