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Energy Bill’s Impact on Liquefied Natural Gas Exports

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miles-steveThis year could mark a significant change in the way the United States deals with natural gas exports. U.S. Senate members have recently been deliberating about the Energy Policy Modernization Act of 2015 (S. 2012).

Introduced by Sen. Lisa Murkowski (R-AK) and Maria Cantrell (D-WA) in mid-2015, the bill is the first major energy legislation to be considered in a decade.

Amid numerous initiatives featured in the bill, the bill would streamline permitting for natural gas exports. Section 2201 of the bill deals with applications to export liquefied natural gas (LNG). The bill seeks to expedite exports of LNG. No doubt this move is being driven by the current shale gale.” Over the past decade, the combination of horizontal drilling and hydraulic fracturing has allowed access to large volumes of shale gas in the United States that were previously uneconomical to produce. As a result, the production of natural gas from shale formations has rejuvenated the U.S. natural gas industry.

Currently, the United States is the world’s largest natural gas producer. However, many industry representatives criticize the slow pace of federal permit approvals by the Federal Energy Regulatory Commission (FERC) and the Department of Energy (DOE) and the negative impact of the slow approval process on the United States’ efforts to export LNG.

In an important new development, Cheniere Energy recently announced it will begin the loading and transport of the first shipment of LNG exports from its Sabine Pass terminal in Louisiana in the near future. Sabine Pass and other export terminals worldwide are expanding spot trade of the fuel at a time when global prices are slumping amid surging supply.

Steven Miles is a Washington, D.C., partner with Baker Botts who chairs the firm’s energy practice and also heads its LNG practice. He recently discussed the Senate energy bill’s potential impact on LNG exports.

“The bill’s provisions for shortening the time periods for the U.S. Department of Energy review are helpful but are largely focused on yesterday’s problems,” Miles said

He explained about the time frames involved when U.S. companies seek to export LNG to countries that are not covered under the free trade agreements (FTAs) that the United States has with other nations. Currently, the United States has FTAs in force with 22 other countries, including but not limited to South Korea, Singapore, Chile and a number of Central American and Caribbean countries.

“Initially DOE took a considerable period of time on the first few LNG non-Free Trade Agreement applications,” Miles explained. “However, more recently DOE has been issuing orders on these applications in under a year after the required environmental review is complete and, in some cases, just a few months. While the 45-day review period would save some time, the longer time frame is driven by the need to obtain an environmental review and a Federal Energy Regulatory Commission authorization. The proposed bill would not change that period at all.”

According to Miles, “In the current marketplace, the factors impeding the development of new projects are worldwide commodity prices together with the time and expense to complete the National Environmental Policy Act (NEPA) process and the FERC review.”

“If Congress wants to promote the exports of LNG from the United States, Congress could do so by removing the regulatory uncertainty associated with FERC’s jurisdiction over small-scale liquefaction facilities and clarifying that exports of U.S. natural gas to Canada and Mexico for re-export as LNG should be appropriately treated as exports to free trade countries,” Miles said.

A recent study commissioned by the DOE and conducted by Rice University and Oxford Economics, “The Macroeconomic Impact of Increasing U.S. LNG Exports,” describes how the benefits of large quantities of U.S. LNG exports are a net positive for the U.S. economy. The report concludes that the impact of increasing exports from 12 billion cubic feet per day (Bcf/d) to 20 Bcf/d between 2026 and 2040 could add $7 billion to $20 billion annually to the U.S. gross domestic product.

Looking at the other side of the aisle in the U.S. Congress, the House’s broad energy bill, the North American Energy Security and Infrastructure Act (HR 8), was passed in early December, setting the stage for the Senate to pass a companion package. The House bill expedites the approval process to export LNG.

As far as the Senate bill’s future goes, a number of Senate Democrats recently blocked the bill’s advancement. It is not clear when the Senate will resume deliberations related to S. 2012.

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