On July 25, 2018, the U.S. Department of Energy (“DOE”) published a final rule (“Small Export Rule”) amending its regulations to provide expedited approval of certain applications to authorize the export of small amounts of natural gas, including liquefied natural gas (“LNG”), to countries with which the U.S. has not entered into a free trade agreement (“FTA”).1
To qualify for expedited export approval, an applicant must show that its application is for “small-scale natural gas exports,” meaning:
(1) it proposes to export no more than 51.75 billion cubic feet per year (“Bcf/yr”) (an annualized figure that corresponds to 0.14 Bcf/day) of natural gas, and
(2) it qualifies for a categorical exclusion under the National Environmental Policy Act of 1969 (“NEPA”) so that DOE is not required to prepare an environmental impact statement (“EIS”) or environmental assessment (“EA”).
The Small Export Rule largely tracks DOE’s September 1, 2017 proposed rule (“NOPR”) discussed in our prior alert, available here.
Pursuant to Section 3 of the Natural Gas Act (“NGA”), DOE is responsible for authorizing exports of natural gas to foreign nations. The NGA requires DOE to authorize an export to a non-FTA country unless, following opportunity for hearing, DOE finds that the proposed export would not be consistent with the public interest. DOE has interpreted section 3 to create a rebuttable presumption that a proposed export of natural gas is in the public interest. As such, DOE places the burden on an application’s opponents to show that the application is inconsistent with the public interest.
Before reaching a final decision on a natural gas export application, DOE must comply with NEPA. In general, DOE must examine the environmental effects of constructing the project and analyze potential alternatives. The agency’s findings are typically set forth in an EIS or EA. However, an application may qualify for a “categorical exclusion” from the EIS/EA requirement if it will require only minor operational changes to existing projects without new construction.2
DOE’s Small Export Rule
As in the NOPR, the Small Export Rule emphasizes the unique characteristics of the small-scale natural gas market, in particular its potential as a market-driven solution to meet demand and provide fuel diversification in the Caribbean, Central America, and South America. The Small Export Rule goes on to explain that small-scale natural gas exports are unlikely to create negative economic or supply impacts in the U.S. but are likely to promote U.S. job creation, U.S. leadership in the global energy market, trade, and security, and provide positive environmental benefits by driving importing countries to switch to natural gas from heavy fuel oil and diesel. DOE also explains that expanded small-scale natural gas exports will increase diversity of fuel supplies for generating electricity, making importing countries more resilient against electricity outages after natural disasters.
Based on the above analysis, DOE concluded that small-scale natural gas exports to non-FTA countries are consistent with the public interest under Section 3 of the NGA.3 DOE declined the suggestion of some commenters that it impose a mechanism to automatically halt approvals of small-scale applications if it reaches some cumulative volume of export approvals. Further, DOE declined to impose any specific export characteristic (e.g., the use of ISO containers or a limitation on destination countries) beyond the export volume limit. Finally, DOE opted for a yearly export volume cap, rather than the daily cap proposed in the NOPR, to be more consistent with industry practice and to ease administrative burden. An annual cap should also allow for more variability in daily export volumes.
From a practical perspective, the Small Export Rule implements DOE’s public interest determination by providing that, for each small-scale natural gas export authorization application, DOE will first assess whether the application is complete under its existing regulations. Complete applications will then be posted to DOE’s website, as is the current standard practice, but DOE will not provide notice of individual applications. If the exports proposed in the application meet the criteria to be considered small-scale natural gas exports, DOE will issue the non-FTA export authorization without further notice or other actions.
Impacts and Next Steps
The Small Export Rule has an effective date of August 24, 2018 and will expedite review of natural gas and LNG exports to all countries, regardless of whether they have a free trade agreement with the United States. This process will speed up some non-FTA applications and allow DOE to dedicate resources to those applications that require a more thorough analysis under the NGA and NEPA.
Please contact one of the authors below or your Baker Botts relationship attorney with any questions.
1Small-Scale Natural Gas Exports, 83 Fed. Reg. 35,106 (July 25, 2018), available here.
210 C.F.R. part 1021, subpart D, appendix B5.7.
3The Small Export Rule does not affect existing DOE authorizations, applications that do not meet the small-scale natural gas exports criteria, or exports to FTA countries under Section 3(c) of the NGA.
ABOUT BAKER BOTTS L.L.P.
Baker Botts is an international law firm of more than 700 lawyers practicing throughout a network of 13 offices around the globe. Based on our experience and knowledge of our clients' industries, we are recognized as a leading firm in the energy, technology, and life sciences sectors. Since 1840, we have provided creative and effective legal solutions for our clients while demonstrating an unrelenting commitment to excellence. For more information, please visit bakerbotts.com.