On 29 May, the US Department of Energy (DoE) proposed revised procedures for reviewing applications to export LNG. The Brooking Institute has described the proposed procedure as ‘a more sensible approach’.
Problems with the prior procedure
Not time effective
The current procedure for reviewing applications for LNG exports to non-free trade agreement (non-FTA) countries impeded the consideration of commercially mature projects by requiring applicants to queue up for conditional approvals, in the order in which they applied to DOE. The Department noted that it was approving projects at an average rate of one every eight weeks. However, with 24 applications in the queue as of March 2014, that timeline left the review of many projects more than four years in the future.
The timeline applied to all projects, even those that were able to clear their National Environmental Policy Act (NEPA) review much sooner because they were less environmentally complex or controversial.
Brookings has suggested that former procedure was politically provocative in that it exaggerated the cumulative impact of project approvals by scoring the cumulative export volumes of conditional approvals, many of which might never receive environmental clearance or final investment approvals. The result was that projects that might make it through the environmental review, might not be considered until they came up in the queue, possibly years later, or might be rejected altogether because they exceeded the soft cap of 12 billion ft3/d.
The proposed procedure
DOE now proposes to dispose of conditional approvals and only issue public interest determinations for projects that have completed their environmental assessment as required by NEPA. This has multiple benefits for applicants:
It sets a level playing field for all applicants by entitling any applicant to prompt consideration once they complete their environmental review.
It eliminates the risk of delay to all applicants whose turn would have come after conditional approvals reached a cumulative tally of 12 billion ft3/d, removing the chance that they would face indefinite delays or outright rejection while DOE solicited new analysis of exports exceeding 12 billion ft3/d.
Under DOE’s proposed procedure the cumulative tally is now effectively 2.2 billion ft3/d (the volume of exports that have already received final approval), and the next 9.8 billion ft3/d in projects that emerge from Federal Energy Regulatory Commission (FERC) should be approved unless markets radically change.
In addition, DOE also announced that it would seek updated analysis from the Energy Information Administration (EIA) and an external group to consider the effect of exports between 12 and 20 billion ft3, further reducing the chance of a soft cap hindering future project approvals.
The analysis of the impact of LNG exports on the economy would be calculated in the year the project is ready for approval, not years in advance. This would provide a more accurate projection by using current data.
In the national interest
The US is alone in its issuance of national interest determinations for LNG exports, a Congressionally mandated determination that raises questions about the right to export even for projects that receive a final export permit, because the government retains the right to rescind export permits in the event that market conditions or other factor render them to no longer be in the national interest. This is a significant uncertainty that is not faced by LNG export projects in competing countries like Russia, Australia, Canada, or Qatar. While this uncertainty will continue to loom over the US LNG export industry, it is outside of the jurisdiction of the DOE to abolish this process; only the direct action of the Congress could achieve this. However, in spite of lingering concerns, the decision as to which projects will succeed will at least be made on merit, by considering those who have met the legal requirements in the order that they complete their environmental assessments mandated by NEPA.
Read the article online at: https://www.hydrocarbonengineering.com/gas-processing/11062014/a_more_sensible_approach_691/