Three independent, but not wholly unrelated, events occurred over the last few weeks, each arising out of the Natural Gas Act’s application and the growing importance of LNG exports to the United States and the international community.

(1) Following the crisis in Ukraine, there were continuing calls from a variety of politicians and pundits to increase LNG exports to Europe and decrease Europe’s reliance on Russian exports of natural gas. In particular, a congressional sub-committee considered and advanced  H.R. 6 (The Domestic Prosperity and Global Freedom Act). This measure would expedite the application process for contracts with supplies destined for any member nation of the WTO (currently, an expedited process only applies to contracts with supplies destined for countries with which the United States has a free-trade agreement).

(2) Cheniere Energy and Endesa, a Spanish utility company, signed two 20-year LNG sale and purchase agreements (“SPAs”) for 2.25 million tonnes per annum (“mtpa”) commencing upon completion of the Corpus Christi Liquefaction Project.  Cheniere Energy has also entered into agreements with counter-parties from the Asian markets, including South Korea and Indonesia. Notably, each of these agreements is at least partially indexed to Henry Hub.

(3) The Department of Energy (“DoE”) conditionally approved an LNG export application for the Jordan Cove Energy Project in Coos Bay, Oregon. This is the seventh permit conditionally granted by the DoE (over 20 remain in progress). The approval is conditioned on future approval by the  Federal Energy Regulatory Commission. DoE reviews applications to ensure that sales resulting to countries that do not have free-trade agreements are in the “public interest” (in accordance with the standard set out in section 3(a) of the Natural Gas Act). Significantly, the DoE continues to highlight the importance of  supply security to allies of the United States as one of the considerations in making its decision, stating at page 142:

We have also considered the international consequences of our decision. […] The United States’ commitment to free trade is one factor bearing on that review. An efficient, transparent international market for natural gas with diverse sources of supply provides both economic and strategic benefits to the United States and our allies. Indeed, increased production of domestic natural gas has significantly reduced the need for the United States to import LNG. In global trade, LNG shipments that would have been destined to U.S. markets have been redirected to Europe and Asia, improving energy security for many of our key trading partners. To the extent U.S. exports can diversify global LNG supplies, and increase the volumes of LNG available globally, it will improve energy security for many U.S. allies and trading partners. As such, authorizing U.S. exports may advance the public interest for reasons that are distinct from and additional to the economic benefits identified in the LNG Export Study.

Arguments concerning supply security to allies of the United States are not new considerations. Similar language has been used in previous DoE orders granting long-term multi-contract authorization to export LNG (see, for example, a conditional authorization from February 2014, before Russia’s military intervention in Ukraine, at page 131). The wording used in this latest authorization builds on these previous considerations. Notably, the following is the “added” language:

An efficient, transparent international market for natural gas with diverse sources of supply provides both economic and strategic benefits to the United States and our allies. Indeed, increased production of domestic natural gas has significantly reduced the need for the United States to import LNG. In global trade, LNG shipments that would have been destined to U.S. markets have been redirected to Europe and Asia, improving energy security for many of our key trading partners.

The Natural Gas Act does not specifically define the issues to be considered and the DoE has discretion to consider a variety of factors. The current political circumstances, potential action by Congress and the viability of sales to European companies (as demonstrated by the deal with Endesa) suggest that the DoE may emphasize international policy for future applications; specifically considering factors beyond the economic benefits identified by the LNG Export Study.