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Sierra Club v. United States Department of Energy

United States Court of Appeals, District of Columbia Circuit

August 15, 2017

Sierra Club, Petitioner
United States Department of Energy, Respondent FLNG Liquefaction 2, LLC, et al., Intervenors

          Argued February 2, 2017

          On Petition for Review of the Department of Energy Office of Fossil Energy Orders 3357-B (Nov. 14, 2014) and 3357-C (Dec. 4, 2015); DOE/FE Docket No. 11-1161-LNG

          Nathan Matthews argued the cause for petitioner. With him on the briefs was Sanjay Narayan. Joanne M. Spalding entered an appearance.

          John L. Smeltzer, Attorney, U.S. Department of Justice, argued the cause for respondent. With him on the brief were John C. Cruden, Assistant Attorney General, and David Gunter, Attorney.

          Jonathan S. Franklin argued the cause for intervenors Freeport LNG Expansion, L.P., et al. With him on the brief was Lisa M. Tonery. Charles R. Scott entered an appearance.

          Catherine E. Stetson, Stacy R. Linden, and Ben Norris were on the brief for intervenor American Petroleum Institute.

          Before: Henderson and Wilkins, Circuit Judges, and Sentelle, Senior Circuit Judge.


          Wilkins, Circuit Judge

         In this petition for review, Sierra Club challenges the Department of Energy's (the "Department") grant of an application to export liquefied natural gas ("LNG") using terminals and liquefaction facilities (collectively, the "Freeport Terminal") on Quintana Island in Brazoria County, Texas. The Federal Energy Regulatory Commission ("FERC") is responsible for approving the siting and construction of any such facilities. In Sierra Club v. FERC ("Sierra Club (Freeport)"), 827 F.3d 36, 40 (D.C. Cir. 2016), we upheld FERC's decision to approve the construction of the Freeport Terminal. However, the export of LNG out of that terminal requires separate approval from the Department.

         In 2011, the Intervenors, Freeport LNG Expansion, L.P. and its related entities (collectively, "Freeport"), requested permission to export an amount of LNG equivalent to 0.4 billion cubic feet per day ("Bcf/d") of natural gas out of the Freeport Terminal. The Department granted the application, finding the proposed exports are in the "public interest" under Section 3(a) of the Natural Gas Act. Under the National Environmental Policy Act ("NEPA"), the Department also considered and disclosed the potential environmental impacts of its decision. Sierra Club argues that the Department fell short of its obligations under both the Natural Gas Act and NEPA. In particular, it asserts that the Department did not sufficiently examine the indirect effects of LNG exports, such as the effects related to the likely increase in natural gas production and usage that will result from the export authorization here, as well as the cumulative effects of other anticipated, pending, or approved export proposals. For the following reasons, Sierra Club's petition is denied.


         Much of the pertinent background is explained in our earlier decision in Sierra Club (Freeport). There, we determined FERC complied with both the Natural Gas Act and NEPA with respect to its decision to authorize the construction of the Freeport Terminal. Yet the Department was independently required to consider the environmental impacts of its export authorization decision under NEPA and determine whether it satisfied the Natural Gas Act's "public interest" test.


         Section 3 of the Natural Gas Act authorizes the exportation of natural gas from the United States unless the Department determines that doing so "will not be consistent with the public interest." 15 U.S.C. § 717b(a). The Department's discretion in this regard depends on whether the country to which the gas will be exported is one that has with the United States a "free trade agreement requiring national treatment for trade in natural gas" (a "Free Trade" country). Id. § 717b(c). If so, then the Department must authorize the exportation to that country "without modification or delay." Id. § 717b(c). However, if the country does not have such an agreement with the United States (a "non-Free Trade" country), then the Department must independently determine whether such exports would be inconsistent with the public interest. Rather than assign LNG export applications to particular end-user destinations, the applications are designated for export to either Free Trade or non-Free Trade countries, generally.

         Freeport submitted four separate applications to the Department seeking LNG export authorizations out of the Freeport Terminal - two for Free Trade countries and two for non-Free Trade countries, with each one seeking to export an amount of LNG equivalent to 1.4 Bcf/d of natural gas. In accordance with the Natural Gas Act, the Department promptly granted Freeport's Free Trade applications. For the non-Free Trade applications, the Department published notices of intent to initiate public-interest review proceedings. Sierra Club filed a protest and moved to intervene in one of those proceedings regarding Freeport's 2011 application (the "FLEX application"), which is the subject of the present petition. See 77 Fed. Reg. 7568 (Feb. 13, 2012) ("FLEX"). Although the FLEX application originally sought authorization to export an amount of LNG equivalent to 1.4 Bcf/d of natural gas, the Department subsequently limited its authorization to 0.4 Bcf/d after Freeport amended its application to construct a facility with a smaller maximum capacity.


         In considering whether to grant the FLEX application, the Department needed to determine whether and to what extent to issue an environmental impact statement under NEPA. That statute requires every agency proposing a "major Federal action" to prepare a statement of its environmental impact if the action will "significantly affect[] the quality of the human environment." 42 U.S.C. § 4332(C).

          The agency must consider not just the "direct" environmental effects that "are caused by the [agency's] action and occur at the same time and place, " but also the action's "indirect" environmental effects that "are caused by the action and are later in time or farther removed in distance, but are still reasonably foreseeable." 40 C.F.R. § 1508.8; Sierra Club (Freeport), 827 F.3d at 41. In addition, the agency must consider the "cumulative impact[s]" on the environment, meaning "the incremental impact of the action when added to other past, present, and reasonably foreseeable future actions regardless of what agency (Federal or non-Federal) or person undertakes such other actions." 40 C.F.R. § 1508.7.

         Where multiple federal agencies have authority over different aspects of the same project, agencies may coordinate review, and may incorporate one another's analysis. Here, FERC was the "lead agency" for the purposes of complying with NEPA, see 15 U.S.C. § 717n(b)(1), and the Department acted as a "cooperating agency, " 40 C.F.R. § 1501.6(b). This meant the Department could "adopt [FERC's] environmental analysis as its own for purposes of any additional NEPA review triggered by an export-authorization request." Sierra Club (Freeport), 827 F.3d at 41. However, the Department must still "independently review [FERC's] work and conclude that [the Department's] own 'comments and suggestions have been satisfied.'" Id. at 41-42.


         The Department received applications similar to FLEX from other companies seeking to export LNG around the same time Freeport submitted its applications. In response to all pending and anticipated applications, the Department commissioned two studies - which we will refer to as the "EIA Study" and the "NERA Study" - to evaluate the impact of LNG exports on domestic energy markets and related macroeconomic effects.

         The first study was done by the Energy Information Administration ("EIA"). By August 2011, the Department had received applications for authority to export that totaled 5.6 Bcf/d of natural gas, J.A. 151, and requested that EIA conduct a study on various scenarios assessing how "increased natural gas exports could affect domestic energy markets, focusing on consumption, production, and prices, " J.A. 132. In the EIA Study, issued in January 2012, EIA examined how LNG exports in amounts equivalent to 6 and 12 Bcf/d might impact domestic energy markets over a 25-year period using the National Energy Modeling System. See U.S. Energy Information Administration, Effect of Increased Natural Gas Exports on Domestic Energy Markets (January 2012), J.A. 318-26.

         EIA observed that "projections of energy markets over a 25-year period are highly uncertain and subject to many events that cannot be foreseen, such as supply disruptions, policy changes, and technological breakthroughs." EIA Study at 3, J.A. 134. Its particular study contained several limitations that made its projections even more uncertain, such as the fact that it did not take account of the interaction of the U.S. market with the global energy market. Id. With these caveats, EIA projected that increased LNG exports would lead to increased natural gas prices within the United States and that the U.S. market would respond by increasing gas production.

         Specifically, across all cases, it projected that increased natural gas exports (of 6 to 12 Bcf/d, compared to a baseline of no exports) would result in increased natural gas production that would satisfy about 60 to 70 percent of the increase in natural gas exports. Id. at 6, J.A. 137. Notably, across most cases, about three-quarters of this increased production would come from shale sources. Id. In response to higher gas prices, EIA also projected a decrease in ...

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