The Department of Energy (DOE) adopted a new policy which extends the standard term for authorizations to export natural gas and liquefied natural gas (LNG) from the U.S. lower-48 states to countries without a free trade agreement with the U.S. to December 31, 2050. The standard term had been 20 years. The new standard term will be allowed for current and future export authorizations.
This change in DOE policy should 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.
As discussed in a previous post to this blog, DOE issued a Notice of Proposed Policy Statement in February 2020 proposing to extend the terms of non-FTA export authorizations to December 31, 2050. The 20-year term was based on studies that evaluated the impact of LNG exports on the U.S. economy and energy markets. However, a more recent 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 notice said authorization holders had indicated that a longer term would better match the operational life of 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 new policy
In a Notice of the Final Policy Statement (Policy Statement), DOE adopts a term through December 31, 2050 as the standard export term for long-term non-FTA authorizations. The Policy Statement establishes the following implementation process.
Existing authorization holders may, on a voluntary opt-in basis, request a term extension by filing an application to amend their authorizations to extend the term through December 31, 2050, with an attendant increase in the total export volume over the life of the authorization.
Pending non-FTA applicants may, on a voluntary opt-in basis, amend their application to request an export term through December 31, 2050, with an attendant increase in the total requested export volume over the life of the authorization.
Future long-term non-FTA authorizations will have a standard export term lasting through December 31, 2050, unless a shorter term is requested.
Applications to amend existing non-FTA orders and pending applications will be noticed in the Federal Register, and DOE will conduct a public interest analysis of them. The public interest analysis for existing orders will be limited to the application for the term extension. An intervenor or protestor may challenge the requested extension but not the existing non-FTA order.
For applications to amend existing non-FTA orders and pending non-FTA applications, the policy statement provides suggested application templates to ensure more consistent, streamlined proceedings.
The policy statement does not apply to authorizations to export to FTA countries because DOE is required to grant FTA applications ‘‘without modification or delay’’ under the NGA. Applicants for FTA export authorizations were not subject to the standard twenty-year term. The Policy Statement notes, however, that authorization holders typically prefer to align their FTA and non-FTA exports over the same time period for administrative efficiencies. DOE expects non-FTA authorization holders to request comparable termination dates for their FTA authorizations and encourages the use of consolidated FTA and non-FTA extension applications.
DOE found that under the new policy, exports of LNG will generate positive economic benefits in the U.S. through the year 2050, and will advance the public interest by providing a mechanism to increase the total volume of LNG exports over the life of an authorization. In rejecting comments opposing the proposed policy, DOE said that, based on findings in the 2018 LNG export study, it does not find credible assertions that the new policy would put trillions of dollars of U.S. manufacturing assets and millions of jobs at risk. In addition, DOE did not find arguments concerning domestic price increases supported by record evidence.
DOE’s Policy Statement is effective on the date it is published in the Federal Register.