With the increasing supply of domestic natural gas, there is a growing consensus that liquefied natural gas (“LNG”) exports represent an opportunity for the United States to become a major player in the global energy sector. The last couple of weeks have seen developments that may move our country closer to becoming a major exporter of natural gas. On May 17, 2013, the U.S. Department of Energy (“DOE”) conditionally approved the second of more than twenty pending applications for the export of LNG to countries that do not have a Free Trade Agreement (“FTA”) with the U.S. (“non-FTA countries”), granting Freeport LNG Expansion, L.P. and FLNG Liquefaction, LLC (“Freeport”) approval to export domestically produced LNG. It has been two years since the DOE has approved a company’s application for the export of LNG to non-FTA countries.
The export of natural gas, including LNG, must be approved by the DOE, but there are distinct approval processes for exports to countries that have an FTA with the U.S. and non-FTA countries. The Natural Gas Act requires the DOE to authorize exports to non-FTA countries unless the proposed exports “will not be consistent with the public interest.” The DOE must post a notice of application in the Federal Register for comments, protests and motions to intervene, and evaluate the application to make a public interest consistency determination. To the contrary, The Natural Gas Act (as amended) deems FTA exports to be in the public interest and applications to export to FTA countries must be authorized without modification or delay. Click here for information regarding FTA and non-FTA countries.
The DOE’s May 17, 2013 conditional approval of Freeport’s export of LNG to non-FTA countries is subject to an environmental review and final regulatory approval. The approval will permit Freeport to export LNG from its LNG Terminal on Quintana Island, Texas at a rate of up to 1.4 billion cubic feet of natural gas a day for a period of 20 years. You can see the full Freeport DOE order (FE Docket No. 10-161-LNG) here. According to the DOE, “The development of U.S. natural gas resources is having a transformative impact on the U.S. energy landscape, helping to improve our energy security while spurring economic development and job creation around the country. This increase in domestic natural gas production is expected to continue, with the Energy Information Administration forecasting a record production rate of 69.3 Bcf/d in 2013.” To date, the only other application to export LNG to non-FTA countries that the DOE has approved was in May 2011 for the Sabine Pass LNG Terminal in Cameron Parish, Louisiana. There are approximately twenty additional applications pending for approval to export LNG to non-FTA countries – see a summary of all LNG export applications submitted to the DOE here.
With the “transformative impact” that natural gas is having on the energy landscape, we can expect transformative policy and regulation in this area. The global demand for LNG is expected to exceed available supply, and LNG exportation is likely the area of the energy industry awaiting the most policy development. Just four days after the DOE’s approval of Freeport’s LNG export application, the U.S. Senate Committee on Energy & Natural Resources held the Full Committee Forum: Domestic Supply and Exports, to discuss our exportation of natural gas. In the last “State of the Union” Address, President Obama pledged his support for domestic oil and natural gas production, but was silent on the issue of LNG exportation. His Administration undoubtedly will have an impact on the viability of LNG exporting. You can read my article “State of the Energy” in Energy & Mining International Magazine for additional insight into developments in the policy and regulation of the natural gas and oil industries.