United States: US DOE announces fundamental shift in LNG Export Authorization Policy

Liquefied Natural Gas Alert
Last Updated: July 22 2014
Article by David L. Wochner, Sandra E. Safro and Michael O'Neill

On Thursday, 29 May 2014, the U.S. Department of Energy ("DOE") announced a proposed change to the procedures it will use to process applications to export LNG to non-free trade agreement ("non-FTA") countries. This is a major development and could have significant impacts on the U.S. LNG export market. As described in greater detail below, DOE's announcement included three main features.

  • Process Changes. DOE's proposed changes would (1) eliminate the current practice of issuing conditional orders, (2) no longer process applications based on the queue DOE established in December 2012, and (3) base the sequence in which DOE issued final decisions solely on a project's completion of the environmental review process required under the National Environmental Policy Act ("NEPA") (which is usually done at the Federal Energy Regulatory Commission ("FERC"), although for offshore projects in federal waters at the U.S. Maritime Administration/U.S. Coast Guard). These proposed changes are being made available for public comment upon the issuance, with comments due by 21 July 2014.
  • Economic Studies. DOE announced that it plans (1) to undertake a new economic study "to gain a better understanding of how potential U.S. LNG exports between 12 and 20 billion cubic feet per day (Bcf/d) could affect the public interest" and (2) to have the Energy Information Administration ("EIA") update its previously prepared 2012 LNG Export Study, described below. Once they are completed, both of these studies will be made available for public comment.
  • Environmental Reports. In addition, DOE announced and made available for public comment two new reports on environmental issues (namely, lifecycle GHG analysis and impacts of upstream hydraulic fracturing) that DOE states go beyond what is required under NEPA. These two environmental reports are being made available for public comment simultaneously with the May release and the proposed process changes described above, and comments also will be due by 21 July 2014.

DOE's announcement has introduced new variables into the non-FTA LNG export application process at DOE. For example, although DOE explains that the two new environmental reports consider potential impacts that are beyond the scope of what is required for an environmental analysis or environmental impact statement under NEPA, DOE also notes that it will consider the reports and comments it receives from the public in its public interest determinations in connection with every application to export LNG to non-FTA countries, including those that already received conditional export authorizations.

DOE's Queue
To date, DOE has processed pending non-FTA applications in accordance with the queue it established in December 2012. Under this regime, DOE has issued conditional orders for projects based on that queue and added any new projects that file applications with DOE at the end of the queue. The agency then would render a final order following its issuance of an environmental review of the project and FERC's order. To date, only one final order has issued.

Citing changing market dynamics, DOE's proposal would eliminate the existing queue; instead, DOE now proposes to only act on a non-FTA LNG export application after the environmental review for the project required under NEPA is complete. DOE explains that the NEPA review process will be deemed complete either:

  • Thirty days after the publication of a Final Environmental Impact Statement ("FEIS");
  • For projects requiring an Environmental Assessment ("EA"), upon publication by DOE of a Finding of No Significant Impact; or
  • Upon a determination that an application is eligible for a categorical exclusion pursuant to DOE's NEPA regulations.

The completion of the NEPA environmental review process would not mandate that DOE must act immediately, but rather it would permit DOE to issue a final order. This policy eliminates the conditional order procedure that LNG export project developers have relied on since December 2012, and focuses all attention on the environmental review process. As FERC is the lead federal agency for the environmental review for LNG terminals proposed onshore or in state waters, the FERC NEPA review process would become the critical hurdle nearly every pending project must clear before receiving an authorization to export LNG to non-FTA nations from DOE.

DOE's rationale is that it hopes to prioritize more commercially viable LNG export projects, noting that "the proposed procedure will ensure that applications otherwise ready to proceed will not be held back by their position in the order of precedence." DOE reached this conclusion presumably because the prosecution of the NEPA review process is quite expensive, costing developers millions of dollars, so companies that can finance the NEPA review process are more likely to bring their projects to completion. DOE also hopes that by waiting for the completion of the NEPA process, its decision will be based on better information and data, including market impacts of the volumes proposed to be exported.

DOE is accepting public comments on this proposed procedural change. Comments will be due by 4:30 p.m. on 21 July 2014.

Economic Study
Following its order authorizing LNG exports to non-FTA nations from the Sabine Pass terminal in 2011, DOE commissioned two studies on the impacts of LNG exports on the U.S. economy: a microeconomic study performed by the EIA and a macroeconomic study performed by NERA Economic Consulting (collectively, the "2012 LNG Export Study"). Although EIA has issued updated supply, demand, and price information since the 2012 LNG Export Study, DOE had not commissioned a formal update of either study to date. Instead, DOE updated its analysis in the conditional non-FTA orders it issued as new EIA data was released.

The 29 May announcement explains that DOE plans to commission EIA to update its microeconomic study that was part of the 2012 LNG Export Study to expand the export cases from the 6 to 12 Bcf/d scenario previously evaluated to a 12 to 20 Bcf/d export scenario. Once the EIA update is complete, DOE notes that it will again contract "an external analysis of the economic impact of this increased range of LNG exports and other effects that LNG exports might have on the U.S. natural gas market." Importantly, DOE points out that it only has issued final authorization for 2.2 Bcf/d of LNG exports to non-FTA countries (Sabine Pass's LNG Liquefaction Trains 1-4). DOE emphasizes that all of the other approvals are conditional. This is an apparent change in the way that DOE is considering the volumes that go into its analysis of the cumulative impacts. In each of the conditional non-FTA orders previously issued, DOE has included the conditionally authorized non-FTA export volumes in its sum when discussing cumulative market impacts. As of its most recent order for the Jordan Cove project, the cumulative volumetric total was 9.27 Bcf/d. Based on DOE's announcement, the volumes that will go into the cumulative impacts consideration at DOE are now effectively "reset" to 2.2 Bcf/d and only volumes authorized in a final DOE order on a non-FTA application will be added to that sum. This appears to be consistent with DOE's stated intention of basing final approvals for non-FTA exports on the most contemporary data.

It is not clear at this time how long it will take for these new economic studies to be finalized, but DOE will make the studies available for public comment. There is no indication from DOE that these studies will disturb the findings of the 2012 LNG Export Study for exports up to 12 Bcf/d that in all scenarios examined, export of U.S. domestic natural gas as LNG will have a net positive impact on the national economy.

Environmental Reports
DOE also simultaneously released two environmental studies. The first study, authored by the National Energy Technology Laboratory ("NETL"), is entitled "Life Cycle Greenhouse Gas Perspective on Exporting Liquefied Natural Gas from the United States." This report was filed in all pending non-FTA LNG export application dockets. This study examines the life-cycle emissions of greenhouse gases for U.S. LNG export projects by comparing emissions from U.S. LNG exports with those of regional coal for the electric power sectors in Europe and Asia. The report concludes that when compared to regional coal fuel, U.S. LNG exports will not increase greenhouse gas emissions, but does not come to any firm conclusions as to the relative emissions of U.S. LNG compared with, for example, Algerian LNG or Russian gas supplies.

The second study was authored by DOE staff and is entitled "Draft Addendum to Environmental Review Documents Concerning Exports of Natural Gas from the United States." This report was filed in all pending non-FTA application dockets that are also either in pre-filing or under formal review at FERC. The draft addendum compiles previously existing studies and reports, relying in part on the NETL study described above. Confirming that it was not required by NEPA or any other statute to create this study, DOE stated that it released this study in order to respond to past public comments about the potential environmental impacts of LNG export projects. The study includes treatment of potential effects on water resources, air quality, greenhouse gas emissions from production of natural gas, induced seismicity associated with unconventional gas and oil activities, and potential land use impacts.

In its releases, DOE continues to state, as it has in the conditional orders issued to date, that "the environmental impacts resulting from production activity induced by LNG exports to non-FTA countries are not 'reasonably foreseeable' within the meaning of the Council on Environmental Quality's (CEQ) NEPA regulations," and therefore will not be considered in their analysis of non-FTA LNG export applications. Nonetheless, DOE explains that it will consider both of these reports in its public interest analysis. Therefore the review and response process may delay the issuance of future final orders authorizing LNG exports to non-FTA countries.

DOE will accept public comments regarding these two environmental studies for 45 days. Comments are due by 4:30 p.m. on 21 July 2014.

Implications for Pending Applications
If DOE's proposal is implemented, it would adjust the industry's understanding of how the non-FTA process at DOE would work. Although there is no indication that DOE plans to directly reopen the comment period for any of the projects that have received conditional non-FTA authorization, comments on the proposed process, the environmental reports, and likely the economic studies as well, will be filed directly in each of the dockets listed in DOE's Federal Register notices. In addition, DOE has stated it will review all of this new data and information in making its public interest determination for each project, including those that already have a conditional order. At this time, it is not clear how much new analysis DOE will include in the final orders that it issues for projects that already have conditional non-FTA authorizations.

As of 29 May, there were 24 projects pending in the non-FTA queue at DOE. If DOE's proposed changes are implemented, several projects that are further down in the DOE queue may be processed by DOE earlier than anticipated based on their position in the FERC NEPA review process. However, projects that have not filed yet at FERC but are higher in the DOE queue will not receive the same benefit. These projects may remain pending at DOE, unprocessed, until they have completed the robust FERC process.

Open questions remain following DOE's announcement, particularly in how DOE will treat comments on the two environmental studies and whether DOE's analysis and consideration of these comments will occasion significant delay in the issuance of final non-FTA LNG export authorizations. DOE's treatment of pending conditional non-FTA authorizations scheduled to complete the NEPA environmental review process in the near term will provide significant guidance in answering these outstanding questions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

K&L Gates has been awarded a 2012 EOWA Employer of Choice for Women citation acknowledging our commitment to workplace diversity.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Dentons
Day Pitney LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Dentons
Day Pitney LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions