Exclusive-Top U.S. LNG producer Cheniere asks Biden admin to drop pollution rule

By Valerie Volcovici

WASHINGTON (Reuters) - Cheniere Energy (NYSE:LNG) Inc has asked the Biden administration to exempt it from limits on emissions of cancer-causing pollutants, arguing they would force the top U.S. exporter of liquefied natural gas to shut for an extended period and endanger the country's efforts to ramp up supplies to Europe, according to documents reviewed by Reuters.

The request imposes an uncomfortable dilemma on President Joe Biden’s administration as it tries to balance efforts to slash pollution from the fossil fuel industry against promises to help European allies cut energy ties with Moscow over its invasion of Ukraine.

Denying Cheniere could shut off the bulk of America’s LNG exports for months or years, while granting its request would mean ongoing emissions of toxic pollutants into poor and minority neighborhoods Biden has vowed to protect.

Texas regulators have already given Cheniere's massive LNG plant on the outskirts of the Gulf Coast city of Corpus Christi a pass for overshooting emissions limits on other pollutants, according to previous Reuters reporting.

The request also reflects a huge financial vulnerability for Cheniere and its shareholders at a time it has been enjoying increased sales and a rising stock price.

At issue is a rule under the U.S. Clean Air Act called the National Emissions Standards for Hazardous Pollutants (NESHAP), which imposes curbs on emissions of known carcinogens like formaldehyde and benzene from stationary combustion turbines.

The Environmental Protection Agency (EPA) announced in February that starting in August, the rule will apply to two types of gas-fired turbines that had been left out of the regulation for nearly two decades.

Gas-powered turbines emit formaldehyde and other dangerous pollutants through a chemical transformation that occurs when methane is superheated.

Around 250 U.S. gas turbines will be subject to the rule, according to an EPA list that showed Cheniere is the only LNG company that uses these type of turbines and whose facilities will be impacted.

The Houston-based company, which accounts for around 50% of U.S. shipments of the supercooled fuel, told the EPA in a series of emails this spring that its two LNG facilities in Louisiana and Texas use a unique turbine design that cannot be easily equipped with pollution controls.

“The design of Cheniere’s LNG terminals is complex, and the subject turbines are located on elevated pedestals with limited space for installing control equipment,” Cheniere’s law firm Bracewell said in a letter emailed to EPA Administrator Michael Regan on March 8.

“Potentially imposing significant costs and operational disruption on the U.S. LNG industry at the same time the administration is focused on Europe’s strategic need to break its reliance on Russian gas is counterproductive,” it said.

A separate Cheniere email dated March 9, sent to other EPA officials, said design and engineering work to evaluate the feasibility of retrofitting all 62 turbines at its facilities would likely take “several years”, making it impossible to meet the federal pollution standard on time.

The company asked the EPA to reverse its decision to subject gas-fired turbines to the NESHAP rule, or exempt the specific design used by Cheniere, according to the documents. Company representatives later met with senior EPA staff, including Principal Deputy Assistant Administrator Joseph Goffman and Deputy EPA Administrator Janet McCabe, to discuss the issue, according to the documents.

The EPA confirmed that Cheniere, through its law firm Bracewell, had made the request for relief from the regulation and that agency staff and officials met with the company in March and April to discuss it.

"At this time we have not made a decision to lift the stay or issue an exemption," the EPA said in a statement.

Cheniere's request could carry some weight in the Biden administration as one of a handful of companies that advises a White House and EU-backed task force developing a plan to wean EU countries off Russian gas.

TWO-DECADE REPRIEVE

The EPA first imposed the standard for stationary combustion turbines under NESHAP in 2004, but issued a “stay” temporarily excusing two types of gas-fired turbines commonly used by the energy industry after business groups petitioned to keep them out of the regulation - arguing that the pollution they create is "negligible."

The EPA kept that stay in place for 18 years, but never formally delisted the turbines because of a 2007 decision by the D.C. Circuit Court of Appeals saying it had no authority to do so.

In February 2020, after environmental groups threatened to sue the agency for inaction, Biden’s EPA announced it would finally lift the stay and require operators to meet the standard.

Under the rule, these turbines will have to comply with an emissions limit of 91 parts per billion for formaldehyde within 180 days. That level that for formaldehyde is meant to ensure lower levels of emissions for other dangerous chemicals too, according to the EPA.

Frank Maisano of Bracewell told Reuters that Cheniere is awaiting a formal response from the EPA on the company’s request for relief from the rule.

Neither Maisano nor Cheniere would comment to Reuters on why the company used a turbine design at its facilities that could not easily accommodate equipment that might be needed if the regulatory stay on gas turbines were lifted.

In its correspondence with the EPA, Cheniere said its facilities were built in accordance with regulations in effect at the time. The Sabine Pass facility, which produces about 30 million tonnes per annum (MTPA) of LNG, started operating in 2016, while the 15-MTPA Corpus Christi plant entered into service in June 2018.

Cheniere approved last month a major expansion at its Corpus Christi facility that would add seven liquefaction trains to produce around 10.5 MTPA of LNG. A Cheniere spokesperson told Reuters the company will use electric turbines for the new trains, instead of gas-fired turbines.