Transcript University of Pittsburgh School of Law 2013 Energy Law and Policy Institute August 2, 2013 U.S.

University of Pittsburgh School of Law
2013 Energy Law and Policy Institute
August 2, 2013
U.S. LNG Exports: Regulatory
and Policy Developments
Sandra E. Safro, Associate
Washington, DC
© Copyright 2013 by K&L Gates LLP. All rights reserved.
Overview
 Basics of LNG
 Federal Regulation of LNG
 Federal Energy Regulatory Commission
 FERC basics
 FERC authorization of import/export terminals
 Department of Energy
 DOE basics
 DOE LNG exports regulatory process
 Other issues
 Environmental pressures
 Congressional issues
 Geopolitics
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LNG Basics
 Liquefied natural gas (LNG) = Natural gas
 Cooled to -260° Fahrenheit
 LNG occupies 1/600th of the volume as natural gas in its gaseous
state
 Increased technically recoverable U.S. natural gas
reserves has spurred interest in LNG
 Exports
 Transportation fuel: Marine, locomotive, vehicles
 In the US, 4 LNG import terminals were built in the 1970s
 Only one (in Boston, Massachusetts) has operated continuously
since then
 In 2000s, 6 additional projects were built plus expansions at 3 of
the 4 existing terminals
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FEDERAL REGULATION OF LNG
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Basics of Federal Regulation of LNG
 Federal Energy Regulatory Commission
 Regulates siting, construction, and operation of facilities
used for the import/export of natural gas/LNG
 Primarily an environmental and safety review
 Does not regulate rates, terms or conditions for service at
LNG import/export facilities
 Department of Energy
 Regulates the import and export of the natural gas (via
pipeline) or LNG (via vessel or truck) commodities
 Focuses on adequacy of domestic supply and demand,
impact on domestic natural gas prices, and other energy
resources
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FERC Basics
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Independent agency
5 Commissioners, 5-year terms, US Senate confirmed
3 from President’s political party (now Democratic)
2 from the opposition party (now Republican) or
Independent
 FERC regulates:
 Transportation and sale of natural gas for resale in interstate
commerce
 Transportation of oil and oil products by pipeline in interstate
commerce
 Transmission and wholesale sale of electricity in interstate
commerce
 Other matters related to the operation of oil, natural gas, electric,
and hydro-projects
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Natural Gas Act of 1938
Basis of FERC’s authority to regulate the facilities used for
imports and exports, as well as the transportation and
wholesale sale of natural gas in interstate commerce
 Section 3
 Import/export of natural gas
 LNG facilities
 Section 4
 Pipeline and storage rate
filings
 Terms and conditions of
service
 “Just and reasonable” rates
 Section 4A
 Market manipulation
 Section 5
 Complaint oversight
 Section 7
 Construction and operation
of facilities
 Section 21
 General enforcement
 Section 23
 Transparency
 Reporting requirements
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FERC Authorization of Import/Export Terminals
 By law, FERC has exclusive authority to approve the
siting, construction, operation and maintenance of LNG
import and export facilities
 FERC process
 There is a robust process for FERC to review and assess a
proposal for a new or expanded LNG terminal and associated
pipeline expansion
 Review is primarily environmental and safety
 Involves many other federal, state and local government agencies
that cooperate with FERC, including:
 US Coast Guard
 Department of Transportation, PHMSA
 Environmental Protection Agency
 The public has the opportunity to participate in the FERC process
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FERC Authorization of Import/Export Terminals
 FERC timing
 FERC process results in a Final Environmental Assessment (EA)
or Final Environmental Impact Statement (EIS) and authorization
order
 Under the law, there is no deadline for FERC to issue an order
approving or rejecting an LNG terminal or natural gas pipeline
project
 There is a minimum 6-month period of pre-consultation that a
project developer must engage in with the FERC prior to filing the
formal application (“pre-filing process”)
 Historically, FERC approval for LNG import terminals took
between 18-30 months
 Sabine Pass LNG export project received approval in 15 months
(plus the 6 months of the pre-filing process)
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FERC Authorization of Import/Export Terminals
 If FERC approves a project, its order will contain dozens
of environmental mitigation measures some of which
could effectively kill a project
 If the project developer has satisfied all of the conditions
in FERC’s order, it will be able to continue construction of
the project throughout any legal challenge to the project
from project opponents (e.g., Sierra Club)
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LNG Exports: FERC Process
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DOE Basics
 Executive Branch agency
 Secretary is appointed by President and sits on President’s
Cabinet
 Political by nature
 Office of Fossil Energy has authority over imports and
exports of the natural gas and LNG commodity
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LNG Exports: DOE Process
DOE authorization process is different under the NGA
for exports to FTA countries v. non-FTA countries
Free Trade Agreement Countries
Non-FTA Countries
Application
Short
Robust
Public Notice/Comment
Not required
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Approval
Deemed to be in the public interest and
must be approved “without delay”
Rebuttable presumption that application is in the public interest, but
will only be approved after full agency review – this is the area of
current uncertainty
DOE Status
Currently processing in about 90 days
Ongoing – 20 applications pending, some for more than 2 years
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Notice of application must be published in the Federal Register
Interested parties must be given opportunity to comment on the
application
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LNG Exports: DOE Process
 DOE’s regulations require an applicant submit its
application to export LNG at least 90 days prior to the
proposed export
 Two types of export permits may be obtained from DOE
 Short-term (blanket) authorizations
 For two years or less, generally for spot market transactions
 Simple, routine process
 Long-term
 Any period greater than two years
 Requires significant documentation and supporting evidence
 DOE’s current policies require parties with long-term supply
agreements to file for long-term export applications
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LNG Exports: DOE Process
 Currently, there are 20 non-FTA applications pending at DOE
 DOE issued an order approving exports from Cheniere’s
Sabine Pass LNG terminal in May 2011
 After this, DOE informally suspended processing all pending
applications for exports to non-FTA countries for two years
 Increased political concern surrounding impacts on domestic
supply and natural gas prices from large-scale exports of LNG
 DOE commissioned the LNG Export Study, a two-part study
assessing the micro- and macro-economic impacts of exports
 Solicited comments on LNG Export Study
 Findings: U.S. LNG exports result in net economic benefits
regardless of how much LNG is exported
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LNG Exports: DOE Processing Queue
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LNG Exports: DOE and Freeport LNG
 On May 17, 2013, DOE authorized exports from the
proposed Freeport LNG export terminal
 Affirmed LNG Export Study and benefits of LNG exports
 Affirmed its continued use of a public interest analysis and that
such analysis is flexible and based on a market-driven approach
 Opponents have argued that the public interest analysis
should be updated and that DOE should establish specific,
proscriptive criteria for exports
 Since then, new Energy Secretary Ernie Moniz has said that he
understands the commercial need for expedited review
 Deputy Assistant Secretary Smith testified on Capitol Hill that he
expects future authorizations to take approximately two months
 But … we are still waiting on Day 76 Post-Freeport
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LNG Exports: DOE Process
 Other issues
 Revocation authority
 DOE asserted in May 2011 Sabine Pass order that it has authority to
revoke or modify an export license under the Natural Gas Act (NGA)
 Unclear whether DOE actually does have such a right
 DOE has stated that it would revoke only in “extraordinary
circumstances” and recognized the “good-faith investment-backed
expectations of private parties”;
 DOE to Congress: The agency will not use license revocation or
modification as a form of natural gas price control
 Senators Wyden and Murkowski seeking additional information
 DOE has made clear that it will dismiss proposed exports if the
applicant cannot show
 Availability of a pipeline to transport gas to a liquefaction plant;
 Source of the natural gas supply for the plant; and
 An actual site for the liquefaction plant
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LNG Exports: Other Issues
 Mounting environmental pressure
 Keystone XL pipeline is a “line in the sand” for the U.S.
environmental movement
 Movement has shifted to hydraulic fracturing and LNG exports
 Sierra Club is leading the opposition to LNG exports
 Filed protests at DOE and FERC of multiple LNG export
proposals
 Argues that agencies must consider the environmental
impacts of upstream hydraulic fracturing since it is “reasonably
foreseeable”
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LNG Exports: Other Issues
 Support from Congress
 In Aug/Sept 2012, two bipartisan letters from US Congressmen to
Energy Secretary Chu urged him to expedite LNG exports
approvals
 In July 2013, 34 senators sent a similar letter to Secretary Moniz,
including 11 Democrats
 Congressional opposition is only from the most liberal
wing of the Democratic party
 Geopolitics: Increasing focus on impacts on US trade
relations with strategic partners
 Trans-Pacific Partnership (TTP)
 Transatlantic Trade and Investment Partnership (TTIP)
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QUESTIONS?
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