The US Department of Energy proposed changing its procedures in late May for acting on applications to export liquefied  natural gas on a long-term, large-scale basis from the lower 48  states to countries with which the United States does not have  free trade agreements that require national treatment for trade  in natural gas.

Under the proposal, DOE will dispense with issuing conditional orders authorizing LNG exports while applicants complete the environmental review process and instead go directly  to the final order. The proposal would also alter the order in  which DOE acts on pending applications.

The proposal could expedite issuance of final orders for projects that have already received conditional orders authorizing  LNG exports, and it could allow LNG projects with enough  resources to initiate environmental review to move up in the  queue for DOE action on their export applications.

DOE Role in LNG

Section 3 of the Natural Gas Act gives the Department of  Energy authority over exports of natural gas.

Under the Natural Gas Act, LNG exports to countries with  which the US has free trade agreements that require “national  treatment” for trade in natural gas are automatically considered in the public interest. Applications to export gas to such  countries must be approved without modification or delay. The  US had such free trade agreements with 18 countries as of the end of October 2012: Australia, Bahrain, Canada, Chile,  Colombia, Dominican Republic, El Salvador, Guatemala,  Honduras, Jordan, Mexico, Morocco, Nicaragua, Oman, Panama,  Peru, Republic of Korea and Singapore. “National treatment” for  trade means treating an imported good the same as a locallyproduced good once it enters a market.

Authorization to export LNG to countries without such free  trade agreements, on the other hand, requires DOE to find that  the proposed exports are not inconsistent with the public interest. In making this determination, DOE considers the domestic  need for the natural gas proposed to be exported, whether the  proposed exports pose a threat to the security of domestic  natural gas supplies and other factors bearing on the public  interest. Before authorizing exports of LNG to countries  without favorable free trade agreements, DOE also must  review the potential environmental effects of the proposed  export under the National Environmental Policy Act.

Current DOE policy is to issue “conditional” orders authorizing long-term, large-scale LNG exports to non-free trade agreement countries while the agency finishes the environmental  review process, when requested by applicants. The reason for  issuing conditional orders was that the Federal Energy  Regulatory Commission, as the agency that grants authorization for the siting, construction and operation of liquefaction  and export facilities and, consequently, the lead agency in performing the environmental review, would benefit from a preliminary indication from DOE that a proposed LNG export is  consistent with the public interest.

Since 2011, DOE has used issued conditional orders granting  export authorization to Sabine Pass Liquefaction, LLC, Freeport  LNG Expansion, L.P, Lake Charles Exports, LLC, Cameron LNG,  LLC, Dominion Cove Point LNG,  LP and Jordan Cove Energy  Project, L.P. These conditional  export authorizations are  explicitly subject to the satisfactory completion of the environmental review, the issuance by  DOE of either a “finding of no  significant impact” for projects  for which an environmental  assessment was performed or a  record of decision for projects  requiring a full environmental  impact statement, and the issuance by DOE of a final order  reaffirming the finding that the proposed LNG export is not  inconsistent with the public interest.

To date, DOE has only issued one final order authorizing LNG  exports to non-free trade agreement countries to Sabine Pass.

In 2012, as the number of pending applications for export  authorization increased, DOE announced that it would act on  pending LNG export applications on a case-by-case basis, and  that the order in which applications would be considered would  be based on when an applicant began the pre-filing process  with the Federal Energy Regulatory Commission for authority  to build his project and the date the export application was  filed with DOE.

Based on these criteria, DOE published a list of pending applications and the order in which each would be considered. The  list is called the “order of precedence.”

New Approach

Under the proposed new procedure, DOE no longer would act  on applications in the order of precedence and no longer would  issue “conditional” orders. Rather, DOE would act on applications only after it has completed its environmental review  process and has enough information on which to base a public  interest determination. It would act on applications in the order  in which they become ready for final action.

DOE will consider an application to have completed the environmental review process 30 days after publication of a final  environmental impact statement in the Federal Register for  projects requiring a full EIS, upon publication by DOE of a  “finding of no significant impact” for projects for which a less  extensive environmental assessment has been prepared, or upon a determination by DOE that an  export application is eligible for a categorical exclusion from  the need for an environmental impact statement.

The Department of Energy believes that the original justification for issuing conditional authorizations — to provide greater  certainty for FERC — no longer is relevant because the environmental review process for many proposed LNG terminals has  begun by the time a conditional export authorization would be  issued by DOE.

If implemented, the new procedure should prioritize action  on export applications that are otherwise ready to proceed  since applications will be processed when they are ready for a  final order. While there is no guarantee that all projects for  which an environmental review has been completed will be  financed and constructed, DOE believes that projects that have  expended resources to complete the environmental studies are,  as a group, more likely to proceed to financing and construction  than those that have not. The new procedure will spare DOE  from devoting resources to analyzing projects that have little  prospect of being built.

The new procedure will not affect the continued validity of  conditional orders that already have been issued by DOE. DOE will continue to act on requests for conditional authorizations  while the proposed new procedure is under consideration.

Comments on the new procedure must be submitted to DOE  by July 21, 2014.

Environmental Issues

DOE also issued in late May drafts of two documents for public  comment addressing concerns that have been raised about the  environmental effects of increasing natural gas production in  order to serve export markets.

One of the two documents — called an “Addendum To  Environmental Review  Documents Concerning Exports  of Natural Gas From the United  States” — addresses the potential environmental effects of  fracking and other unconventional forms of natural gas  production.

The other document — a  report called “Life Cycle  Greenhouse Gas Perspective on  Exporting Liquefied Natural Gas  from the United States” — provides data on the life-cycle  greenhouse gas emissions of US  LNG exported for use in electric  power generation. This report  and any comments received on it will be included in the  dockets of 25 pending applications for authority to export LNG  by tanker from large-scale liquefaction facilities in the lower 48  states to non-free trade agreement countries.

Comments on the two documents must be submitted to  DOE no later than July 21, 2014.