Congress embedded a provision in the omnibus spending bill that gives support to the federal government over the states when it comes to siting Liquefied Natural Gas terminals.

On March 24, 2004, FERC issued a declaratory order asserting exclusive jurisdiction over the approval and siting of liquefied natural gas (LNG) terminals. FERC concluded that LNG terminals are engaged in foreign commerce and, as such, fall clearly within the authority granted to the FERC under Section 3 of the Natural Gas Act of 1938.

The conferees agree on this point and disagree with the position of at least one State government agency that it should be the authority responsible for LNG terminal siting within its boundaries, rather than the FERC.

The Natural Gas Act clearly preempts States on matters of approving and siting natural gas infrastructure associated with interstate and foreign commerce. These facilities need one clear process for review, approval, and siting decisions. Because LNG terminals affect both interstate and foreign commerce, LNG facility development requires a process that also looks at the national public interest, and not just the interests of one State.

The conferees recognize that, as a matter of energy supply, the nation will need to expand its LNG infrastructure over the decades to come to satisfy natural gas demand. Any dispute of LNG siting jurisdictional authority now will be counterproductive to meeting our natural gas needs in the future.

That one State referred to is California, and the issue in question is the construction of an LNG terminal off of Long Beach.

LNG terminals are becoming the NIMBY issue—at least for select coastal communities—of the coming years. With the state of natural gas—i.e., domestic production peaking in 1973, the import gap increasing, prices finding a new floor and looking to continue their steady increases, and steadily increasing demand, LNG terminals will become critical to the short- to medium-term energy supply mix in the US. Congress recognizes this, and the federal government is setting it up to brook no interference. The language in this provision is about as blunt as it gets.

The chart to the left plots natural gas production and consumption in the US with data from the BP Statistical Review of World Energy. The chart to the right plots the wellhead price, using data from the Energy Information Administration (EIA). Prices further down the distribution chain increase. For example, in the latest data from the Energy Information Administration, the wellhead price for August 2004 was $5.36/thousand cubic feet, the industrial price was $6.19 and the residential price $13.78.