DOE Issues Notice of Proposed Rulemaking for Small-Scale Natural Gas Exports

by Cadwalader, Wickersham & Taft LLP
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On September 1, 2017, the Department of Energy (“DOE”) issued a Notice of Proposed Rulemaking (“NOPR”) proposing to revise its regulations to expedite the application and approval process for small-scale exports of natural gas.

Under the proposed rule, the DOE would issue an export authorization to an applicant submitting a complete application to export natural gas, including LNG, to countries with which the United States has not entered into a free-trade agreement (“FTA”) requiring national treatment for trade in natural gas, and with which trade is not prohibited by U.S. law or policy, provided that the application satisfies two criteria.  The first criterion is that the application proposes to export natural gas in a volume up to and including 0.14 Bcf/d.  This figure is based on the DOE’s calculation of 1 million metric tons per year.  The second criterion is that DOE’s approval of the application does not require an environmental impact statement (“EIS”) or an environmental assessment (“EA”) under the National Environmental Policy Act (“NEPA”) of 1969.

Procedurally, DOE would first determine if the application is complete under DOE’s regulations.  If the application is complete, DOE would then determine if the application meets the two criteria for  small-scale natural gas export.  Upon a finding that the criteria are met, DOE would issue a non-FTA authorization granting the application on an expedited basis, without providing notice of application and other procedures typically required for non-FTA export applications under DOE’s regulations.  The NOPR states that the proposed rule and its 45-day comment period would constitute the notice an opportunity for hearing on all prospective small-scale natural gas export applications.

Under section 3(a) of the Natural Gas Act (“NGA”), DOE is responsible for authorizing exports that are in the public interest to non-FTA countries.  The NOPR does not apply to exports to FTA countries under section 3(c) of the NGA.  The DOE has interpreted section 3 of the NGA as creating a rebuttable presumption that a proposed export of natural gas is in the public interest, so the DOE has in practice granted export applications unless it found that the proposed export would not be consistent with the public interest.  In the NOPR, the DOE proposes that applications that satisfy the two criteria are consistent with the public interest under the NGA.

Generally, the DOE serves as a cooperating agency in the NEPA review process and the federal agency responsible for permitting the export facility, either the Federal Energy Regulatory Commission or the Maritime Administration, serves as the lead agency.  While the DOE’s environmental review process under NEPA usually results in the preparation or adoption of an EIS or EA describing the potential environmental impacts associated with the application, the DOE may determine in some cases that an application is eligible for a categorical exclusion from the preparation or adoption of an EIS or EA under its regulations implementing NEPA.  To meet the second criterion, the application must qualify for a categorical exclusion.  For example, pursuant to DOE’s categorical exclusion B5.7, a small-scale natural gas export that involves only existing facilities or minor operational changes is an action that does not involve new construction.

The DOE explains in the NOPR that it has issued 28 final export authorizations to non-FTA countries to date, for a cumulatve total of approved non-FTA exports of LNG and compressed natural gas to 21.33 Bcf/d of natural gas, or 7.79 trillion cubic feet per year.  Seven of the 28 non-FTA authorizations were for exports in volumes below 0.14 Bcf/d of natural gas.  DOE observed that small-scale exports are primarily destined for the Caribbean, Central America, and South America.  Many of these countries do not generate enough natural gas demand to justify large volumes of LNG imports from large-scale LNG terminals and conventional-sized LNG tankers.\

The DOE reached the following conclusions as part of its public interest determination for each non-FTA authorization application:

  • That substantial domestic natural gas supplies exist to meet domestic natural gas demand and increased natural gas exports;
  • That, while increased natural gas exports result in higher U.S. natural gas prices, the price changes stay within a narrow band;
  • That increased natural gas exports are likely to generate net economic benefits for the United States even with the estimated price increases by stimulating local, regional, and national economies through direct and indirect job creation, increased economic activity,        and tax revenues;
  • That increased natural gas exports increase the diversity of supply in the global natural gas market, which in turn benefits international trade and relations, as well as global energy security.

The DOE will accepted public comments on the proposed rule until October 16, 2017.

 

 

1 Small-Scale Natural Gas Exports, 82 Fed. Reg. 41570 (proposed Sept. 1, 2017) (to be codified at 10 C.F.R. pt. 590).

2 10 C.F.R. § 590.205 and 10 C.F.R. part 590, subpart C (10 C.F.R. § 590.303-10 C.F.R. § 590.317) (2017).

3 15 U.S.C. § 717b(a) (2012).

4 Id. § 717b(c).

5 40 C.F.R.  §§ 1501.4, 1501.5.

6 10 C.F.R. § 1021.410, appendices A & B.

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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