DOE Proposes Major Reforms to LNG Export Permitting Process

On May 29^th, 2014, the U.S. Department of Energy (DOE) released a proposal that would change DOE’s decision-making process for liquefied natural gas (LNG) export permit applications to countries that do not have free-trade agreements (FTAs) with the United States. Under the proposed procedures, DOE would review LNG export projects based on the order in which applicants complete their respective environmental reviews. This represents a major change from current procedures where DOE reviews export applications based predominantly on the order in which they are received, which is typically before environmental reviews are completed.

Background

The combination of hydraulic fracturing and horizontal drilling to economically extract natural gas from shale formations has contributed to a dramatic increase in domestic natural gas supply. The comparatively low price and abundance of natural gas in the United States has, in turn, spurred interest among entities to liquefy and export U.S. natural gas.  DOE is responsible for approving permits to export LNG, and under Section 3 of the Natural Gas Act of 1938, the department must make a determination that exporting LNG is in the public interest. For countries with which the United States has a FTA, export projects are presumed to be in the public interest. For projects seeking permission to export to non-FTA countries—many of which represent the most lucrative markets for LNG—DOE’s public interest determination is done on a case-by-case basis.

Details of the Proposal

DOE’s proposal would modify the order of precedence in which DOE currently considers non-FTA LNG export applications as follows:

Current Order of Precedence1

Proposed Order of Precedence2

Applications that have received approval from the Federal Energy Regulatory Commission (FERC) to use the FERC pre-filing environmental review process on or before December 5, 2012. Pending DOE applications, as of December 5, 2012, in which the applicant did not receive approval either on or before December 5, 2012, under the FERC pre-filing environmental review process, in the order the DOE application was received. DOE applications received after December 5, 2012, in the order the DOE application was received.

Applications are considered in the order in which they become ready for final action. An application is ready for final action when the pertinent National Environmental Policy Act (NEPA) review process is complete and when DOE has sufficient information on which to base a public interest determination.3

In addition to modifying the order of precedence, DOE has also proposed suspending its practice of issuing conditional decisions on applications to export LNG to non-FTA countries. Under current procedures, DOE typically grants a decision that is conditional upon the project completing an environmental review. DOE cites two reasons for utilizing conditional decisions: (1) to provide certainty to FERC that the proposed export project is consistent with the public interest prior to expending FERC resources to conduct a NEPA review, and (2) to provide certainty to the applicant that the project is consistent with the public interest prior to devoting applicant resources to the NEPA review process.⁴

In the proposal, DOE concedes that its rationale for issuing conditional decisions is no longer valid, as both FERC and the applicants already proceed with the NEPA review process prior to receiving a conditional decision.⁵ Going forward, DOE proposes to consider applications in the order in which they become ready for “final action,” which DOE defines as:

An application is ready for final action when DOE has completed the pertinent NEPA review process and when DOE has sufficient information on which to base a public interest determination. For purposes of determining this order, an application will be deemed to have completed the NEPA review process:

1. For those projects requiring an EIS, 30 days after publication of a Final EIS,
2. for projects for which an EA has been prepared, upon publication by DOE of a Finding of No Significant Impact, or
3. upon a determination by DOE that an application is eligible for a categorical exclusion pursuant to DOE’s regulations implementing NEPA.⁶

DOE has pointed to several reasons for promulgating the proposed change to its procedures. According to a blog post authored by Principal Deputy Assistant Secretary Christopher A. Smith, “by considering for approval those projects that are more likely to actually be constructed, DOE will be able to base its decision on a more accurate evaluation of the project’s impact on the public interest. While it is not assured that all projects for which NEPA review is completed will be financed and constructed, projects that have completed the NEPA review are, generally speaking, more likely to proceed than those that have not.”⁷

According to DOE, it will continue to review requests for conditional authorizations under the current system while the proposed changes are under consideration. To date, DOE has approved seven permits to export LNG to non-FTA countries and has 27 applications currently under review.⁸ The proposal is open for public comment for 45 days, closing on July 21, 2014.

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¹ U.S. Department of Energy, Office of Fossil Energy, “Order of Precedence – Non-FTA Export Applications,” http://energy.gov/fe/downloads/order-precedence-non-fta-lng-export-applications

² “Proposed Procedures for Liquefied Natural Gas Export Decisions; Notice of Proposed Procedures,” 79 Federal Register 107 (4 June 2014), pp. 32261-32264, http://energy.gov/sites/prod/files/2014/06/f16/FE.ProposedProced.LNG_.pdf

³ An application to export natural gas to non-FTA countries also requires review of potential environmental impacts under the National Environmental Policy Act (NEPA), as does an application to site, construct, and operate an LNG terminal. For applications to export LNG to non-FTA countries, FERC typically serves as the lead agency for purposes of preparing the environmental review documents and DOE typically serves as a cooperating agency.

⁴ “Proposed Procedures for Liquefied Natural Gas Export Decisions; Notice of Proposed Procedures,” 79 Federal Register 107 (4 June 2014), pp. 32261-32264, http://energy.gov/sites/prod/files/2014/06/f16/FE.ProposedProced.LNG_.pdf

⁵ Ibid.

⁶ Ibid.

⁷ U.S. Department of Energy, Office of Fossil Energy, “A Proposed Change to the Energy Department’s LNG Export Decision-Making Procedures,” May 29, 2014, http://energy.gov/articles/proposed-change-energy-departments-lng-export-decision-making-procedures

⁸ U.S. Department of Energy, Office of Fossil Energy, “Applications Received by DOE/FE to Export Domestically Produced LNG from the Lower-48 States (as of April 18, 2014), June 2, 2014, http://energy.gov/sites/prod/files/2014/05/f15/Summary%20of%20LNG%20Export%20Applications.pdf