On May 17, 2013, the Office of Fossil Energy of the U.S. Department of Energy (“DOE/FE”) conditionally approved the application of Freeport LNG Expansion L.P. and FLNG Liquefaction, LLC (together, “Freeport”) to export Liquefied Natural Gas (“LNG”) to countries without a free trade agreement (“FTA”) with the United States.  Specifically, DOE/FE found that: (1) Freeport’s proposed exports “are likely to yield net economic benefits to the United States”; and (2) granting the requested authorization is unlikely to adversely affect availability of natural gas supplies or result in natural gas price increase or increased price volatility.  DOE/FE noted that its approval order is subject to satisfactory completion of environmental review and certain other terms and conditions.  DOE/FE’s order marks only the second authorization to export LNG to non-FTA countries, with the first going to Sabine Pass Liquefaction, LLC in May 2011 (see March 1, 2013 edition of the WER).

Freeport originally submitted its application to export LNG to non-FTA countries to DOE/FE on December 17, 2010.  In its application, Freeport requested approval to export up to 1.4 Bcf/d of LNG over a 25- year period from its proposed Freeport LNG Terminal on Quintana Island, Texas and travel by vessel to any non-FTA country that “currently has or in the future develops” capacity to import LNG through an ocean-going carrier.  DOE/FE previously approved Freeport’s application to export up to 1.4 Bcf/d of LNG from its Quintana Island terminal to FTA countries on February 10, 2011.  In its May 17 Order, DOE/FE clarified that Freeport may export a total of 1.4 Bcf/d (511 Bcf/yr) of LNG to both FTA and non-FTA countries.

While approving Freeport’s application, DOE/FE’s noted that no party in the proceeding submitted evidence sufficient to rebut the statutory presumption that the authorization requested is consistent with the public interest.  Furthermore, DOE/FE concluded that the best available evidence supported the conclusion that Freeport’s proposed LNG exports would benefit the U.S. economy and would be consistent with the public interest.  While DOE/FE authorized Freeport to export up to 1.4 Bcf/d of LNG, it limited Freeport’s authorization to a 20-year term, beginning with its first LNG export.  Additionally, DOE/FE stated that Freeport (1) must begin LNG export operations no later than seven years from the date of the issuance of its order; (2) cannot transfer or assign its authorizations to import or export natural gas without specific authorization from the Assistant Secretary for Fossil Energy; and (3) where Freeport proposes to export as agent for others, it must register the other entity with DOE/FE.

DOE/FE also noted in its order that it will take a “measured approach” in reviewing other pending LNG export applications and will attach “appropriate and necessary terms and conditions” to such authorizations.  Further, DOE/FE stated that it will continue to proceed cautiously with other pending LNG export applications because:

  1. the LNG export studies from the U.S. Energy Information Administration and NERA Economic Consulting that analyze economic impacts of LNG exports are inherently limited in their predictive accuracy;
  2. the applications to export significant quantities of domestically produced LNG are a new phenomena with uncertain impacts; and
  3. the market for natural gas has experienced rapid reversals in the past and is again changing rapidly due to economic, technological, and regulatory developments.

A copy of DOE/FE’s order is available here.