by Daryl Kuo
The discovery and accessibility of vast domestic shale gas reserves in the United States has motivated states and industry alike to lobby heavily for the approval of liquefied natural gas (LNG) exports. LNG exports to non-Free Trade Agreement (FTA) countries, including China and Japan, are of particular interest because estimates for exports to those countries are as high as 16 billion cubic feet per day, more than ten times greater than all U.S. LNG exports in 2011. So far, the U.S. Department of Energy (DOE) has approved only one LNG export project to non-FTA countries, and that approval is being challenged. Meanwhile, more than a dozen applications sit in DOE’s queue pending the release of a critical study by the end of the year. The debate over exports to non-FTA countries is likely to become more intense in the coming months once that study is released and subjected to a public comment period prior to any decisions by the DOE on the pending applications.
Section 3 of the Natural Gas Act (NGA) prohibits the export of LNG without the prior approval of the DOE, which must approve an export project unless it determines that the proposed export will be inconsistent with the public interest. To date, the DOE has authorized only one project to export LNG to non-FTA countries, the Sabine Pass liquefaction project on the border of Louisiana and Texas. However, on September 6, 2012, Sierra Club requested a rehearing and stay of the DOE’s order authorizing Sabine Pass to export LNG to non-FTA countries. The DOE issued a tolling order on October 5, 2012 to extend the date by which it must act on Sierra Club’s request, which would otherwise have automatically been denied after 30 days. Sierra Club filed a motion to supplement the record in that case on November 1, 2012.
Fourteen other applications for projects involving non-FTA countries are currently pending DOE review (the most recent application was submitted by Golden Pass Products LLC, an affiliate of Exxon Mobil, on October 25, 2012), but the approval process is frozen while the DOE waits for the second half of a two-part study on the domestic impact of LNG exports to non-FTA countries. The first part of the study, conducted by the U.S. Energy Information Administration, found that increased exports would raise electricity bills in the U.S. by an average of 1 percent to 3 percent annually between 2015 and 2035. The DOE is delaying any further action until the release of the second part of its study looking at the macroeconomic impact of LNG exports, which is not expected until the end of the year.
Given the political sensitivity of exporting domestic resources, particularly to non-FTA countries, lawmakers and industry have expressed concern about whether DOE could withdraw an approval. In a letter to Congressman Edward J. Markey (D-MA), dated February 24, 2012, the DOE responded to this concern by referencing its Sabine Pass order and noting that its authority to issue supplemental orders modifying previous authorizations is contained in NGA Section 3(a), which requires a showing of good cause. The DOE went on to state that it "would be reluctant to withdraw or modify a previously-granted authorization, except in the event of extraordinary circumstances." While "extraordinary circumstances" is not clearly defined, the DOE has indicated that any complainant bears a heavy burden of proof to show that the existing authorization is not in the public interest.
More recently, Senator Ron Wyden (D-OR), an outspoken critic of exporting LNG and considered a possibility to Chair the Energy and Natural Resources Committee, sent a letter to Secretary Chu expressing concern about the pending applications and asking how DOE will evaluate them. Senator Wyden noted that applicants have cumulatively requested to export more than 25 percent of current U.S. daily consumption to non-FTA countries, far exceeding the amount considered by DOE in its Sabine Pass decision. He requested an “all-inclusive description of the factors that DOE will consider in determining whether to approve a supplier’s authority to export LNG, and what factors DOE will consider in revoking such authority.”