Written by Mary Anne Sullivan, Partner at Hogan Lovells US LLP.
Whether health care, climate change, taxes or general international trade, it is hard to identify an area of policy in the United States that is not experiencing dramatic changes in the transition from President Obama to President Trump. This has left potential customers for U.S. LNG wondering if they can count on agreements they have in place or may be negotiating. They can take comfort that there is a clear continuity in pro-LNG export policy. The Obama Administration put in place a set of policies and procedures and developed a strong factual record to support LNG exports. There is convincing evidence that the policies favoring LNG exports will continue in the Trump Administration.
The U.S. Department of Energy (DOE) must approve all natural gas exports. Approvals of exports to countries with which the U.S. has free trade agreements are prompt and unconditional. For exports to non-free agreement countries, DOE must find that the exports are “not inconsistent with the public interest.” DOE has said that this statutory test creates a “rebuttable presumption” in favor of exports. Applying that presumption, under Obama, DOE approved 24 LNG export licenses and denied none.
There has been no change under Trump. Energy Secretary Perry has now approved the first LNG export application presented to him for decision, explaining his decision in terms that echo broader themes of the Trump Administration: “[LNG] advances our national security interests. It enhances our allies’ access to diverse sources of energy.” President Trump’s top economic adviser, Gary Cohn, has asserted: “We could be and should be the largest exporter of LNG in the world,” adding “We’re going to permit more and more of these LNG plants.”
The heart of DOE’s public interest analysis of export applications turns on whether the exports will unduly reduce domestic supplies of natural gas, causing adverse economic consequences at home. Some energy intensive domestic industries argue that LNG exports will drive up their costs and should therefore be slowed. DOE has commissioned multiple studies on LNG exports, and they have found that LNG exports benefit the U.S. economy. The key conclusion of a 2012 study was that: “U.S. economic welfare consistently increases as the volume of natural gas exports increased. This includes scenarios in which there are unlimited exports.”
Another DOE-commissioned analysis, completed in 2015, concluded that rising LNG exports are associated with increases in domestic production, not reductions in domestic demand. It also found that any negative impacts on energy-intensive industrial sectors are offset by positive impacts elsewhere in the economy. Looking at exports of up to 20 bcf/day, a level it considered improbable, DOE’s own in-house analysts at the Energy Information Administration reached like conclusions in 2014: “Added U.S. LNG exports result in higher levels of economic output, as measured by real gross domestic product. . . . Increased energy production spurs investment, which more than offsets the adverse impact of somewhat higher energy prices when the export scenarios are applied.”
These studies provide DOE with a strong record in support of the conclusion that LNG exports are consistent with the public interest, allowing the Trump Administration to continue to approve applications as they are presented – as it has said it wants to do. Any slowing of the pace of approvals reflects a slowing in the applications presented, not a change in policy. It is safe to anticipate that, as the demand develops, the approvals will be forthcoming.
1] 15 U.S.C. § 717b(a) (emphasis added).
2] 79 Fed. Reg. at 48314.
3]https://www.bloomberg.com/news/articles/2017-04-25/lng-emerges-as-a-white-house-favorite-for-promoting-energy-jobs.
4] http://www.hellenicshippingnews.com/white-houses-cohn-wants-to-see-more-and-more-lng-terminals/.
5] NERA Economic Consulting, Macroeconomic Impacts of LNG Exports from the United States at 6 (2012).
6] Oxford Economics and Center for Energy Studies at Rice University, The Macroeconomic Impacts of Increasing U.S. LNG Exports at 8 (2015).
7] See EIA, Effect of Increased Levels of Liquefied Natural Gas Exports on U.S. Energy Markets at 12 (2014), https://www.eia.gov/analysis/requests/fe/pdf/lng.pdf.
8] The Federal Energy Regulatory Commission must approve the construction of export facilities, as opposed to the commodity. It has denied a single application, and only because it found that there were no customers for that facility. Jordan Cove Energy Project, L.P., 154 FERC 61,190 (Mar. 11, 2016). That project now has customers, and it is reviving its application. Jordan Cove Energy Project, LP, Request for Approval of Pre-Filing Review, Docket No. PF17-4 (Jan. 23, 2017).