On September 4, 2014, the Federal Energy Regulatory Commission (Commission or FERC) issued two orders declining to exercise jurisdiction over the siting and construction of two proposed liquefied natural gas (LNG) projects designed to liquefy domestic and imported natural gas and send it by truck, rail, or vessel to ultimate end-users of the LNG, while clarifying that it retains jurisdiction over certain sales of LNG in interstate commerce. These orders provide additional clarity regarding when the Commission will assert jurisdiction under the Natural Gas Act (NGA) sections 3 and 7, but jurisdictional questions remain for projects with different structures, and projects with longer lead times face continued uncertainty because the make-up of the Commission is likely to change in the coming months.


As part of its project to construct LNG fueling stations at truck stops across the United States, Shell U.S. Gas and Power, LLC (Shell) plans to import Canadian LNG by vessel across the Great Lakes region, add docking facilities to receive the LNG in that region, and add liquefaction facilities at its existing chemical plant in Louisiana to convert some of its existing natural gas production to LNG. Shell then plans to move these LNG supplies to LNG fueling locations by either truck, rail, or water, but not by pipeline.

Pivotal LNG, Inc. proposes to ship LNG via truck and waterborne vessel to end-users in various states and U.S. territories (including Puerto Rico and Hawaii) that will use it for vehicular fuel, feedstock, or “other end-use fuel.” Pivotal plans to source the LNG from five existing non-jurisdictional LNG storage and liquefaction facilities located more than 150 miles inland in Alabama, Georgia, and Tennessee. Although Pivotal explained that some “regasification of LNG for delivery to a local distribution company’s (LDC) pipeline in order to serve [an]… LDC’s ‘peaking’ needs” could occur, the project does not involve delivery of boil-off or vaporized LNG into any FERC-jurisdictional pipelines. 

Both parties filed petitions for declaratory order with the Commission, each asking the Commission to find that the vehicular fuel exemption to Commission jurisdiction found in section 1(d) of the NGA rendered the project facilities and sale of LNG non-jurisdictional. 

Commission orders

The Commission disagreed with both petitioners that the vehicular fuel exemption in section 1(d) of the NGA applies because both projects involve sale and use of LNG for non-vehicular purposes. However, the Commission explained that neither project is jurisdictional under either section 7 or section 3 of the NGA (with the exception of certain specified sales for resale of LNG in interstate commerce). 

The Commission found that Shell’s proposed Great Lakes facilities do not constitute an “LNG Terminal” within the meaning of section 3 of the NGA, despite use to import LNG from Canada by vessel and location on the shores of the Great Lakes, because they will not deliver gas into pipeline facilities. Similarly, the Commission concluded that Shell’s proposed liquefaction in Louisiana on the shores of the Mississippi River, which will receive Shell production via pipeline and will load ships that will transport LNG in interstate commerce, are non-jurisdictional because Shell has no intent to reintroduce the gas into a pipeline. Rather Shell will liquefy the gas and “transform it into a product for sale and delivery in its liquid state to end users.” The Commission also found no jurisdiction under section 7 of the NGA, noting that “even when gas is delivered to a liquefaction facility by a jurisdictional interstate pipeline, when the purpose of liquefying the gas is to transform it into an ‘end product’ to be delivered by a non-pipeline mode of transportation to end-users, the Commission has viewed the liquefaction facility as the ultimate destination for the pipeline transportation of the gas.” 

Commissioner Bay dissented, noting that “it is beyond dispute” that Shell’s Great Lakes and Louisiana facilities would perform activities found in the NGA definition of “LNG Terminal” (namely, receiving, unloading, storing, and liquefying LNG). In his view, Commission jurisdiction under section 3 does not turn on the narrow “transportation facilities” language of section 7. “The former is clearly broader than the latter, and had Congress intended a more limited approach it could have used the language of section 7 in section 3.” “If anything, … history suggests that Congress intended to pre-empt state action and used broad language to accomplish that result, providing ‘exclusive authority’ to FERC with respect to LNG terminals… including ‘all natural gas facilities’ in which natural gas was ‘transported in interstate commerce by waterborne vessel’.” 

For Pivotal, the Commission declined to exercise jurisdiction over the five inland LNG peaking facilities, finding these facilities will not be used to receive LNG by waterborne vessel for subsequent interstate transportation, and therefore are not “LNG Terminals” under the NGA. Commissioner Bay concurred in this holding, noting that the references to “coastal” and “waterborne” in the statutory definition make it clear that inland LNG storage facilities were not intended to fall within the scope of the NGA. As in Shell, in disclaiming NGA section 7 jurisdiction, the Commission relied on the fact that the facilities were utilized to transform the gas into what is, in effect, an end product where jurisdictional transportation ends. However, the Commission explained that certain sales for resale of LNG by Pivotal would be jurisdictional under section 7, and in those cases, Pivotal would need to rely on an automatic blanket marketing certificate under section 284.402 of its regulations.

In both orders, the Commission concluded that there was no “regulatory gap” justifying the exercise of Commission jurisdiction as the facilities and operations would be subject to safety and environmental regulation by other federal entities, including the Department of Transportation, the U.S. Coast Guard, and the Environmental Protection Agency. In contrast, the Commission explained in Shell that it would exercise section 3 jurisdiction over facilities that receive LNG transported in interstate commerce by waterborne vessel, where the LNG is re-vaporized and injected into gas pipelines for transportation and consumption entirely within that state because failure to do so could leave a regulatory gap. 

The Commission also warned that, in projects involving non-pipeline transportation of LNG (as is the case for projects serving vehicular, marine, and certain high-horsepower fuel applications, and peaking markets), it will exercise section 7 jurisdiction over upstream LNG facilities and downstream receiving facilities and pipelines in the event the proposed project or transaction “would displace gas transported on an interstate pipeline, be part of a jurisdictional gas exchange, or circumvent in some other way the Commission’s NGA jurisdiction over the interstate transportation of gas by pipeline.” Further, in disclaiming jurisdiction, the Commission was careful in both orders to note that no boil off gas produced by the liquefaction facilities would be re-injected back into a FERC-jurisdictional interstate pipeline.


Prior to these orders, the Commission had left open a number of questions about the jurisdictional status of upstream, domestic facilities used to produce and store LNG for non-pipeline transport to end-users and local distribution companies. These orders provide much needed clarity regarding when the Commission will assert jurisdiction under NGA sections 3 and 7 over projects designed to directly serve end-users, as well as when certain NGA exemptions apply, and come at a time when many diverse stakeholders are proposing projects designed to convert relatively low priced domestic natural gas supplies into LNG for vehicular fuel, production, and industrial end-use, winter peaking needs, and fuel for electric generation. 

The fact that the Commission will apply its reasoning “to other situations with the same underlying relevant characteristics” is good news for developers of similar projects. However, jurisdictional determinations are highly fact-dependent and it will be incumbent on interested stakeholders to pay close attention to the structure of their projects to ensure proper analysis of FERC’s role, particularly for LNG projects with long lead times. 

Commissioner Bay’s partial dissent is also likely to become more relevant as the makeup of the Commission changes in coming months. President Obama has nominated a new commissioner, Colette Honorable, to replace Commissioner Norris, who has resigned to pursue a diplomatic post, and Commissioner LaFleur will soon be succeeded in the Chairmanship by Commissioner Bay.