The Future of Liquefied Natural Gas (LNG) Exports under the Department of Energy’s Revised Review Process

by Moore & Van Allen PLLC
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During the last two years, we have seen the U.S. Department of Energy (“DOE”) pick up the pace in granting conditional authorizations for companies to export liquefied natural gas (“LNG”) to countries that do not have a Free Trade Agreement with the United States (“non-FTA countries”). Despite the DOE’s increased stride in reviewing outstanding applications, the agency still has drawn significant criticism for dragging its feet while the window of opportunity for the U.S. to claim a significant stake in global energy trade arguably was closing. You can read our previous posts addressing LNG export issues for additional background. Several efforts to revise the process for LNG export approval were initiated this year, including the DOE’s initiative to revise its process for reviewing applications and the introduction of legislation aimed at expediting the review. On June 4, 2014, the DOE issued a notice of proposed procedures outlining revisions that would bring the agency’s pace for granting conditional authorizations to a halt. After public comment, the DOE finalized the revised procedures (effective August 15, 2014) and the agency no longer will grant conditional authorizations for LNG exports from the lower-48 states. Instead, the DOE will review remaining applications only after they have gone through the required National Environmental Policy Act (“NEPA”) review process and in the order they become ready for DOE final review. We highlight the changes to DOE procedures below.

Suspension of Conditional Authorizations 

Prior to August 15, 2014, the DOE had been reviewing applications to export LNG to non-FTA countries in the order of precedence according to when applications were received, and it was issuing conditional authorizations that were still subject to “environmental review and final regulatory approval.” Between May 2013 and July 2014, the DOE issued seven of the eight conditional authorizations that it has granted. The first conditional authorization had been granted two years prior, in May 2011. The DOE granted conditional authorizations to Sabine Pass Liquefaction, LLC (May 20, 2011); Freeport LNG Expansion, L.P. (May 17, 2013); Lake Charles Exports, LLC (Aug. 7, 2013); Dominion Cove Point LNG, LP (September 11, 2013); Freeport LNG Expansion, L.P. (Nov. 15, 2013); Cameron LNG, LLC (Feb. 11, 2014); Jordan Cove Energy Project, L.P. (March 24, 2014); and, most recently, LNG Develop. Co., LLC (d/b/a Oregon LNG) (July 31, 2014). Including the 1.25 Bcf/d of LNG recently authorized for export by Oregon LNG, the DOE has conditionally authorized the export of 10.52 Bcf/d for a period of 20 years from the U.S.  The conditional authorizations were based on the determination that exports from the terminals at the authorized rate were not inconsistent with the public interest, pending evaluation of environmental considerations.

Under the revised procedures, the DOE will not issue conditional authorizations. Moving forward, the DOE only will issue decisions after an application is ready for final review, which is “when the DOE has sufficient information on which to base a public interest determination and when DOE has completed its NEPA review.” The DOE does, however, continue to have the discretion to issue conditional authorizations in the future if need be. The conditional authorizations already granted will not be affected by the change of procedure; however, remaining applications will be reviewed under the new process.

Completion of NEPA Environmental Review

The NEPA environmental review process differs for LNG terminals based on their location, and normally is headed either by the Federal Energy Regulatory Commission (“FERC”) (for facilities onshore and offshore, but within state waters) or the Department of Transportation, Maritime Administration (“MARAD”) (for offshore LNG terminals beyond state waters). DOE normally serves as a cooperating agency and still must satisfy its own NEPA compliance requirements. Under the DOE’s revised procedures, the requisite NEPA review process is considered completed:

(1) for those projects requiring an Environmental Impact Statement (“EIS”), 30 days after publication of a Final EIS;

(2) for projects for which an Environmental Assessment (“EA”) has been prepared, upon publication by DOE of a Finding of No Significant Impact (“FONSI)”; or

(3) upon a determination by DOE that an application is eligible for a categorical exclusion pursuant to DOE’s regulations implementing NEPA.

The DOE explained that if FERC or MARAD has issued an EA or EIS, the DOE may choose to adopt the other agency’s environmental review document. However, the DOE also must perform an independent analysis and issue its own decision, either in the form of a FONSI or Record of Decision. The DOE also must issue independent determinations regarding whether a proposed action falls within a categorical exclusion to NEPA review requirements. On July 30, 2014, Freeport LNG Expansion became the third LNG export project to receive authorization by FERC. Sabine Pass Liquefaction remains the only project to have received final approval from both FERC and the DOE.

Why the Change?

In an interview after the revised procedures became effective, Energy Secretary Moniz reportedly stated that complaints regarding the DOE’s pace in reviewing applications were “B.S.,” as the DOE must await FERC’s review before making a final determination. In implementing the revised procedures, the DOE explained that the change comes at a time when the utility of granting conditional authorizations has been shown to be negligible. Previously, FERC and applicants required some indicator of the feasibility of obtaining final approval before devoting the significant resources required to conduct a full NEPA review. The DOE noted, however, that currently there are “another 8 projects comprising 10.82 Bcf/d in requested non-FTA export authority that are well into the NEPA review process without having received a conditional authorization,” indicating that conditional authorization is no longer required for FERC or applicants to push forward. The DOE believes that reviewing applications as they become ready for final review, instead of in the order of precedence, will keep projects from being held back. The DOE also believes that waiting to issue a decision upon final review will allow for better-informed decisions to be made by agency in a manner that best utilizes the agency’s resources.

Is More Change Coming?

Energy Secretary Moniz reportedly stated that any further changes regarding LNG export approval procedures will have to come from Congress. Legislative efforts have been initiated to address the process for approving LNG exports. For example, in June 2014, the House passed H.R. 6 The Domestic Prosperity and Global Freedom Act. When introduced in March 2014, H.R. 6 simply called for the immediate grant of any pending LNG export applications. As finally passed by the House on June 25, 2014, the Act requires the DOE to issue a final decision on LNG export applications within 30 days after the conclusion of the NEPA review (or within 30 days after the date of enactment of the Act if the NEPA review was completed prior to enactment). On July 22, 2014, S. 2638 The Natural Gas Export Certainty Act of 2014 was introduced in the Senate, seeking to expedite review of LNG export applications that have been pending for at least 180 days. H.R. 6 is currently pending Senate review. S. 2638 has been referred to the Senate Committee on Energy & Natural Resources. The Senate Committee on Energy & Natural Resources has commented on the DOE’s revised procedures and noted the need for DOE and FERC to maintain positive momentum in reviewing LNG export applications.

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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