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DOE To Change LNG Export Decision-Making Procedures

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DOE Proposed Change to the Energy Department's LNG Export Decision-Making Procedures

May 29, 2014 - 2:22pm

A tanker carries liquified natural gas (LNG) off the coast of Homer, Alaska. | Photo courtesy of the Federal Energy Regulatory Commission.Principal Deputy Assistant Secretary for Fossil Energy

The development of U.S. natural gas resources is having a transformative impact on the U.S. energy landscape, helping to improve our energy security while spurring economic development and job creation around the country. The Administration continues to take steps to ensure the safe and environmentally sustainable supply of natural gas. The Natural Gas Act directs the Department of Energy (DOE) to grant Liquefied Natural Gas (LNG) export authorizations to non-Free Trade Agreement (FTA) countries unless the Department finds that the proposed exports “will not be consistent with the public interest.”

Since receiving the first long-term application in 2010 to export LNG to non-FTA countries from the lower 48 states, the Department of Energy has been -- and remains -- committed to conducting a public interest determination process as required by the Natural Gas Act that is expeditious, judicious and fair. Throughout this time, the Department has consistently made clear that a close monitoring of market developments plays a critical role in the Department’s decision-making process.

Today, in order to reflect changing market dynamics, the Department of Energy is proposing to review applications and make final public interest determinations only after completion of the review required by environmental laws and regulations that are included in the National Environmental Policy Act review (NEPA review), suspending its practice of issuing conditional commitments. The proposed changes to the manner in which LNG applications are ordered and processed will ensure our process is efficient by prioritizing resources on the more commercially advanced projects, while also providing the Department with more complete information when applications are considered and public interest determinations are made.

In addition, the Department will initiate an updated economic study and is releasing two environmental reports that address the environmental footprint of unconventional natural gas production and the lifecycle greenhouse gas impacts of U.S. LNG exports.

In keeping with the Department’s commitment to an open and transparent process, the Department will make the proposed procedural change and environmental reports available for a 45-day public review and comment period.

PROPOSED PROCEDURAL CHANGE

The Department’s practice of issuing conditional authorizations to export LNG to non-FTA countries was designed to provide regulatory certainty before project sponsors and the Federal Energy Regulatory Commission (FERC) spend significant resources for the review of export facilities required by environmental laws and regulations that are included in the NEPA review. However, market participants have increasingly shown a willingness to dedicate the resources needed for their NEPA review prior to receiving conditional authorizations from the Department of Energy. In response to these and other developments, the Department intends to make final public interest determinations only after a project has completed the NEPA process, instead of issuing conditional authorizations. By removing the intermediate step of conditional decisions and setting the order of DOE decision-making based on readiness for final action, DOE will prioritize resources on the more commercially advanced projects.

The proposed procedural change will improve the quality of information on which DOE makes its public interest determinations. By considering for approval those projects that are more likely to actually be constructed, DOE will be able to base its decision on a more accurate evaluation of the project’s impact on the public interest. DOE will also be better positioned to judge the cumulative market impacts of its authorizations in its public interest review. While it is not assured that all projects for which NEPA review is completed will be financed and constructed, projects that have completed the NEPA review are, generally speaking, more likely to proceed than those that have not.

In response to an evolving market, this proposed change will streamline the regulatory process for applicants, ensure that applications that have completed NEPA review will not be delayed by their position in the current order of precedence, and give the Department a more complete understanding of project impacts.

The Department is issuing the Notice of Proposed Procedures for LNG Export Decisions for a 45-day public review and comment period. During the review period, the Department will continue with evaluations of projects that have already received conditional authorizations and completed their NEPA review. Further, the Department will continue to act on requests for conditional authorization currently under review during the period in which the proposed changes are under consideration.

ECONOMIC IMPACT STUDY

DOE plans to undertake an economic study in order to gain a better understanding of how potential U.S. LNG exports between 12 and 20 billion cubic feet per day (Bcf/d) could affect the public interest. Using more recent data from sources like the Annual Energy Outlook 2014, theEnergy Information Administration (EIA) will update its 2012 LNG Export Study, which only looked at export cases of 6 and 12 Bcf/d. Following the EIA update, DOE will again contract for an external analysis of the economic impact of this increased range of LNG exports and other effects that LNG exports might have on the U.S. natural gas market. While these studies are underway, the Department will continue to act on applications as stated above. To date, the Department has issued final authorization for export to non-FTA countries at a rate of 2.2 Bcf/d. If at any future time the cumulative export authorizations approach the high end of export cases examined, the Department will conduct additional studies as needed to understand the impact of higher export ranges. At all levels, the cumulative impacts will remain a key criterion in assessing the public interest.

Both the EIA study and the external analysis of economic impacts will be made available for public comment.

RELEASE OF ENVIRONMENTAL REPORTS

To better inform the Department and the public of the environmental impacts of increased LNG exports, the Department elected to prepare two additional reports of environmental issues beyond what is required for NEPA. The first report reviewed unconventional natural gas exploration and production activities and is titled Draft Addendum To Environmental Review Documents Concerning Exports Of Natural Gas From The United States. In keeping with the President’s Climate Action Plan and the Administration’s commitment to mitigate greenhouse gas emissions, the Department completed a second report called Life Cycle Greenhouse Gas Perspective on Exporting Liquefied Natural Gas from the United States.

Both reports are being made available for public comment for 45 days, after which the reports and comments received from the public will be considered by the Department in its public interest determinations in connection with applications to export LNG to non-FTA countries.