Lawmakers and energy industry representatives were critical of the Obama administration’s approach to natural gas exports on Tuesday, with at least one trade group accusing the government of violating federal law in reviewing applications to sell the fossil fuel overseas.
At issue is the Energy Department’s decision last December to give priority to companies that had already launched a pre-filing process with the Federal Energy Regulatory Commission as part of their bids to build facilities to liquefy natural gas so it can be shipped overseas. The Energy Department is vetting those export applications individually; FERC’s role is evaluating the physical facilities.
Companies need both approvals to build the export terminals and start selling gas to countries that don’t have free-trade agreements with the United States. So far, just one firm — Houston-based Cheniere Energy — has cleared both hurdles, for its Sabine Pass liquefaction project in southwest Louisiana.
The goal of the Energy Department’s approach was fairness, insisted Christopher Smith, the assistant secretary for fossil energy, during testimony before a House subcommittee Tuesday.
“We wanted something that was open, that was transparent, that was simple, that was fair, and that helped push projects that were more viable to the front of the queue,” Smith said. “We wanted a very objective standard that didn’t have some subjectivity, where we had to evaluate business models.”
It costs just $50 to file a natural gas export application with the Energy Department. By contrast, Smith noted, the FERC permitting process is where companies “start spending real money.”
In short, the Energy Department chose to use FERC pre-filing as a kind of litmus test for the validity and viability of the export applications before it.
But Bill Cooper, head of the Center for Liquefied Natural Gas, said the approach violates federal administrative law, because the Energy Department didn’t first publish its plans to create a new order for reviewing applications or ask the public for comment — and then it applied the change retroactively to 15 export applications that had already come in.
“The failure to provide notice and comment renders the queue void,” Cooper said. “After 15 applicants reasonably relied upon the only rules the Department of Energy had published, DOE changed those rules by predicating when it would consider each application, not based on when those applications were filed with DOE but based on when those applications were filed with another agency … after the fact.”
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Cooper said the Center for Liquefied Natural Gas did not plan a lawsuit against the Energy Department on the issue. But other entities could file lawsuits — and his accusation highlighted once again the risk of legal challenges facing the Energy Department as it delves into the complex issue.
Energy Secretary Ernest Moniz previously has emphasized the litigation risk on Capitol Hill as evidence the federal government must move carefully and deliberately in tackling the export applications one by one.
Environmentalists who oppose natural gas development have already made clear their intent to fight applications to build export terminals pending at FERC. And for companies involved in the multi-billion-dollar projects — which can take years to build and ultimately involve 20-year contracts among natural gas suppliers and buyers — regulatory delays can mean lost business.
Rep. Joe Barton R-Texas, was skeptical of the Energy Department’s approach. He noted that potential exporters have the choice under federal law of applying first to FERC or to the Energy Department.
Other lawmakers highlighted the risk that extensive reviews and approval delays could undercut the ability of U.S. companies to compete with foreign projects for potential customers, mostly in Asia and Europe.
Smith said the Energy Department was committed to moving “expeditiously.” But when Rep. Gene Green, D-Houston, asked if the department might pause its case-by-case reviews at some point to do a broader assessment _ following an economic study last year _ Smith didn’t rule it out. Instead, he stressed that the Energy Department was dedicated to using “the most appropriate information available” to review export applications, including market information and new data.
“As new information becomes available, we’re going to constantly be assessing these applications on a case-by-case basis,” he said.
Existing federal law creates a rebuttable presumption that natural gas exports to nations that aren’t U.S. free-trade partners are in the public interest.
But critics of expanded natural gas exports — including some large industrial users of the fossil fuel — say more foreign sales could cause the domestic price to climb, hiking energy bills for manufacturing plants as well as households. Manufacturers who use the fossil fuel as a building block for plastics and chemicals also say higher prices could blunt a competitive advantage that has spurred them to move facilities to the United States.
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Rep. Henry Waxman, D-Calif., argued that the government should be considering climate change as it scrutinizes potential natural gas exports. Otherwise, he said, we risk locking in “huge, multi-billion-dollar” infrastructure and investment for decades.
“It would make no sense to build these facilities only to find out they are unsustainable given the climate implications,” he said. “We should fully understand the climate (implications) before these facilities are built — not after.”