© Copyright 2013 by K&L Gates LLP. All rights reserved.

U.S. LNG Exports: Regulatory and Policy Developments

University of Pittsburgh School of Law2013 Energy Law and Policy InstituteAugust 2, 2013

Sandra E. Safro, AssociateWashington, DC

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Overview Basics of LNG Federal Regulation of LNG

Federal Energy Regulatory Commission FERC basics FERC authorization of import/export terminals

Department of Energy DOE basics DOE LNG exports regulatory process

Other issues Environmental pressures Congressional issues Geopolitics

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LNG Basics Liquefied natural gas (LNG) = Natural gas

Cooled to -260° Fahrenheit LNG occupies 1/600th of the volume as natural gas in its gaseous

state

Increased technically recoverable U.S. natural gas reserves has spurred interest in LNG Exports Transportation fuel: Marine, locomotive, vehicles

In the US, 4 LNG import terminals were built in the 1970s Only one (in Boston, Massachusetts) has operated continuously

since then In 2000s, 6 additional projects were built plus expansions at 3 of

the 4 existing terminals

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FEDERAL REGULATION OF LNG

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Basics of Federal Regulation of LNG Federal Energy Regulatory Commission

Regulates siting, construction, and operation of facilities used for the import/export of natural gas/LNG

Primarily an environmental and safety review Does not regulate rates, terms or conditions for service at

LNG import/export facilities

Department of Energy Regulates the import and export of the natural gas (via

pipeline) or LNG (via vessel or truck) commodities Focuses on adequacy of domestic supply and demand,

impact on domestic natural gas prices, and other energy resources

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FERC Basics Independent agency 5 Commissioners, 5-year terms, US Senate confirmed 3 from President’s political party (now Democratic) 2 from the opposition party (now Republican) or

Independent FERC regulates:

Transportation and sale of natural gas for resale in interstate commerce

Transportation of oil and oil products by pipeline in interstate commerce

Transmission and wholesale sale of electricity in interstate commerce

Other matters related to the operation of oil, natural gas, electric, and hydro-projects

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Natural Gas Act of 1938

Section 3 Import/export of natural gas LNG facilities

Section 4 Pipeline and storage rate

filings Terms and conditions of

service “Just and reasonable” rates

Section 4A Market manipulation

Section 5 Complaint oversight

Section 7 Construction and operation

of facilities Section 21

General enforcement Section 23

Transparency Reporting requirements

Basis of FERC’s authority to regulate the facilities used for imports and exports, as well as the transportation and wholesale sale of natural gas in interstate commerce

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FERC Authorization of Import/Export Terminals By law, FERC has exclusive authority to approve the

siting, construction, operation and maintenance of LNG import and export facilities

FERC process There is a robust process for FERC to review and assess a

proposal for a new or expanded LNG terminal and associated pipeline expansion

Review is primarily environmental and safety Involves many other federal, state and local government agencies

that cooperate with FERC, including: US Coast Guard Department of Transportation, PHMSA Environmental Protection Agency

The public has the opportunity to participate in the FERC process

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FERC Authorization of Import/Export Terminals FERC timing

FERC process results in a Final Environmental Assessment (EA) or Final Environmental Impact Statement (EIS) and authorization order

Under the law, there is no deadline for FERC to issue an order approving or rejecting an LNG terminal or natural gas pipeline project

There is a minimum 6-month period of pre-consultation that a project developer must engage in with the FERC prior to filing the formal application (“pre-filing process”)

Historically, FERC approval for LNG import terminals took between 18-30 months

Sabine Pass LNG export project received approval in 15 months (plus the 6 months of the pre-filing process)

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FERC Authorization of Import/Export Terminals If FERC approves a project, its order will contain dozens

of environmental mitigation measures some of which could effectively kill a project

If the project developer has satisfied all of the conditions in FERC’s order, it will be able to continue construction of the project throughout any legal challenge to the project from project opponents (e.g., Sierra Club)

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LNG Exports: FERC Process

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DOE Basics Executive Branch agency

Secretary is appointed by President and sits on President’s Cabinet

Political by nature Office of Fossil Energy has authority over imports and

exports of the natural gas and LNG commodity

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LNG Exports: DOE Process

DOE authorization process is different under the NGA for exports to FTA countries v. non-FTA countries

Ongoing – 20 applications pending, some for more than 2 yearsCurrently processing in about 90 daysDOE Status

Rebuttable presumption that application is in the public interest, but will only be approved after full agency review – this is the area of current uncertainty

Deemed to be in the public interest and must be approved “without delay”

Approval

• Notice of application must be published in the Federal Register• Interested parties must be given opportunity to comment on the

application

Not requiredPublic Notice/Comment

RobustShortApplication

Non-FTA CountriesFree Trade Agreement Countries 

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LNG Exports: DOE Process DOE’s regulations require an applicant submit its

application to export LNG at least 90 days prior to the proposed export

Two types of export permits may be obtained from DOE Short-term (blanket) authorizations

For two years or less, generally for spot market transactions Simple, routine process

Long-term Any period greater than two years Requires significant documentation and supporting evidence DOE’s current policies require parties with long-term supply

agreements to file for long-term export applications

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LNG Exports: DOE Process Currently, there are 20 non-FTA applications pending at DOE DOE issued an order approving exports from Cheniere’s

Sabine Pass LNG terminal in May 2011 After this, DOE informally suspended processing all pending

applications for exports to non-FTA countries for two years Increased political concern surrounding impacts on domestic

supply and natural gas prices from large-scale exports of LNG DOE commissioned the LNG Export Study, a two-part study

assessing the micro- and macro-economic impacts of exports Solicited comments on LNG Export Study Findings: U.S. LNG exports result in net economic benefits

regardless of how much LNG is exported

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LNG Exports: DOE Processing Queue

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LNG Exports: DOE and Freeport LNG On May 17, 2013, DOE authorized exports from the

proposed Freeport LNG export terminal Affirmed LNG Export Study and benefits of LNG exports Affirmed its continued use of a public interest analysis and that

such analysis is flexible and based on a market-driven approach Opponents have argued that the public interest analysis

should be updated and that DOE should establish specific, proscriptive criteria for exports

Since then, new Energy Secretary Ernie Moniz has said that he understands the commercial need for expedited review Deputy Assistant Secretary Smith testified on Capitol Hill that he

expects future authorizations to take approximately two months But … we are still waiting on Day 76 Post-Freeport

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LNG Exports: DOE Process Other issues

Revocation authority DOE asserted in May 2011 Sabine Pass order that it has authority to

revoke or modify an export license under the Natural Gas Act (NGA) Unclear whether DOE actually does have such a right DOE has stated that it would revoke only in “extraordinary

circumstances” and recognized the “good-faith investment-backed expectations of private parties”;

DOE to Congress: The agency will not use license revocation or modification as a form of natural gas price control

Senators Wyden and Murkowski seeking additional information DOE has made clear that it will dismiss proposed exports if the

applicant cannot show Availability of a pipeline to transport gas to a liquefaction plant; Source of the natural gas supply for the plant; and An actual site for the liquefaction plant

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LNG Exports: Other Issues Mounting environmental pressure

Keystone XL pipeline is a “line in the sand” for the U.S. environmental movement

Movement has shifted to hydraulic fracturing and LNG exports Sierra Club is leading the opposition to LNG exports

Filed protests at DOE and FERC of multiple LNG export proposals

Argues that agencies must consider the environmental impacts of upstream hydraulic fracturing since it is “reasonably foreseeable”

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LNG Exports: Other Issues Support from Congress

In Aug/Sept 2012, two bipartisan letters from US Congressmen to Energy Secretary Chu urged him to expedite LNG exports approvals

In July 2013, 34 senators sent a similar letter to Secretary Moniz, including 11 Democrats

Congressional opposition is only from the most liberal wing of the Democratic party

Geopolitics: Increasing focus on impacts on US trade relations with strategic partners Trans-Pacific Partnership (TTP) Transatlantic Trade and Investment Partnership (TTIP)

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QUESTIONS?

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