On June 28, 2016, the U.S. Court of Appeals for the District of Columbia Circuit rejected two related challenges to the Federal Energy Regulatory Commission’s environmental review of the Sabine Pass LNG and Freeport LNG applications to site, construct, and operate liquefied natural gas (“LNG”) export facilities under Section 3 of the Natural Gas Act.

The first decision, Sierra Club v. FERC, No. 14-1249 (the “Sabine Pass Decision”) addressed a challenge to FERC’s 2014 order amending the maximum production capacity of Sabine Pass LNG’s existing LNG export facilities, which were initially approved in a separate 2012 proceeding. The second decision, Sierra Club and Galveston Baykeeper v. FERC, No. 14-1275 (the “Freeport LNG Decision”), involved FERC’s order approving Freeport LNG’s application to add export and liquefaction facilities to its existing import terminals.

In each decision, the D. C. Circuit rejected the argument that FERC’s review under the National Environmental Policy Act (“NEPA”) failed adequately to consider: (1) the indirect environmental effects of increased natural gas exports (e.g., induced domestic natural gas production and increased use of coal-fired electric generation); and (2) the cumulative impacts of the total number of approved and pending LNG applications before FERC. The Court held that the petitioners in each case had standing, but decided on the merits that FERC’s orders were not arbitrary or capricious.

The D.C. Circuit held that FERC is not required in its NEPA review to consider possible indirect effects that flow from increased natural gas exports. Under NEPA, an agency is required to analyze only those effects caused by its own agency action. Because the Department of Energy (“DOE”) has the legal authority to approve natural gas exports–a decision over which FERC has no regulatory authority–the opinions held that DOE’s export authorization in each case “breaks the NEPA causal chain” and absolves FERC of the responsibility to analyze the indirect effects of increased natural gas exports. In the Freeport LNG Decision, the Court directed that these indirect effects should be addressed instead in Sierra Club’s pending challenge to DOE’s order authorizing Freeport LNG to export LNG.1

The opinions in each case also rejected petitioners’ claims that FERC’s cumulative impacts analysis violated NEPA by failing to consider applications for all other approved and pending LNG projects across the United States. According to the Freeport LNG Decision, petitioners “[drew] the circle too wide” because NEPA only requires FERC to consider the effect of a particular project along with other projects in the same geographic area. Moreover, in the Sabine Pass Decision, the D. C. Circuit dismissed petitioner, Sierra Club’s, cumulative impacts argument for lack of jurisdiction because Sierra Club did not raise the issue in its request for rehearing of FERC’s order, and thereby failed to exhaust its administrative remedies. Even if Sierra Club had raised the cumulative impacts issue in its request for rehearing, the D.C. Circuit noted it would dismiss the argument on the merits for the same reasons outlined in the Freeport LNG Decision.

These decisions confirm that FERC’s environmental review obligations under NEPA do not include indirect impacts resulting from increased natural gas exports, such as increased natural gas production and the increased use of coal for electric generation. The decisions also hold that there are regional limitations to FERC’s required cumulative impacts analysis when reviewing LNG terminals under section 3 of the Natural Gas Act. However, certain contours of the NEPA analysis remain uncertain for LNG projects. It remains unclear whether and how DOE would conduct an environmental review of such indirect effects of LNG exports.