WASHINGTON — The Obama administration on Thursday proposed dramatically changing the way it is reviewing applications to widely export natural gas, with a plan that effectively moves more commercially advanced projects to the front of the line.
The newly proposed procedure, announced by Assistant Energy Secretary Christopher Smith in a blog post, would replace a two-year-old process that has been widely criticized. Energy companies and their allies on Capitol Hill have complained the existing procedure is akin to a “deli counter” approach that rewards export projects for getting in line quickly at the expense of facilities more likely to break ground.
Many of the projects that would be advantaged by the new approach have already received conditional export approvals, but the biggest winners are those that have cleared a separate Federal Energy Regulatory Commission review or are in the midst of it, including Cheniere Energy’s plans for a facility in Corpus Christi, Texas; Exxon Mobil’s Golden Pass project in Sabine Pass, Texas; and Cheniere’s proposal to add more capacity to its Louisiana project now under construction.
The Energy Department will continue reviewing Oregon LNG’s application for an export license under its current procedure.
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It will take the Energy Department at least two months to finalize the change, which is now subject to a 45-day public comment period.
The proposal focuses on applications to export natural gas to countries that aren’t free-trade partners with the United States. Under federal law, the Energy Department is responsible for deciding whether those plans are in the public interest. Meanwhile, separate agencies, such as the Federal Energy and Regulatory Commission and the Maritime Administration, are tasked with examining the planned physical projects.
Under the new approach, the Energy Department would only begin reviewing export proposals after they have cleared environmental reviews conducted as part of the FERC and the Maritime Administration examination of those plans. Previously, regulators had been working their way through a priority list based largely on when the applications were first submitted to the Energy Department — no matter where they were in the FERC review process.
The move responds to requests from the gas industry and its allies on Capitol Hill, including Senate Energy and Natural Resources Committee Chairwoman Mary Landrieu, D-La., and the panel’s top Republican, Lisa Murkowski of Alaska.
Landrieu on Thursday called the decision “a positive step forward to responsibly export America’s abundant supply of natural gas.”
The Energy Department’s plan could cool congressional momentum for legislation that would impose a 90-day deadline for issuing LNG export licenses.
Energy analyst Kevin Book said the new approach would ensure the government’s review process “hews more closely to economic reality,” because only projects truly close to being developed would count toward the cumulative total of authorized exports.
So far, the Energy Department has approved seven licenses for six projects to export liquefied natural gas to non-free-trade nations. But only one — Cheneire’s Sabine Pass terminal — has also secured FERC approval, and some of those permit holders are far from inking contracts and winning the financing necessary to build multibillion-dollar liquefaction and export facilities.
Environmental and economic studies
Under the proposed approach, the Energy Department would conduct broad studies of how expanding natural gas exports would affect the economy and the environment, including an analysis of greenhouse gas emissions associated with the foreign sales. Previously, the Energy Department has not scrutinized the environmental footprint of natural gas export plans, focusing on economic and other considerations instead.
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The Energy Department’s planned economic study, likely to be conducted next year, would analyze the effect of exports up to 20 billion cubic feet per day, replacing an earlier analysis that essentially stopped at 12 billion cubic feet per day.
Some manufacturers and heavy industrial users of natural gas have asked the Obama administration to halt new export approvals and reconsider the economics of the issue, amid fears widespread foreign sales will drive up prices inside the United States.
At the same time, environmentalists have pushed the administration to consider the climate impacts of sending more U.S. gas overseas, a move that is certain to drive domestic production.
De facto moratorium
It’s not clear the newly proposed procedure would accelerate export approvals, especially since the Energy Department halted its review of pending applications while the previous economic study was under way.
Bill Cooper, head of the Center for Liquefied Natural Gas, said he was concerned a similar “de facto moratorium” could accompany the proposed economic and environmental assessments.
“Here we are facing more studies, the substance of which I think will prove what every credible study has proven thus far, which is that natural gas exports are good for the economy and have minimal effects on the environment,” Cooper said. “But as I look at this, it looks like it’s going to lead to more delays.”
The shuffle also could provoke lawsuits by companies with proposed projects near the top of the Energy Department’s queue. Challenges could allege that the Energy Department’s move violated the Administrative Procedures Act’s ban on “arbitrary and capricious” changes.
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