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Description
On December 18, 2002, the Federal Energy Regulatory Commission (FERC) voted to remove regulatory barriers to the construction of new liquefied natural gas (LNG) import regasification terminals. In the new policy, FERC terminated open access requirements (i.e., tariff requirements and non-discriminatory rates) for LNG import terminals in an attempt to encourage more LNG site development. The policy was announced in FERC's decision to approve an application by Dynegy to build an LNG terminal in Hackberry, Louisiana. In its ruling, FERC granted preliminary approval (the first such approval for an import terminal in the continental United States in over 20 years) for the construction of Hackberry LNG (now Cameron LNG), clarifying that Dynegy could provide services to its affiliates under rates and terms mutually agreed upon (i.e., market-based), rather than under regulated cost-of-service rates, and exempted the company from having to provide open access service. In essence, from a regulatory perspective, LNG import facilities would be treated as supply sources rather than as part of the transportation chain. Sales of natural gas from the LNG plant were considered competitive with other sales of natural gas in the Gulf Coast region in a deregulated competitive commodity market, relieving the need for regulatory scrutiny.
FERC's new policy resulted from a public conference in October 2002, during which LNG industry representatives argued that open access requirements deterred investment in new LNG facilities. Industry representatives said that investors in LNG projects need to be assured access to import terminal capacity in order to advance capital-intensive liquefaction projects in other countries. Because FERC's open access requirements for LNG terminals had formerly mandated public, non-discriminatory auctions for capacity, regulations were hindering this investment. Indeed, many foreign governments would not approve liquefaction projects in their countries without regasification terminal access.
Impact
The Hackberry decision marked a significant departure from previous FERC practice. FERC specifically stated that it hoped the new policy would encourage the construction of new LNG facilities by removing some of the economic and regulatory barriers to investment. The Hackberry decision also made onshore terminal proposals competitive with proposed offshore LNG facilities, which under amendments to the 1974 Deepwater Port Act do not have to operate on a common carrier basis or provide access to third parties. While FERC's decision marks a lighter-handed regulatory regime for marketing operations at onshore LNG terminals, other regulations, such as those involving siting are unchanged by this new policy.
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