The U.S. Department of Energy has lately cleared the first two liquefied natural gas (LNG) export projects in the U.S. with other projects in the approval pipeline behind them, said Christopher Smith, Assistant Secretary for Fossil Energy (Acting) at DOE.
Smith was one of several officials testifying June 18 before the Energy and Power Subcommittee of the House Energy and Commerce Committee. The hearing was entitled: “U.S. Energy Abundance: Regulatory, Market, and Legal Barriers to Export.”
“The boom in domestic shale gas provides unprecedented opportunities for the United States,” Smith noted. “Over the last several years, domestic natural gas production has increased significantly, outpacing consumption growth, resulting in declining natural gas and LNG imports. Production growth is primarily due to the development of improved drilling technologies, including the ability to produce natural gas trapped in shale gas geologic formations.”
Today, domestic natural gas prices are lower than international prices of delivered LNG to overseas markets. As in the U.S., demand for natural gas is growing rapidly in foreign markets. Due primarily to these developments, DOE is working on a growing number of applications to export domestically produced natural gas to overseas markets in the form of LNG.
There are currently 18 countries with which the United States has in place free trade agreements (FTAs) that require national treatment for trade in natural gas for purposes of the Natural Gas Act. These 18 countries include: Australia, Bahrain, Canada, Chile, Colombia, the Dominican Republic, El Salvador, Guatemala, Honduras, Jordan, Mexico, Morocco, Nicaragua, Oman, Panama, Peru, Republic of Korea, and Singapore. There are also two countries — Israel and Costa Rica—that have free trade agreements with the U.S. that do not require national treatment for trade in natural gas for purposes of the Natural Gas Act.
Because complete applications by regulation must be granted without modification or delay and are deemed to be in the public interest, DOE does not conduct a public interest analysis of those applications.
The DOE exercises export jurisdiction over the commodity (natural gas), whereas other federal, state, and local organizations have jurisdiction over the facilities used in the import or export of the commodity, depending on the facility location. The Federal Energy Regulatory Commission (FERC) is responsible for authorizing the siting, construction, expansion, and operation of LNG import and export terminals pursuant to section 3(e) of the Natural Gas Act. The U.S. Department of Transportation’s Maritime Administration (MARAD) is responsible under the Deepwater Port Act of 1974, as amended, for the licensing system for ownership, construction, operation and decommissioning of deepwater port structures located beyond the U.S. territorial sea, including deepwater LNG export facilities.
First export approval went to Sabine Pass Liquefaction
DOE granted the first long-term application to export domestically-produced lower-48 states LNG to non-FTA countries to Sabine Pass Liquefaction LLC. The LNG export volume authorized is equivalent to 2. 2 billion cubic feet per day (Bcf/d) of natural gas for a period of 20 years. In the first of the Sabine Pass orders, DOE stated that it would evaluate the cumulative impact of the Sabine Pass authorization and any future authorizations for export authority when considering subsequent applications.
Following issuance of the Sabine Pass order, DOE undertook a two-part study of the cumulative economic impact of LNG exports. The first part of the study was conducted by the U.S. Energy Information Administration (EIA) and looked at the potential impact of additional natural gas exports on domestic energy consumption, production, and prices under several prescribed export scenarios. The second part of the study, performed by NERA Economic Consulting under contract to DOE, evaluated the macroeconomic impact of LNG exports on the U.S. economy with an emphasis on the energy sector and natural gas in particular. The NERA study was made available in December 2012.
In December 2012, DOE published in the Federal Register a Notice of Availability of the EIA and NERA studies, and inserted both parts of the study into 15 then-pending LNG export application dockets for public comment. An initial round of comments on the study ended on Jan. 24, and reply comments were due Feb. 25.
DOE received over 188,000 initial comments and about 2,700 reply comments. Proponents of LNG exports generally endorsed the results of the two-part study, particularly the conclusion of the NERA study that increasing levels of exports will generate net economic benefits for the U.S., Smith said. Comments filed by opponents of LNG exports raised a number of issues, including challenges to the assumptions and economic modeling underlying the two-part study and assertions that the two-part macroeconomic study should have further examined regional, sectoral, or environmental issues.
On May 17, DOE granted the second long-term application to export LNG, which was granted to Freeport LNG Expansion LP and FLNG Liquefaction LLC. The order was granted after an extensive review of the application to export LNG from the Freeport LNG Terminal, the LNG Export Study, public comments for and against the application, and public comments on the cumulative impact of LNG exports submitted in response to the LNG Export Study. DOE ruled that exports from the terminal at a rate of up to 1.4 billion cubic feet per day for a period of 20 years was not inconsistent with the public interest.
A number of projects are in the approval pipeline
Consistent with the Natural Gas Act, as of June 7, DOE has approved 24 long-term applications to export lower-48 LNG to free trade agreement countries equivalent to 29.41 billion cubic feet per day of natural gas from 21 new liquefaction facilities. In addition, DOE has three long-term applications pending to export lower-48 LNG to free trade agreement countries.
Most of the applicants seeking authorization to export LNG from proposed facilities to free trade agreement countries have also filed to export LNG to non-free trade agreement countries in the same volume from the same facility.
As of June 7, DOE has approved two long-term applications to export lower-48 LNG to non-free trade agreement countries equivalent to 3.6 billion cubic feet per day of natural gas from two proposed liquefaction facilities. DOE also currently has 20 applications pending to export LNG equivalent to an additional 25.61 billion cubic feet per day of natural gas to non-free trade agreement countries.
“The Department will continue processing the pending non-FTA LNG export applications on a case-by-case basis, following the order of precedence previously established and set forth on DOE’s website,” Smith said. “As further information becomes available at the end of 2013, including the EIA’s Annual Energy Outlook Report, the Department will assess the impact of any market developments on subsequent public interest determinations.”
Smith added about the limits of what he could tell the subcommittee: “Due to the adjudicatory nature of this process, I am unable to comment today on issues that are presently being addressed in our pending proceedings. Those issues include but are not limited to the merits of pending applications, the validity of the two-part LNG export study, the study’s adequacy as a basis for decision, and the appropriate scope of environmental review.”