The U.S. Department of Energy ("DOE") proposed a rule change to expedite approval of applications for small-scale exports of natural gas, including liquefied natural gas ("LNG"). The proposal would allow the DOE to provide quicker review and approval of applications to export to countries without free trade agreements ("non-FTA countries").

As detailed in a Cadwalader memorandum, the DOE would grant authorization for exportation to a non-FTA country (provided there is not an existing trade prohibition) if the application meets the following criteria: (i) it proposes to export natural gas in a volume not exceeding 0.14 Bcf/d, and (ii) DOE approval would not require an environmental impact statement ("EIS") or an environmental assessment ("EA") under the National Environmental Policy Act ("NEPA"). The DOE would first assess whether the application is complete, evaluate it with respect to the aforementioned criteria, and then issue expedited authorization. The DOE would not provide notice of application as generally required for non-FTA export applications pursuant to DOE regulations.

As highlighted in the memorandum, the DOE is "responsible for authorizing exports that are in the public interest to non-FTA countries" under Section 3(c) of the Natural Gas Act. The latest proposal would not apply to countries with free trade agreements. While the DOE generally grants applications to non-FTA countries unless they are found to be contrary to public interest, the proposal would allow for the DOE to classify applications as consistent with the public interest, provided they meet the criteria detailed above. In addition, the attorneys said that the DOE NEPA review process generally results in the development of an EIS or EA. Therefore, to be eligible for the expedited authorization, an application must qualify for a "categorical exclusion."

Thus far, the DOE has granted 28 final export authorizations to non-FTA countries, with most small-scale exports destined for the Caribbean, Central America and South America. The attorneys said that "[m]any 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." As part of the public interest determination for the previous non-FTA authorizations, the DOE ascertained that (i) natural gas suppliers would be able to "meet domestic natural gas demand and increased natural gas exports," (ii) resulting price increases in the U.S. would remain "within a narrow band," (iii) increased exports would likely "generate net economic benefits for the U.S.," and (iv) increased price exports would benefit international trade and relations and global energy security by "increas[ing] the diversity of supply in the global natural gas market."

Comments on the proposal must be received by October 16, 2017.

The Cadwalader memorandum was authored by Nelli Doroshkin, Mark Haskell and Brett Snyder.

Commentary / Brett Snyder

There is a robust and evolving niche market for smaller-scale LNG projects. On the export side, there is a second tranche of credible buyers who want cargoes smaller than those of the large LNG carriers serving traditional terminals, with most small-scale exports destined for the Caribbean, Central America, and South America. The proposal would allow for the DOE to provide quicker review and approval of applications to export to countries without free trade agreements.

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