The U.S. has an estimated 2,462 trillion cubic feet of recoverable natural gas, enough to last about 90 years at current consumption rates.[1] With such reserves, the U.S. is well-positioned to meet anticipated four to five percent annual growth in global natural gas demand, primarily through U.S. LNG export projects.[2]
While large-scale LNG projects are prevalent in the U.S., the current permitting process for such projects can be expensive, and smaller-scale projects are often not cost-effective under current conditions. In a move to reduce the time and investment required to develop small-scale projects, on July 25, 2018, the U.S. Department of Energy, Office of Fossil Energy (“DOE-FE”) promulgated a final rule streamlining the authorization process for small-scale export authorizations of natural gas and LNG (the “Final Rule”).[3]
Under the Final Rule, applications seeking export authorization under the proscribed volume limit (less than 51.75 billion cubic feet per year) and qualifying for a categorical exclusion from environmental impact review, are presumed to be in the public interest. This presumption lowers the evidentiary threshold for approval of natural gas and/or LNG export authorizations to countries with which the U.S. lacks a free trade agreement governing natural gas and LNG.
Just this November, the U.S. DOE-FE issued the first set of orders applying the Final Rule.[4] These orders authorized SpotX Energy, LLC to purchase LNG from suppliers and load it into shipping containers or onto ocean-going vessels for export.[5] SpotX was also authorized to export LNG as an agent for parties holding title to the LNG upon export.[6] Underscoring the unique development characteristics of these small-scale projects, the SpotX orders also marked a policy shift enabling a new business model in the U.S. LNG sector: a gas aggregator who is not an owner or operator of an LNG facility procuring LNG and exporting it under its own authorization.
The Final Rule was well received by Republicans in Congress where Senators Marco Rubio (R-FL), Bill Cassidy (R-LA) and John Kennedy (R-LA) co-sponsored the Small Scale LNG Access Act which, if signed into law, would codify the Final Rule. The bill’s sponsors focused on the legislation’s positive impact on U.S. jobs and benefits to consumers in smaller export markets such as the Caribbean, Central America, and South America. The bill remains pending in the Senate. U.S. Representative Ted Yoho (R-FL) is leading pending companion legislation in the House.
According to proponents, these recent regulatory and legislative developments affecting small-scale LNG export projects pave the way for significant economic benefits for the U.S. including: increased tax revenue on gas production and processing activities, strengthened job creation in the natural gas sector and ancillary industries, and an improved balance of trade by increasing exports relative to imports.
[1] U.S. Energy Information Administration, Frequently Asked Questions: How Much Natural Gas Does the United States Have, and How Long Will It Last? (Last Update April 5, 2019), available here.
[2] Id.
[3] U.S. Dep’t of Energy, Small-Scale Natural Gas Exports; Final Rule, 83 Fed. Reg. 35,106 (July 25, 2018).
[4] See SpotX, DOE-FE Order Nos. 4461 and 4462 (Nov. 8, 2019).
[5] Id.
[6] Id. at 8-9.
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Thompson & Knight, LLP
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