Reach Of US Enviro Laws Key To Fight Over Ex-Im Gas Loans

The legal publication Law 360 published this story about our legal challenge to U.S. funding of major LNG processing facilities in the Great Barrier Reef in Australia. This is important marine habitat for sea turtles, dugongs and other marine life. Read our PR here.

By Liz Hoffman
Law360, New York (August 03, 2012, 7:45 PM ET) — Three environmental groups on Thursday challenged U.S. Export-Import Bank financing for two Australian liquefied natural gas projects, thrusting back into the spotlight the hot-button issue of whether U.S. environmental laws extend beyond its own borders.

The question is a contentious one, and experts say it will likely play a bigger role as Ex-Im Bank boosts its backing of megaprojects. Multibillion-dollar loans to energy developers like ExxonMobil Corp. and Petroleo Brasileiro SA have angered environmental groups, who say the bank hasn’t kept up its end of a 2009 landmark legal settlement to curb the carbon footprint of its loan portfolio.

“If this goes to the courts, it could have a pretty significant impact on the behavior of U.S. agencies funding overseas projects,” said Jon Sohn, a D.C.-based energy and environmental partner at McKenna Long & Aldridge LLP. “This is one to watch.”

The groups say Queensland Curtis LNG, a project of BG Group PLC, and Australia Pacific LNG, backed by ConocoPhillips Co. and Australia’s Origin Energy Ltd., threaten the Great Barrier Reef and several protected species. They say Ex-Im Bank failed to perform rigorous environmental assessments required under three federal laws, and threatened to sue unless the bank completes the studies.

BG, Conoco and their partners are spending $50 billion over the next few years to produce 18.5 million annual metric tons of LNG by 2015, most of which will be shipped to Asia. The projects involve thousands of wells off Australia’s northeast coast, connected to onshore processing facilities by about 670 miles of pipelines near the Great Barrier Reef, a protected site under the United Nations World Heritage Convention.

Ex-Im Bank has committed $2.95 billion to Australia Pacific LNG. It is considering financing Queensland Curtis, a spokeswoman confirmed Friday, though she declined to comment on the size of the proposed loan.

The three groups — the Center for Biodiversity, Pacific Environment and Turtle Island Restoration Network — filed a formal notice of intent to challenge the loans, arguing they violate the U.S. Endangered Species Act, National Environmental Policy Act and the National Historic Preservation Act, which codifies America’s obligations to environmental and cultural protection under the World Heritage Convention.

The formal notice is a prerequisite before a case can be brought. The bank now has 60 days to respond.

The groups say Ex-Im Bank never issued environmental impact statements required under NEPA and NHPA, and never made a serious effort to talk to fish and wildlife officials as required by the ESA.

Experts say the case could have far-reaching consequences for Ex-Im Bank, which made $7.2 billion in oil and gas, mining and power loans last year. The central issue, Sohn said, is whether Ex-Im Bank is actually required to do any of those things and, by extension, how far U.S. environmental laws extend when a U.S. government agency is writing the checks.

“The extent to which Ex-Im Bank is required to adhere to U.S. environmental laws has always been a hotly debated area,” Sohn said. “The laws at issue clearly speak to international actions and U.S. government obligations, but Ex-Im Bank generally takes the position that those laws are not what guides them.”

Instead, the bank has followed its own internal environmental standards, developed under its mandate from Congress. They line up with the Equator Principles, a voluntary set of global guidelines for project development, and do include an evaluation of a project’s impact on climate change.

But Ex-Im Bank is charging hard to meet President Barack Obama’s goal to double U.S. exports by 2015. Big-ticket energy loans are an easy way to make a dent, said Marcia Wiss, a project finance partner with Hogan Lovells in Washington.

“If that’s their No. 1 goal, all the other things they’re supposed to be doing become subsidiary goals,” Wiss said. “That includes attention to carbon emissions.”

Experts said environmentalists could ramp up their attacks in response to what they view as the bank’s failure to follow through on a promise to make greenhouse gas emissions a bigger part of its decision-making process.

In 2009, Ex-Im Bank settled a seven-year lawsuit brought by Friends of the Earth, which said the bank contributed to global warming by making some $32 billion in loans to fossil-fuel projects. The bank agreed to include greenhouse gas emissions in its decision to back a project.

But carbon emissions attributed to Ex-Im Bank-backed projects have ballooned from 17.9 million metric tons in 2009 to 68 million last year. The bank has boosted its renewable energy financing — from $101 million in 2009 to $720 million last year — but has taken heat for loans to oil and gas megaprojects, like its $3 billion loan to ExxonMobil Corp.’s LNG project in Papua New Guinea.

As a percentage of Ex-Im Bank’s total portfolio, renewables have grown from less than half a percent in 2009 to about 2.3 percent last year, but oil and gas has tripled from 5 percent to 15 percent.

“Given the very serious realities of climate change, Ex-Im should focus on encouraging renewable energy like solar and wind, not on drilling and shipping gas around the world — and particularly not through the Great Barrier Reef,” said Sarah Uhlemann, a lawyer for the Center for Biodiversity.

Australia Pacific LNG is a joint venture of ConocoPhillips, Origin Energy and China Petroleum & Chemical Corp., or Sinopec. The $20 billion project has locked down about $8.5 billion in financing so far, about two-thirds from U.S. and Chinese export-import banks and the rest from commercial lenders.

Origin will drill up to 10,000 wells in the Surat and Bowen Basins and, along with Conoco, its downstream partner, plans to export 10 million metric tons of LNG per year starting in 2015, most of it to Sinopec.

The $30 billion Queensland Curtis LNG is majority-owned by BG, with a minority stake owned by China National Offshore Oil Co. Ltd., the state-owned firm that manages China’s foreign energy interests. The project will produce 8.5 million tons of LNG per year, scalable up to 12.5 million.

Ex-Im Bank said Friday it does not comment on pending litigation.

The Australia Pacific LNG sponsors are represented by Sullivan & Cromwell LLP. The lenders are represented by Latham & Watkins LLP.

Project counsel for Queensland Curtis was not immediately available.

–Editing by John Quinn and Lindsay Naylor.