Insights

U.S. Department of Energy Reduces and Clarifies LNG Reporting Requirements

Firm Thought Leadership

On December 19, 2018, the U.S. Department of Energy (DOE) published in the Federal Register an immediately effective policy statement, Eliminating the End Use Reporting Provision in Authorizations for the Export of Liquefied Natural Gas, 83 Fed. Reg. 65,078 (Policy Statement), and a proposed interpretive rule, Filing of Contracts and Purchase Agreements Associated with the Export of Natural Gas, 83 Fed. Reg. 65,111 (Proposed Rule). Together, these actions will provide increased certainty to liquified natural gas (LNG) exporters and others in the natural gas industry by immediately eliminating exporters’ obligation to track the end use of LNG exports and proposing to more clearly define what commercial agreements must be submitted to DOE.

Background

Pursuant to section 3 of the Natural Gas Act, 15 U.S.C. 717b, DOE is responsible for authorizing exports of natural gas to foreign nations. DOE’s implementing regulations, codified at 10 CFR part 590, outline certain reporting and filing requirements and further provide that DOE has authority to attach conditions to such authorizations “as may be required by the public interest.” These conditions generally include various additional reporting requirements. Pursuant to these authorities, export authorization holders have consistently been obligated to report on the final destination of exported LNG. Further, they currently are required to provide DOE with “all relevant contracts and purchase agreements” related to their export authorization.

DOE Eliminates End Use Reporting

From 2011 until February 2016, export authorization holders were required to identify in regular reports to DOE the country into which natural gas “was actually delivered.” However, in February 2016, DOE began requiring exporters to identify the country into which natural gas was actually delivered “and/or received for end use” to ensure that companies could not circumvent the more onerous public interest review that DOE applies to applications to export to countries with which the United States does not have a free trade agreement requiring national treatment of natural gas.

As the Policy Statement states, DOE has now become aware that compliance with the end use reporting requirement is—for a variety of reasons, including comingling of loads in a single LNG carrier—“impracticable, if not impossible.” Companies expressed concern to DOE that export authorizations could be placed in jeopardy due to non-compliance for reasons outside of the control or knowledge of the parties to the original U.S. export. At the same time, DOE explained that there is currently insufficient concern about authorization holders attempting to avoid the agency’s public interest review to warrant the burden of the end use reporting requirement. As such, DOE will no longer include an end use reporting provision in export authorizations and will instead revert to its pre-February 2016 practice. The Policy Statement further provides that, concurrently with the Policy Statement, DOE is issuing a blanket order removing the end use reporting provision from existing export authorizations. Together, the Policy Statement and blanket order significantly reduce the regulatory risks associated with U.S. LNG exports.

DOE Proposes Clarified Contract Filing Obligations

Together with the Policy Statement, DOE issued a Proposed Rule clarifying which contracts export authorization holders are obligated to file and when certain filings must be made. Currently, DOE export authorization holders are required to provide DOE with “all relevant contracts and purchase agreements” related to their natural gas export authorization. DOE’s regulations also impose a continuing obligation that authorization holders notify DOE of any prospective or actual changes in the information submitted during the application process “as soon as practicable.” If adopted, the Proposed Rule would clarify the latter requirement by specifying that “as soon as practicable” means within 30 days. Moreover, it would specify that “all relevant contracts and purchase agreements” includes the following: (1) natural gas supply agreements; (2) terminal service agreements; (3) purchase and sale agreements; (4) liquefaction tolling agreements, liquefaction and regasification tolling capacity agreements, and similar types of agreements; and (5) any other natural gas export contractual agreements that are associated with the first sale or transfer of natural gas at the point of export and specify the volume of natural gas under contract.

Next Steps

As noted above, the Policy Statement is effective immediately. Comments on the Proposed Rule are due by January 18, 2019.

Please contact one of the authors below or your Baker Botts relationship attorney with any questions.

 

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