by Daryl Kuo
As the world’s largest producer of natural gas, the United States has the potential to also become the world’s leading exporter of liquefied natural gas (LNG). The Department of Energy (DOE), however, continues to proceed extremely cautiously with respect to authorizing LNG exports, particularly to countries that have not signed free trade agreements (FTA) with the United States.
To approve a project, the DOE must determine that it is not contrary to the public. While exports are presumed to be in the public interest, this presumption can be rebutted in comments filed by opponents to the proposed exports. The public interest test balances various factors, including (i) the impact of the liquefaction project on domestic natural gas demand, supplies, prices and resource base, (ii) the benefits of international trade, and (iii) the benefits to the domestic economy, national energy security and the global environment. The approval process is further impeded by the fact that the applications are processed in the order in which they are received, pursuant to an Order of Precedence issued by the DOE in December 2012. The DOE will not change this order absent a change in policy.
To date, the DOE has only approved two projects to export LNG to non-FTA-signatory countries. In August 2012, the DOE authorized the Sabine Pass Liquefaction project, and in May 2013, the DOE conditionally approved the Freeport LNG Expansion project, which permits the export of 511 billion cubic feet of gas per year for a twenty year period. The delay between both approvals stemmed from the DOE’s commissioning of two studies to assess the potential impact of LNG exports on domestic gas prices and the national economy. Both studies yielded positive findings that encouraged LNG exports.
Although over twenty LNG export applications to non-FTA-signatory countries remain pending before the DOE, the Freeport approval may be indicative of the DOE’s shifting position regarding LNG exports to non-FTA countries. The DOE’s review of the Freeport application focused on comparing Freeport’s arguments with the objections made by an opponent to the project, taking stock of concurrences by commentators and acknowledging the favorable study findings. The DOE applied the rebuttable presumption standard strictly and held that the protestor’s evidence was insufficient to rebut the statutory presumption that LNG exports are consistent with public interest. The DOE did not debate the validity of the arguments made by Freeport or the pro-export commentators; it did not question the significance and accuracy of the studies (in fact, it dedicated over 50 pages to justifying the studies’ methodologies and findings); and, most importantly, it did not lend much weight to the protestor’s objections.
Despite the pro-export tone of the Freeport approval, the DOE indicated that it would proceed cautiously in reviewing pending applications by assessing the cumulative impact of each application. Energy Secretary Moniz has not commented on the timeline for reviewing pending applications, and some companies are threatening to go to court to speed up the approval process and strike down the Order of Precedence, which was issued after many companies had already applied. While the Freeport approval is a victory for proponents of LNG exports, the path forward remains rife with uncertainty.
Jennifer Arnel, a summer associate in McDermott’s Houston office, contributed to this article.