May 29, 2014

U.S. DOE delays LNG export approvals, releases environmental studies

In a piece of potentially bad timing for backers of a proposed natural gas export terminal in Warrenton, the U.S. Department of Energy said Thursday that it will stop issuing conditional permits to export liquefied natural gas to non-free trade countries prior to environmental reviews of the proposed projects.

The agency also said it will conduct an updated analysis of the costs and benefits to the U.S. economy of exporting significant volumes of North American gas.

Finally, DOE released two environmental studies on natural gas. One is a literature review on the environmental impacts of unconventional gas production from hydraulic fracturing; the other a study comparing the overall lifecycle greenhouse gas emissions from producing electricity with coal, conventional gas delivered via pipeline, and shale gas exported to Europe and China as liquefied natural gas.

DOE's Fossil Energy Office said Thursday that ceasing the process of issuing conditional permits would increase efficiency by prioritizing those projects that are most commercially viable. Its series of announcements also responds to widespread criticism that it was approving the export of too much gas too soon, while ignoring the environmental impacts of hydraulic fracturing as well as the long term impact of exporting gas on domestic prices, U.S. industrial competitiveness and energy security.

"Natural gas is a strategic American advantage that is already creating jobs and making our industries more competitive in the world market," said Sen. Ron Wyden, D-Ore., who previously urged to DOE to go slow on export authorizations and criticized the agency for using outdated assumptions in its economic studies. "The Energy Department is doing the right thing today by taking steps to protect America's advantage. I have long said that the studies DOE has relied on need to be updated to reflect current market conditions and data."

DOE has approved eight proposals to export gas to non free trade counties. Collectively, those projects are approved to export the equivalent of 15 percent of U.S. production. The agency's previous economic analysis found that there was a small net benefit to the U.S. economy of exporting natural gas, but they were concentrated among gas producers and participants in the supply chain. The costs, including increases in gas prices, would be borne by U.S. consumers at large.

DOE's process changes are potentially bad news for the backers of Oregon LNG, a proposed LNG export terminal in Warrenton, near the mouth of the Columbia River. The project already faces legal and permitting challenges at the state and county level. The U.S. DOE, meanwhile, was previously processing export applications in the order they were received, and Oregon LNG was one of the next in line to be considered for export authorization to countries that don't have free trade agreements with the United States. That includes some of the biggest natural gas customers in its Asian target market, including Japan, India and China.

DOE will continue working on applications in process while its new policy is out for public comment and review. But if the policy is adopted, it will wait to issue any export permits until the Federal Energy Regulatory Commission has completed its environmental reviews. While that shouldn't significantly delay the overall approval process, it would eliminate a regulatory signal that some terminal backers welcome. DOE's authorization can boost a project's momentum, its backers' ability to raise interim financing, and their prospects of cutting conditional deals with potential customers in advance of regulatory approval from FERC.

The Jordan Cove Energy Project in Coos Bay, for example, was the last project to receive DOE's export blessing. The approval provided a significant boost in share price of its Canadian parent company, Veresen Inc. Directly after the authorization was issued, Veresen went to market with a secondary share offering that raised $285 million, which it will use in part to fund its ongoing permitting process for Jordan Cove.

DOE's lifecycle emissions study found that the greenhouse gas impact of utilities in China and Europe burning imported natural gas to generate electricity was far less than them burning coal.

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A Proposed Change to the Energy Department's LNG Export Decision-Making Procedures
May 29, 2014 - 2:22pm

http://www.energy.gov/articles/proposed-change-energy-departments-lng-export-decision-making-procedures

The development of U.S. natural gas resources is having a transformative impact on the U.S. energy landscape, helping to improve our energy security while spurring economic development and job creation around the country. The Administration continues to take steps to ensure the safe and environmentally sustainable supply of natural gas. The Natural Gas Act directs the Department of Energy (DOE) to grant Liquefied Natural Gas (LNG) export authorizations to non-Free Trade Agreement (FTA) countries unless the Department finds that the proposed exports “will not be consistent with the public interest.”

Since receiving the first long-term application in 2010 to export LNG to non-FTA countries from the lower 48 states, the Department of Energy has been -- and remains -- committed to conducting a public interest determination process as required by the Natural Gas Act that is expeditious, judicious and fair. Throughout this time, the Department has consistently made clear that a close monitoring of market developments plays a critical role in the Department’s decision-making process.

Today, in order to reflect changing market dynamics, the Department of Energy is proposing to review applications and make final public interest determinations only after completion of the review required by environmental laws and regulations that are included in the National Environmental Policy Act review (NEPA review), suspending its practice of issuing conditional commitments. The proposed changes to the manner in which LNG applications are ordered and processed will ensure our process is efficient by prioritizing resources on the more commercially advanced projects, while also providing the Department with more complete information when applications are considered and public interest determinations are made.

In addition, the Department will initiate an updated economic study and is releasing two environmental reports that address the environmental footprint of unconventional natural gas production and the lifecycle greenhouse gas impacts of U.S. LNG exports.

In keeping with the Department’s commitment to an open and transparent process, the Department will make the proposed procedural change and environmental reports available for a 45-day public review and comment period.

Proposed Procedural Change

The Department’s practice of issuing conditional authorizations to export LNG to non-FTA countries was designed to provide regulatory certainty before project sponsors and the Federal Energy Regulatory Commission (FERC) spend significant resources for the review of export facilities required by environmental laws and regulations that are included in the NEPA review. However, market participants have increasingly shown a willingness to dedicate the resources needed for their NEPA review prior to receiving conditional authorizations from the Department of Energy. In response to these and other developments, the Department intends to make final public interest determinations only after a project has completed the NEPA process, instead of issuing conditional authorizations. By removing the intermediate step of conditional decisions and setting the order of DOE decision-making based on readiness for final action, DOE will prioritize resources on the more commercially advanced projects.

The proposed procedural change will improve the quality of information on which DOE makes its public interest determinations. By considering for approval those projects that are more likely to actually be constructed, DOE will be able to base its decision on a more accurate evaluation of the project’s impact on the public interest. DOE will also be better positioned to judge the cumulative market impacts of its authorizations in its public interest review. While it is not assured that all projects for which NEPA review is completed will be financed and constructed, projects that have completed the NEPA review are, generally speaking, more likely to proceed than those that have not. 

In response to an evolving market, this proposed change will streamline the regulatory process for applicants, ensure that applications that have completed NEPA review will not be delayed by their position in the current order of precedence, and give the Department a more complete understanding of project impacts.   

The Department is issuing the Notice of Proposed Procedures for LNG Export Decisions for a 45-day public review and comment period. During the review period, the Department will continue with evaluations of projects that have already received conditional authorizations and completed their NEPA review. Further, the Department will continue to act on requests for conditional authorization currently under review during the period in which the proposed changes are under consideration.

Economic Impact Study

DOE plans to undertake an economic study in order to gain a better understanding of how potential U.S. LNG exports between 12 and 20 billion cubic feet per day (Bcf/d) could affect the public interest. Using more recent data from sources like the Annual Energy Outlook 2014, the Energy Information Administration (EIA) will update its 2012 LNG Export Study, which only looked at export cases of 6 and 12 Bcf/d.

2012/12/7　米エネルギー省、LNG輸出に向けての報告書を発表

Following the EIA update, DOE will again contract for an external analysis of the economic impact of this increased range of LNG exports and other effects that LNG exports might have on the U.S. natural gas market. While these studies are underway, the Department will continue to act on applications as stated above. To date, the Department has issued final authorization for export to non-FTA countries at a rate of 2.2 Bcf/d. If at any future time the cumulative export authorizations approach the high end of export cases examined, the Department will conduct additional studies as needed to understand the impact of higher export ranges. At all levels, the cumulative impacts will remain a key criterion in assessing the public interest. 

Both the EIA study and the external analysis of economic impacts will be made available for public comment.

Release of Environmental Reports

To better inform the Department and the public of the environmental impacts of increased LNG exports, the Department elected to prepare two additional reports of environmental issues beyond what is required for NEPA. The first report reviewed unconventional natural gas exploration and production activities and is titled Draft Addendum To Environmental Review Documents Concerning Exports Of Natural Gas From The United States. In keeping with the President’s Climate Action Plan and the Administration’s commitment to mitigate greenhouse gas emissions, the Department completed a second report called Life Cycle Greenhouse Gas Perspective on Exporting Liquefied Natural Gas from the United States. 

Both reports are being made available for public comment for 45 days, after which the reports and comments received from the public will be considered by the Department in its public interest determinations in connection with applications to export LNG to non-FTA countries.