By John Cicchitti
July 22, 2020
The U.S. regulatory system for Liquefied Natural Gas (LNG) exports is robust and meticulous.
But the pandemic-driven fall in U.S. energy demand should spur the federal government to ease the natural gas industry’s unnecessary export burdens. The U.S. Department of Energy (DOE) is looking to do just that with a proposed rule change that will eliminate unnecessary red tape and increase exports while continuing to protect the environment.
LNG shipments are critical to bringing American-produced energy to a global marketplace. LNG takes up 1/600 the volume of natural gas, so liquefying the gas allows a single LNG ship to carry large amounts of natural gas. ExxonMobil boasts that each ship full of its LNG can power 70,000 homes for an entire year.
“A Tangled Web of Regulatory Processes”
In 2016, the D.C. Circuit Court described LNG export authorization as “a tangled web of regulatory processes.” Both DOE and the Federal Energy Regulatory Commission (FERC) must approve separate elements of export criteria, and companies face opposition from environmental groups throughout the proceedings. DOE has the final say on the exports themselves, while FERC approves or denies construction of export terminals.
The Natural Gas Act allows exporters to sidestep much of this process if the exports are going to countries that have free trade agreements with the United States. LNG exports to free trade countries earn prompt approval from DOE and FERC. Because of this, most of the United States’ diplomatic and economic partners in North America, Central America and the Caribbean, are able to quickly access and partner with U.S. natural gas companies.
The economic and environmental benefits of natural gas are significant. In the Caribbean, for example, increased use of natural gas will replace oil-based and other high-polluting electricity sources which are expensive and widespread.
But for non-free trade deals to pass DOE and FERC muster, the Natural Gas Act requires that exports and LNG terminals be in concert with the “public interest.” The agencies will evaluate both the economic and environmental effects of the project in accordance with this provision.
For example, the proposed exports cannot cause a price spike in electricity for domestic consumers. But economics has not been much of an authorization factor in recent years as natural gas prices have continued to fall. In 2017, increasing U.S. production amid the fracking boom outstripped American demand for natural gas. With hundreds of billions of extra cubic meters of natural gas per year, there is no longer any concern that exports will reduce domestic supply or raise domestic prices.