Introduction

On February 5 2016 the US Department of Energy's Office of Fossil Energy quietly issued a groundbreaking 234-page order further integrating the North American liquefied natural gas (LNG) industry and answering important questions regarding the export of LNG from Canada made from US-sourced natural gas. Order 3768, granting an application by Pieridae Energy (USA) Ltd (the Pieridae Order), is the Department of Energy's first authorisation to export natural gas from the United States to Canada and – after liquefaction in Canada – to re-export from Canada to countries lacking free trade agreements (FTAs) with the United States and requiring national treatment for trade in natural gas.(1) While similar in many respects to the earlier orders authorising entities to export LNG to non-FTA countries via LNG terminals located in the United States, the Pieridae Order is the first to treat exports to non-FTA countries via a Canadian terminal (in this case, the Goldboro LNG Project) on par with exports from US terminals.

Decision

In issuing the order, the Department of Energy examined:

  • whether the benefits associated with the long-term export of natural gas were sufficient to support a finding that such exports were consistent with the public interest, even without the billions of dollars of direct capital investment and thousands of jobs connected with the development of operation of an LNG terminal in the United States;(2) and
  • what environmental review was required under the National Environmental Policy Act.

Public interest

Regarding the public interest, Pieridae's application documented numerous benefits arising from the proposed exports, including:

  • revenues from (and US jobs created by) the production, transportation and sale of natural gas in the United States, the value of which dwarfs even the enormous investment associated with LNG terminals; and
  • cross-border benefits stemming from the interdependency of the US and Canadian economies.

After weighing the facts presented by Pieridae, along with information developed separately by the department and the arguments of intervenors and commenters, the department concluded that the proposed exports were consistent with the applicable public interest standard and that Pieridae's application should be granted (page 226 of the Pieridae Order).

National Environmental Policy Act review

Regarding the necessary level of National Environmental Policy Act review, the department agreed with Pieridae that the Canadian facilities required to implement the proposed export were beyond its purview, stating (on page 190):

"because the Goldboro [LNG] Project [is] to be located in Nova Scotia, Canada, [it] is outside the scope of our environmental review under [the National Environmental Policy Act] in this proceeding, which necessarily focuses on potential environmental impacts within the United States."

Further, regarding environmental effects within the United States, the department concluded (on page 203):

"We find that a detailed environmental analysis of increased natural gas production and/or pipeline construction or expansion would be too speculative for consideration in this proceeding because these possible impacts cannot be described with sufficient specificity to make their consideration useful for reasoned decision-making. Such increased production and possible pipeline build-out is not 'reasonably foreseeable' for purposes of [National Environment Policy Act] analysis. We therefore find that [the National Environment Policy Act] does not require our environmental review to include induced upstream natural gas production, nor does it require us to consider impacts associated with pending or anticipated projects not related to this authorization."

Additionally, as requested by Pieridae, the department issued a categorical exclusion with respect to Pieridae's proposed use of specific border crossing facilities at the juncture of the Maritimes & Northeast (M&N) US Pipeline and the M&N Canada Pipeline, determining that "no new construction will be required in the United States to support the proposed exports" (page 205).

Comment

With the Pieridae Order, the path is now paved for further integration of the US-Canadian natural gas and LNG industries, improving the ability of both countries to compete effectively in the current low-cost natural gas environment and encouraging the development of additional LNG export facilities that can contribute to a lower-carbon global environment, as well as a stronger global economy and more stable geopolitical conditions.

For further information on this topic please contact Erik Swenson at Norton Rose Fulbright by telephone (+1 202 662 0200), fax (+1 202 662 4643) or email (erik.j.a.swenson@nortonrosefulbright). The Norton Rose Fulbright website is accessible at www.nortonrosefulbright.com.

Endnotes

(1) Immediately thereafter, the Department of Energy issued Order 3770, approving a second, similar application by Bear Head LNG Corporation and Bear Head LNG (USA) LLC.

(2) The Department of Energy determined that although the export of natural gas would be from the United States to Canada (an FTA country) – which would typically be deemed to be in the public interest as a matter of law – because the natural gas would be converted to LNG and re-exported from Canada to non-FTA countries, a full Natural Gas Act Section 3(a) public interest review was required.

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.