DOE Conditionally Approves Lake Charles Terminal LNG Exports to Non-Free Trade Agreement Nations

by Akin Gump Strauss Hauer & Feld LLP
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On August 7, 2013, the U.S. Department of Energy, Office of Fossil Energy (DOE/FE) issued an Order Conditionally Granting Long-Term Multi-Contract Authorization to Export Liquefied Natural Gas by Vessel from the Lake Charles Terminal to Non-Free Trade Agreement Nations (Order).  Below is a summary of the Application, DOE/FE’s findings and analysis, and the terms and conditions applicable to the Lake Charles Terminal. Please click here for a copy of the order.

Application

On May 6, 2011, Lake Charles Exports, LLC (LCE) filed an application with DOE/FE under Section 3 of the Natural Gas Act for long-term, multi-contract authorization to export domestically produced liquefied natural gas (LNG) by vessel to nations with which the United States has not entered a free trade agreement (FTA) providing for national treatment for trade in natural gas. LCE proposed to export up to 2 billion cubic feet per day (Bcf/d) of natural gas, for a period of 25 years, commencing ten years from the date of authorization. In addition, LCE requested authorization to export LNG on its own behalf or as agent for its affiliate, BG LNG Services, LLC (BGLS), and clarified that its agreement with BGLS would have a 25-year term that would run concurrently with the requested authorization. The exports would originate from the existing LNG import terminal in Lake Charles, Louisiana, which is owned by another LCE affiliate, Trunkline LNG Company, LLC (Trunkline). 

Proposed modifications to the Lake Charles Terminal are the subject of an application by Trunkline and its affiliates before the Federal Energy Regulatory Commission (FERC) in Docket No. PF12-8.  LCE requested a conditional order approving its export authorization pending satisfactory completion of FERC’s environmental review and approval of the terminal modifications.

DOE/FE Findings and Analysis

DOE/FE noted generally that its review of export applications focuses on: (1) the domestic need for the natural gas proposed to be exported; (2) whether the proposed exports pose a threat to the security of domestic natural gas supplies; (3) whether the arrangement is consistent with DOE/FE’s policy of promoting market competition; and (4) any other factors bearing on the public interest.

Based on its review of the record, which included a two-part study of the economic impacts of LNG exports conducted by the U.S. Energy Information Administration and NERA Economic Consulting (NERA), DOE/FE found that LCE introduced evidence projecting a future supply of domestic natural gas sufficient to support both the proposed export authorization and domestic natural gas demand, and that no opponent had submitted contrary evidence. Although DOE/FE observed that NERA’s findings conflicted with LCE’s conclusion that there would be no additional impact on natural gas prices with LNG exports, DOE/FE found that, even with NERA’s estimated price increase, the study supported a finding that the United States would experience net economic benefits from increased LNG exports. DOE/FE acknowledged that commenters criticized the data inputs used in the studies, but declared that the study was fundamentally sound and supported the proposition that the proposed exports would not be inconsistent with the public interest. The DOE/FE also noted that it considered international consequences of the decision, as well as other considerations. On balance, the DOE/FE concluded that the potential negative impacts of the proposal were outweighed by the likely net economic benefits and by other non-economic or indirect benefits. DOE/FE asserted that it would continue to monitor market developments closely as the impact of successive authorizations of LNG exports unfolds, and impose terms and conditions as necessary on subsequent LNG export authorizations.

Terms and Conditions

DOE/FE granted authorization to the Lake Charles Terminal on the following terms and conditions:

  • Term of the Authorization: 20 years beginning from the date of first export. (LCE had requested a 25 year authorization).
  • Commencement of Operation: Within seven years from the date of the Order. (LCE had requested up to ten years).
  • Transfer, Assignment, or Change in Control:  Prior to any change of control, LCE must obtain approval of the Assistant Secretary for Fossil Energy. A rebuttable presumption that control exists will arise from the ownership or the power to vote, directly or indirectly, ten percent or more of the voting securities of such entity. 
  • Agency Rights: DOE/FE required that, where LCE proposes to export LNG as agent for BGLS, LCE must register BGLS with DOE/FE in accordance with the procedures and requirements described in the Order. 
  • Contract Provisions for the Sale or Transfer of LNG to be Exported: DOE/FE required that LCE file with DOE/FE, within 30 days of execution: (1) all executed long-term contracts associated with the long-term export of LNG, on LCE’s behalf or as agent for BGLS, from the Lake Charles Terminal; and (2) all executed long-term contracts associated with the long-term supply of natural gas to the Lake Charles Terminal.
  • Export Quantity: DOE/FE authorized LCE’s requested LNG exports in an annual quantity equivalent to natural gas volume of 2 Bcf/d, or 730 Bcf/yr, as set forth in LCE’s Application.
  • Combined FTA and Non-FTA Export Authorization Volume:  DOE/FE conditionally authorized the LNG export quantity to be up to the equivalent of 730 Bcf/yr of natural gas on both a standalone basis and also when combined with LCE’s authorized FTA exports pursuant to DOE/FE Order No. 2987.
  • Environmental Review: The authorization issued in this proceeding is conditioned on Trunkline’s satisfactory completion of the environmental review process in FERC Docket No. PF12-8 and subsequent certificate proceeding.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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