After a nearly two-year freeze on processing applications to
export liquefied natural gas ("LNG") to countries that do
not have a free trade agreement ("FTA") with the United
States, on May 17, 2013, the United States Department of Energy
("DOE") announced that it had conditionally authorized
Freeport LNG Expansion, L.P. and FLNG Liquefaction, LLC (together,
"Freeport") to export domestically produced LNG from the
Freeport LNG terminal on Quintana Island, Texas, to non-FTA
countries. Subject to environmental review and final regulatory
approval, the terminal will be authorized to export up to 1.4
billion cubic feet of natural gas per day ("Bcf/d") for
20 years. This approval marks only the second time that the DOE has
granted authorization to export LNG to non-FTA countries; the first
occurred in May 2011, when Cheniere Energy's Sabine Pass LNG
Terminal in Cameron Parish, Louisiana, received authorization to
export up to 2.2 Bcf/d to non-FTA countries.
Natural gas production in the United States has boomed in recent
years, largely fueled by the rapid growth in shale gas output. The
U.S. Energy Information Administration forecasts a record
production rate of 69.3 Bcf/d in 2013, a 12.9 percent increase from
61.4 Bcf/d in 2010. Contemporaneous with the increase in natural
gas production, global demand for natural gas is rising. The U.S.
Energy Information Agency projects that global natural gas demand
will increase from 298 Bcf/d in 2007 to 342 Bcf/d in 2015.
Further, according to the U.S. Federal Energy Regulatory
Commission, natural gas prices outside of the United States are
significantly higher than inside the United States; LNG currently
costs around $4 per MMBtu in the United States, $10 per MMBtu in
Europe, and $15 per MMBtu in Asia and South America. These
developments have increased the United States' energy
independence and spurred economic development and job creation, but
they have also led to debate surrounding the issue of LNG exports,
in particular with respect to exports to non-FTA countries.
Under the Natural Gas Act of 1938, as amended (15 U.S.C.
§717) ("Natural Gas Act"), LNG exports to FTA
countries are viewed as presumptively "in the national
interest," and therefore the approval process for such exports
is generally expedited. For LNG exports to non-FTA countries,
however, the Natural Gas Act directs the DOE, after extensive and
thorough review, to grant such authorizations unless it is
determined that the proposed exports "will not be consistent
with the public interest." In reviewing these applications,
the DOE considers, among other factors, the potential economic,
security, and environmental consequences.
Following the approval of Cheniere Energy's application to
export LNG to non-FTA countries in May 2011, a fierce debate
ensued, causing the DOE to delay approving additional applications
while it studied the potential impact of LNG exports on the United
States' economy. A report commissioned by the DOE released in
December 2012 suggested that allowing greater gas exports would
lead to greater economic benefits. In the meantime, Congress, the
natural gas industry, lobbyists, activists, and other stakeholders
have debated the merits and potential consequences of exporting LNG
to non-FTA countries. While critics argue that LNG exports could
drive up domestic gas prices, lead to reduced international
security, and cause environmental disruption, proponents emphasize
the significant economic benefits of LNG exports.
The authorization granted to Freeport is a significant milestone
for proponents of increased LNG exports to non-FTA countries;
however, the ongoing debate will continue to have an impact on the
19 pending applications awaiting a decision from the DOE. In
granting this approval, the DOE has stressed that it will continue
to review each application on a case-by-case basis in the order in
which they were filed. Nonetheless, the Freeport decision, along
with public remarks by DOE representatives, suggest that additional
authorizations to export LNG to non-FTA countries could soon be on
the horizon.
A link to the authorization for Freeport to export LNG to non-FTA
countries can be found here.
Omar Samji, an associate in the Houston Office, assisted in the preparation of this Alert.
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