By John Kemp
LONDON Dec 7 The Obama administration will find
it almost impossible to refuse permission for more liquefied
natural gas (LNG) exports now that a report from outside
consultants has concluded unequivocally that exports would be a
net benefit to the U.S. economy.
Current law requires the Department of Energy to approve
export applications unless it can show they are not in the
public interest, which will be hard to do given that a detailed
economic study has now concluded the extra revenues from export
sales will more than offset the impact of higher domestic gas
prices on consumers and energy-consuming businesses.
The department has already approved one application to
export up to 16 million tonnes per year (equivalent to 2.2
billion cubic feet per day) from Sabine Pass, a subsidiary of
Cheniere Energy. Another 15 applications have been
submitted to export an additional 21.5 billion cubic feet per
day, 10 times as much as Sabine Pass.
Unless it can show a good reason why these projects are
different from Cheniere's, individually or cumulatively, the
department cannot block them without being accused of acting in
an "arbitrary and capricious" manner and risking judicial review
under the Administrative Procedure Act (5 USC 706(2)(A)).
RATIONALITY REQUIRES APPROVAL
Sabine Pass submitted detailed consultancy reports showing
there was more than enough gas as a result of the shale
revolution to export 2.2 billion cubic feet per day without
impinging on the availability of gas for domestic consumers.
If all the pending applications are granted, their combined
exports could obviously have a much bigger impact on domestic
availability. But the department's new study questions whether
global demand would ever support exports at this level and in
any event concludes they would provide net benefits.
("Macroeconomic Impacts of LNG Exports from the United States"
It will therefore be difficult to argue that they are not in
the public interest. The most that the administration can do,
under current law, is seek to impose conditions on its approval.
Possible conditions might include a ceiling on overall
volumes, a requirement for project developers to identify
additional sources of gas for their projects or some form of
long-term review of the effects on domestic gas prices.
CONGRESS COULD CHANGE THE LAW
If policymakers want to restrict exports more severely or
ban them outright, the only way would be to get Congress to
change the law. Some legislators have already expressed concerns
that cheap "American gas" should be kept at home and reserved
for U.S. consumers and businesses.
Legislation introduced by Democratic Congressman Edward
Markey would suspend further export approvals until 2025 (North
America Natural Gas Security and Consumer Protection Act, HR
4024). Changes to the statute appear unlikely to pass, however,
because they would need to draw support from a significant
number of Republicans in the House of Representatives.
Without a change in the law, the Obama administration would
have to approve a significant number of export applications and
would be able to attach only fairly weak conditions.
PERMITS FOR EXPORTS AND TERMINALS
The Natural Gas Act states that no one can import or export
natural gas from the United States to a foreign country without
first obtaining permission from the Secretary of Energy. But it
then goes on immediately to state that permission shall be given
unless the secretary finds the proposed imports or exports "will
not be consistent with the public interest". (15 USC 717b(a)).
In the case of countries with which the United States has a
free trade agreement (FTA) such as Canada and Mexico, exports
are automatically "deemed to be consistent with the public
interest" and must be granted "without modification or delay"
(15 USC 717b(c)).
For all other countries, the secretary may hold hearings,
and make such modifications and impose such conditions as it
finds "necessary and appropriate" and "for good cause shown" (15
The Energy Department also has exclusive authority under the
Natural Gas Act to approve the siting, construction, expansion
and operation of LNG terminals (15 USC 717b(e)).
In addition it has authority, specifically delegated under
an executive order, to wield the president's powers over the
construction, operation, maintenance and connection for natural
gas facilities at the border of the United States for exporting
or importing gas to or from a foreign country - the natural gas
equivalent of the president's power to approve the Keystone XL
The Department must find that the siting and construction
permit is in the public interest and may attach such conditions
"as the public interest may in its judgement require" (Ex Ord
PUBLIC INTEREST CONDITIONS
The department has already granted (automatic) permission
for 17 projects to export a total of up to 24.2 billion cubic
feet per day to countries with which the United States has a
free trade agreement.
Many of these same projects have also applied for permission
under the non-automatic provisions to export to non-FTA
countries to give themselves more flexibility and access to
bigger markets. The complete list is available on the
Department's website ().
If the Department feels compelled to grant these
applications, it could try to attach conditions to minimise the
impact on domestic gas users.
The most obvious would be to set a ceiling on the overall
amount of gas that can be exported. The Department asked its
external consultants to study the impact on the U.S. economy of
a low level of exports (6 billion cubic feet per day), a high
level (12 billion) and no export constraints. It could try to
cap exports at one of these levels and prioritise applications
in date order or pro rate them.
Another option would be to ask exporters to identify
additional sources of gas to support their projects and ensure
they do not have a significant adverse effect on the
availability of domestic supplies.
The department already requires applications to contain
details about "the source and security of the natural gas supply
to be ... exported, including contract volumes and a description
of the gas reserves supporting the project during the term of
the requested authorisation" (10 CFR 590.202(b)(2)).
In its successful application for non-FTA export approval,
Sabine Pass submitted evidence about the general adequacy of
U.S. gas supplies. The department could require that subsequent
applications contain more detailed evidence of the gas supplies
that would be used to supply LNG export terminals and to show
that they are genuinely additional.
Finally, the department could make approval conditional on a
review of how projects affect the gas market in practice in a
few years' time.
None of these conditions would be wholly satisfactory.
If the department tried to impose a limit on the volume of
exports, it would struggle to define and defend a rational cap:
why should the limit be set at 6 billion rather than 10 billion,
12 billion or 20 billion cubic feet per day? How would the
department allocate approvals if project developers apply to
export more gas than the proposed limit?
As for restricting the sources of gas for export, the
problem is that gas is a fungible commodity widely traded both
nationally and internationally. It is not clear that project
developers could identify specific wells and fields as the
source of their gas to prove it was genuinely additional supply.
Any post-approval review process would threaten projects
with unacceptable uncertainty. No one would build an expensive
LNG terminal if the department reserved the right to revoke its
permission to export subsequently if gas prices rise.
Unless Congress rewrites the law, which seems unlikely at
this point, most LNG export projects seem set to be approved. If
the department does attach conditions, they are likely to be
weak and essentially cosmetic.