US Takes Steps to Advance LNG Exports

US Takes Steps to Advance LNG Exports

June 11, 2014

The US Department of Energy proposed changing its procedures in late May for acting on applications to export liquefied natural gas on a long-term, large-scale basis from the lower 48 states to countries with which the United States does not have free trade agreements that require national treatment for trade in natural gas.

Under the proposal, DOE will dispense with issuing conditional orders authorizing LNG exports while applicants complete the environmental review process and instead go directly to the final order. The proposal would also alter the order in which DOE acts on pending applications.

The proposal could expedite issuance of final orders for projects that have already received conditional orders authorizing LNG exports, and it could allow LNG projects with enough resources to initiate environmental review to move up in the queue for DOE action on their export applications.

DOE Role in LNG

Section 3 of the Natural Gas Act gives the Department of Energy authority over exports of natural gas.

Under the Natural Gas Act, LNG exports to countries with which the US has free trade agreements that require “national treatment” for trade in natural gas are automatically considered in the public interest. Applications to export gas to such countries must be approved without modification or delay. The US had such free trade agreements with 18 countries as of the end of October 2012: Australia, Bahrain, Canada, Chile, Colombia, Dominican Republic, El Salvador, Guatemala, Honduras, Jordan, Mexico, Morocco, Nicaragua, Oman, Panama, Peru, Republic of Korea and Singapore. “National treatment” for trade means treating an imported good the same as a locally-produced good once it enters a market.

Authorization to export LNG to countries without such free trade agreements, on the other hand, requires DOE to find that the proposed exports are not inconsistent with the public interest. In making this determination, DOE considers the domestic need for the natural gas proposed to be exported, whether the proposed exports pose a threat to the security of domestic natural gas supplies and other factors bearing on the public interest. Before authorizing exports of LNG to countries without favorable free trade agreements, DOE also must review the potential environmental effects of the proposed export under the National Environmental Policy Act.

Current DOE policy is to issue “conditional” orders authorizing long-term, large-scale LNG exports to non-free trade agreement countries while the agency finishes the environmental review process, when requested by applicants. The reason for issuing conditional orders was that the Federal Energy Regulatory Commission, as the agency that grants authorization for the siting, construction and operation of liquefaction and export facilities and, consequently, the lead agency in performing the environmental review, would benefit from a preliminary indication from DOE that a proposed LNG export is consistent with the public interest.

Since 2011, DOE has used issued conditional orders granting export authorization to Sabine Pass Liquefaction, LLC, Freeport LNG Expansion, L.P, Lake Charles Exports, LLC, Cameron LNG, LLC, Dominion Cove Point LNG, LP and Jordan Cove Energy Project, L.P. These conditional export authorizations are explicitly subject to the satisfactory completion of the environmental review, the issuance by DOE of either a “finding of no significant impact” for projects for which an environmental assessment was performed or a record of decision for projects requiring a full environmental impact statement, and the issuance by DOE of a final order reaffirming the finding that the proposed LNG export is not inconsistent with the public interest.

To date, DOE has only issued one final order authorizing LNG exports to non-free trade agreement countries to Sabine Pass.

In 2012, as the number of pending applications for export authorization increased, DOE announced that it would act on pending LNG export applications on a case-by-case basis, and that the order in which applications would be considered would be based on when an applicant began the pre-filing process with the Federal Energy Regulatory Commission for authority to build his project and the date the export application was filed with DOE.

Based on these criteria, DOE published a list of pending applications and the order in which each would be considered. The list is called the “order of precedence.”

New Approach

Under the proposed new procedure, DOE no longer would act on applications in the order of precedence and no longer would issue “conditional” orders. Rather, DOE would act on applications only after it has completed its environmental review process and has enough information on which to base a public interest determination. It would act on applications in the order in which they become ready for final action.

DOE will consider an application to have completed the environmental review process 30 days after publication of a final environmental impact statement in the Federal Register for projects requiring a full EIS, upon publication by DOE of a “finding of no significant impact” for projects for which a less extensive environmental assessment has been prepared, or upon a determination by DOE that an export application is eligible for a categorical exclusion from the need for an environmental impact statement.

The Department of Energy believes that the original justification for issuing conditional authorizations — to provide greater certainty for FERC — no longer is relevant because the environmental review process for many proposed LNG terminals has begun by the time a conditional export authorization would be issued by DOE.

If implemented, the new procedure should prioritize action on export applications that are otherwise ready to proceed since applications will be processed when they are ready for a final order. While there is no guarantee that all projects for which an environmental review has been completed will be financed and constructed, DOE believes that projects that have expended resources to complete the environmental studies are, as a group, more likely to proceed to financing and construction than those that have not. The new procedure will spare DOE from devoting resources to analyzing projects that have little prospect of being built.

The new procedure will not affect the continued validity of conditional orders that already have been issued by DOE. DOE will continue to act on requests for conditional authorizations while the proposed new procedure is under consideration.

Comments on the new procedure must be submitted to DOE by July 21, 2014.

Environmental Issues

DOE also issued in late May drafts of two documents for public comment addressing concerns that have been raised about the environmental effects of increasing natural gas production in order to serve export markets.

One of the two documents — called an “Addendum To Environmental Review Documents Concerning Exports of Natural Gas From the United States” — addresses the potential environmental effects of fracking and other unconventional forms of natural gas production.

  The other document — a report called “Life Cycle Greenhouse Gas Perspective on Exporting Liquefied Natural Gas from the United States” — provides data on the life-cycle greenhouse gas emissions of US LNG exported for use in electric power generation. This report and any comments received on it will be included in the dockets of 25 pending applications for authority to export LNG by tanker from large-scale liquefaction facilities in the lower 48 states to non-free trade agreement countries.

Comments on the two documents must be submitted to DOE no later than July 21, 2014.