United States: House Energy Subcommittee Considers Bill To Eliminate Federal Authorization To Export Or Import Natural Gas—Including LNG

On December 11, 2017, Representative Bill Johnson (R-OH) introduced a bill

"to repeal restrictions on the export and import of natural gas" (H.R. 4605).

H.R. 4605, the "Unlocking Our Domestic LNG Potential Act," would amend Section 3 of the Natural Gas Act (NGA),1 which requires prior authorization for the export of natural gas from the U.S., the import of natural gas into the U.S. and the siting, construction, expansion or operation of facilities to import or export natural gas, including liquefied natural gas (LNG). Although it would retain the requirement under Section 3 to obtain prior authorization for facilities to import or export natural gas, H.R. 4605 would eliminate the requirement to obtain prior authorization to import or export the commodity natural gas.

Authorizations required under Section 3 of the NGA are apportioned between the Federal Energy Regulatory Commission (FERC) and the Department of Energy's Office of Fossil Energy (DOE/FE).

Under Section 3(a) of the Natural Gas Act, FERC authorizes the siting, construction and operation of facilities to import or export natural gas, including pipelines crossing the U.S. border and on-shore LNG terminals, upon a finding that the siting, construction and operation of such facilities is not inconsistent with the public interest.

Section 3(a) of the NGA also requires prior approval from DOE/FE for a person to import any natural gas to the U.S. from a foreign country or export any natural gas from the U.S. to a foreign country. With respect to the basis upon which DOE/FE decides whether to authorize such imports and exports, Section 3 of the NGA distinguishes between countries with which the U.S. has a Free Trade Agreement (FTA) that require national treatment for trade in natural gas ("FTA Countries")2 and Non-FTA Countries. Section 3(c) of the NGA deems natural gas imports from and exports to FTA Countries to be in the public interest and requires DOE/FE to authorize applications for such imports and exports without modification or delay. Under Section 3(a) of the NGA, imports of natural gas from and exports of natural gas to Non-FTA Countries are authorized if DOE/FE finds that such exports are not inconsistent with the public interest.

Since the early 2000s, U.S. natural gas production has increased, primarily due to increased shale gas production through hydraulic fracturing or "fracking." According to EIA, in 2017, the U.S. was a net exporter of natural gas on an annual basis for the first time in 60 years.3

Since 2012, DOE/FE has authorized the large-scale export of 21.35 billion cubic feet per day of natural gas in the form of LNG.4 These authorizations typically include, among others, conditions to prevent U.S.-produced LNG from reaching countries with which such trade is prohibited; for example, a requirement that any agreement or other contract for the sale or transfer of LNG exported contain a commitment by the customer or purchaser "to cause a report to be provided to [the exporter] that identifies the country of destination (or countries) into which the exported LNG or natural gas was actually delivered and/or received for end use, and to include in any resale contract for such LNG the necessary conditions to insure that the authorized exporter is made aware of all such actual destination countries."

H.R. 4605 would amend Section 3 of the NGA to delete Sections 3(a)-(c). If amended, Section 3 of the NGA would only require prior FERC authorization to site, construct and operate facilities for natural gas imports and exports. It would no longer require commodity export and import authorization. H.R. 4605 also would add a new subsection to provide that nothing in Section 3 limits the authority of the president to prohibit imports or exports of natural gas under the U.S. Constitution or enumerated laws that impose sanctions on a foreign person or foreign government, including a foreign government that is designated a state sponsor of terrorism.

H.R. 4605 was referred to the House Committee on Energy and Commerce on December 11, 2017, and to the Subcommittee on Energy on December 15.

On January 19, the Subcommittee on Energy held a legislative hearing to consider H.R. 4605.

In his opening remarks, Rep. Greg Walden (R-OR), chairman of the Committee on Energy, argued that the changes to the NGA in H.R. 4605 "would help create more open, transparent, and competitive markets for natural gas, encourage more production in the U.S., create thousands of jobs, and spur further economic development. . . ." by removing "unnecessary restrictions" on natural gas exports. On the other hand, Rep. Frank Pallone (D-NJ), the ranking member of the Committee on Energy, expressed concern that "unrestricted export policy included in [H.R. 4605] could significantly impact domestic natural gas prices and adversely affect American consumers and manufacturers." He further argued that "we must have a mechanism for the Federal Government to know the source and destination of gas imports and exports, something that is crucial for our national security."

In his testimony, Steven Winberg, DOE Assistant Secretary for Fossil Energy, testified that H.R. 4605 "would remove DOE's authority in regulating natural gas trade for the United States," and that the Trump administration has not taken a position on the bill. He further explained that while DOE has, to date, authorized about 21 billion cubic feet (Bcf) per day of LNG exports, currently only about 3 Bcf per day is being exported from the Sabine Pass LNG terminal in Louisiana, and studies previously conducted by DOE suggest that the U.S. could export up to 28 Bcf per day without negative economic effects or detriment to the price of gas in the

U.S. Winberg agreed with Rep. Jerry McNerney (D-CA) that the DOE export authorization process is valuable for ensuring that U.S. LNG exports are strengthening the energy sector of U.S. allies and not benefitting those who seek to harm the country.

In his testimony, FERC General Counsel James Danly confirmed that H.R. 4605 would not change FERC's authority to approve facilities for the import and export of natural gas, but pointed out that an "unintended consequence" of deleting current Section 3(a) of the NGA was to remove the "public interest standard" under which FERC exercises its authority.

Paul N. Cicio, President of Industrial Energy Consumers of America, which represents manufacturing companies, testified in opposition to H.R. 4605, arguing that the bill is "anti-consumer by removing the [NGA's] public interest determination that was wisely put in place by Congress to ensure that LNG export volumes do not damage the economy and jobs." He further argued that while "a reasoned volume of LNG exports is good for the economy, ... excessive LNG exports will damage manufacturing competitiveness long-term and threaten capital investment that is now occurring due to low natural gas prices and trillions of dollars of existing manufacturing assets." Cicio further argued that LNG volumes already approved by DOE/FE are equal to 71 percent of U.S. natural gas demand in 2016 and that exporting 71 percent of U.S. demand "cannot possibly be in the public interest."

Charlie Riedl, Executive Director of the Center for Liquefied Natural Gas, which represents LNG producers, shippers, terminal operator and developers, testified in support of H.R. 4605. He argued that "there is a limited window of opportunity for the U.S. to realize its potential as a major international gas supplier," "we know that exports are in the national interest" and that "further DOE approval of export applications is unnecessary." Riedl also argued that "[u]ntil recently, it has been unnecessarily difficult for DOE to grant Non-FTA export permits," and that DOE/FE's review procedure has changed several times, creating a "history of regulatory uncertainty." He pointed out that, to date, only one LNG export facility, Sabine Pass, is operating in the lower 48 states and has exported LNG to over 25 countries.

To date, no other action with respect to H.R. 4605 has been scheduled.

Footnotes

1 15 U.S.C. § 717b.

2 "National treatment" for trade means treating an imported good the same as a locally produced good once it enters a market. Not all countries that have an FTA with the United States require national treatment for trade in natural gas. According to DOE/FE, as of October 31, 2012, FTA Countries include Australia, Bahrain, Canada, Chile, Colombia, Dominican Republic, El Salvador, Guatemala, Honduras, Jordan, Mexico, Morocco, Nicaragua, Oman, Panama, Peru, Republic of Korea and Singapore.

3 Energy Information Administration, Short-Term Energy Outlook (Jan. 9, 2018).

4 See Lake Charles Exports, LLC, DOE/FE Order No. 4011, FE Docket No. 16-110-LNG, Final Opinion and Order Granting Long-Term, Multi-Contract Authorization to Export Liquefied Natural Gas by Vessel from the Lake Charles Terminal in Lake Charles, Louisiana, to Free Trade Agreement and Non-Free Trade Agreement Nations (June 29, 2017) at p. 42.

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