Community resistance creates risks for investors looking to expand LNG export infrastructure
Part 3 of a research series on private equity and LNG. To find Part 1 click here. To find Part 2 click here
March 28, 2023
Private financing fuels LNG’s uncertain future
Part 3: Community resistance can create risks for investors looking to expand LNG export infrastructure
As private equity lines up investments into proposed liquified natural gas (LNG) export terminals, the firms face a number of considerable hurdles including uncertain global demand, negative climate impacts, and opposition from local communities. These hurdles mean uncertainty for investors in the overall viability of LNG, while the rapid onboarding of LNG also works against carbon reduction goals. As seen in the graphic below from Canary Media, data illustrates how even existing LNG infrastructure needs to phase out and that any new construction would put us outside of the International Energy Agency’s Net Zero pathway.
*Data Source: Canary Media
In addition to global impacts on the climate, building and operating LNG export projects have substantial negative effects on local communities such as job loss for fishing and other industries, air and water pollution, habitat destruction, and encroachment on Indigenous sovereignty. These effects are disproportionately felt by communities of color which are over-represented in frontline communities. New data suggests a disturbing trend of locating these new and highly destructive LNG projects in predominantly Brown and Black communities. A recent 2020 Environmental Integrity Project report found people of color represent 38 percent of the population living within three miles of proposed LNG terminals—10 percent higher than those living in proximity to existing terminals. Global and local impacts have sparked community-led campaigning to stop new LNG export terminals from being built. Local opposition to LNG export terminals has resulted in delays, cost overruns, and even cancellation of LNG projects in their communities, creating real financial risk for project developers and their investors.
Although there are 29 LNG export terminals proposed to expand U.S. export capacity, it is unlikely that each announced LNG export terminal will come to fruition. According to an October 2022 Global Energy Monitor (GEM) report, there were 779 million tonnes (mtpa) of LNG export capacity in development. Of that export capacity in development, 465 mtpa was facing delays—around 60 percent. GEM reported uncertain export economics, regulatory hurdles, lack of financing, high gas prices, and local opposition as some of the reasons why LNG export projects may not get built.
LNG projects contribute to the global climate crisis, as the Environmental Integrity Project found through a 2022 analysis of 24 proposed LNG projects in the U.S. and concluded that these projects can “increase annual greenhouse gas emissions by more than 90 million tons per year. That’s more climate-warming pollution than from 20 new coal-fired power plants, or 18 million gas-powered cars running for a year.” In addition to the global greenhouse gas (GHG) impacts, serious, local impacts on communities spark campaigns in those affected areas to fight the construction of LNG export terminals. Below are examples of projects that were delayed or canceled after communities organized in opposition.
Wyalusing LNG, Pennsylvania
On March 18, 2022, Bradford County Real Estate Partners (BCREP), a subsidiary of private equity firm Fortress Investment’s New Fortress Energy (NFE) settled a lawsuit with local community and environmental groups, stopping construction of its planned $800 million LNG plant in Wyalusing, Pennsylvania. The lawsuit originated after BCREP applied for an air quality permit extension in 2019 with the Pennsylvania Department of Environmental Protection (DEP) without having made substantial progress on the project construction. Activists successfully delayed the project, forcing BCREP to go through the air permit process again in order to continue with the project. Nonetheless, in a federal regulatory filing, NFE said “there can be no assurances that we will complete (the Wyalusing site),” and the company reportedly “repurposed” approximately $17 million of engineering and equipment to another company project according to local news, Delaware Currents.
Local opposition celebrated the win as a victory for environmental justice and environmental law enforcement in the region. litigation showed that DEP cannot rubber stamp petrochemical facilities in Pennsylvania,” said Jessica R. O’Neill, PennFuture Senior Attorney. ” We will continue to fight to protect our communities from the harmful air and water quality impacts facilities like this proposed LNG plant have, ensuring that DEP applies stringent environmental protections and limitations on facilities and denies those permits that do not comply with the law.”
Rio Grande Valley / Texas LNG
In Texas, local community groups took a different approach to fight the build-out of the LNG export economy. The Rio Grande Valley is slated to see three new LNG terminals, and local residents are worried about increased air pollution, environmental destruction, and increased fracked gas being piped through and processed in their communities. In 2017 they decided to take their fight to bank executives, organizing a transatlantic campaign to persuade two of the biggest banks backing the LNG buildout in Rio Grande Valley—Societe Generale and BNP Paribas—to not fund these fossil fuel projects. A short time later, BNP Paribas announced, “BNP Paribas is also ceasing financing of projects that are primarily involved in the transportation or export of oil and gas from shale or oil from tar sands.” This statement includes their LNG assets and means it would no longer support the Texas LNG project in the Rio Grande Valley. The Texas LNG project is owned by private equity company Glenfarne Group via its portfolio company Alder Midstream. Currently, the Texas LNG project is still in the planning stage as a final investment decision (FID) for the $2 billion project was slated to be finalized in 2018, and then again at the end of 2022. The project still hasn’t reached FID, delaying the project by more than 4 years.
Jordan Cove LNG, Oregon
In 2021, Pembina Pipeline Corp. ended its decade-long planning effort to build a $10 billion, 229-mile pipeline and coastal LNG processing and export terminal near Coos Bay, Oregon. The Jordan Cove project was initially proposed in 2007 and was contested by property owners, environmental groups, Indigenous communities, and Oregon state officials. The stakeholders achieved an initial win against the Jordan Cove LNG project in 2016 when the Federal Energy Regulatory Commission (FERC), for the first time ever, denied the developer’s application because the public benefits of the project were too few to outweigh the adverse effects on landowners. In the end, the project was denied three necessary permits from different Oregon state agencies, even after winning FERC-approval in 2020 by a Republican-controlled commission and being listed among infrastructure projects to be fast-tracked by an executive order by President Trump in 2020. Although private equity wasn’t involved in this project, the defeat of Jordan Cove LNG can serve as a cautionary tale of the influence community opposition plays in the construction of LNG export infrastructure.
In conclusion, opposition by community members and environmental advocates in Pennsylvania, Texas, and Oregon created delays, cost overruns, and even the outright cancellation of LNG projects in their communities. Local, community coalitions successfully demonstrated these projects either lacked an adequate public benefit, failed to comply with environmental regulations, or created enough financial and headline risk to banks to not warrant further investment.