The Department of Energy (“DOE”) is proposing to extend to December 31, 2050 the standard twenty-year term for authorizations to export natural gas and liquefied natural gas (LNG) from the U.S. lower-48 states. According to DOE, the longer term would better match the operational life of LNG export facilities, provide more security in their financing, and maximize the ability to contract for exports. This change in DOE policy will be of interest to gas and LNG export authorization holders and their counterparties in sales contracts, and to proposed export applicants that are now seeking or will seek such authorizations from DOE.
Under the Natural Gas Act (NGA), DOE authorizes exports of natural gas and LNG that are consistent with the public interest. Exports to countries with which the United States has a free trade agreement (FTA) are deemed in the public interest by the NGA and must be authorized “without modification or delay.” However, for exports to countries without an FTA (non-FTA countries), DOE conducts an informal adjudication and authorizes a proposed export unless it is shown to not be consistent with the public interest. The adjudications for non-FTA authorizations can be contentious, with issues often raised about the environmental and economic impacts of exporting the gas. DOE has limited the term for non-FTA export authorizations to twenty years.
According to a recent Notice of Proposed Policy Statement, DOE says current authorization holders have indicated that a longer term would better match the operational life LNG export facilities (designed for 30 to 50 years), provide more security in financing those facilities and maximize the ability to contract for exports. The existing 20-year term is based on studies in 2012, 2014 and 2015 that evaluated the impact of LNG exports on the U.S. economy and energy markets. However, a 2018 LNG export study considered unconstrained (or market-determined) levels of LNG exports through the year 2050 and, according to DOE, supports export terms lasting through December 31, 2050.
The proposal to extend export authorization terms does not apply to authorizations to export to FTA countries. This is because DOE is required to grant FTA applications “without modification or delay” under NGA section 3(c). Applicants for FTA export authorizations are not subject to the standard twenty-year term and may already request longer authorizations.
Under the proposal, DOE would approve both new and existing non-FTA export authorizations for a term that would end on December 31, 2050. Existing non-FTA authorization holders could apply to extend their terms through that date; current non-FTA applicants could amend their pending application to request a term through December 31, 2050; and DOE would issue all future non-FTA export authorizations with a standard export term lasting through December 31, 2050 unless a shorter term is requested.
In each of the above proceedings, DOE would conduct a public interest analysis of the application. For existing non-FTA authorizations, the public interest analysis would be limited to the merits of the application for an extended export term; it would not consider whether the existing non-FTA authorization is in the public interest.
Authorization holders typically prefer to align their FTA and non-FTA exports over the same time period; DOE expects FTA authorization holders to request comparable termination dates for existing FTA authorizations or pending FTA applications if the proposal is adopted.
DOE says it anticipates commissioning new economic studies on the impact of LNG exports and will consider extensions in export periods beyond 2050 at the appropriate time in the future.
Comments on the proposal are due March 12, 2020.