The Department of Energy (“DOE”) has announced a final rule that will expedite the approval process for small-scale exports of natural gas.¹  The DOE explained that the new rule is intended to accelerate its processing of small-scale export applications and reduce administrative burdens for the small-scale natural gas export market.

Effective August 24, 2018, the DOE will issue an export authorization, without public notice and comment, to an applicant submitting a complete application to export natural gas, including liquefied natural gas (“LNG”), to countries with which the United States has not entered into a free trade agreement (“FTA”) that requires national treatment for trade in natural gas and with which trade is not prohibited by U.S. law or policy (i.e., non-FTA countries), if the application meets two criteria:

• The export volume will not exceed 51.75 billion cubic feet (“Bcf”) per year, or 0.14 Bcf per day.

• The application does not require an environmental impact statement or an environmental assessment under the National Environmental Policy Act of 1969 (“NEPA”).

As to volume, the DOE explained that the limit was based on an industry practice of defining “small-scale” LNG as one or fewer million metric tons per year, which is the equivalent of 51.75 Bcf/year.

With respect to the second requirement, an application for small-scale exports must not require an environmental impact statement or an environmental assessment under NEPA.  Practically speaking, this means the project must be eligible for a categorical exclusion under NEPA.  Generally, LNG export projects that qualify for a categorical exclusion do so under DOE exclusion B5.7, which applies to natural gas export facilities “that involve minor operational changes (such as changes in natural gas throughput, transportation, and storage operations) but not new construction.”²  An example would be export facilities that are refitted to export LNG by ISO container.

The DOE concluded that domestic supplies of natural gas will be adequate to supply small-scale exports while meeting domestic demand, that although increased natural gas exports may result in higher U.S. natural gas prices the changes would stay within a narrow range, and that increased natural gas exports are likely to generate net economic benefits for the United States even with the estimated price increases by stimulating local, regional, and national economies through direct and indirect job creation, increased economic activity, tax revenues, and increased balance of trade.

Under the new procedures, if the DOE determines that an application is complete under its regulations and meets the two criteria for small-scale natural gas exports, the DOE will proceed to issue a non-FTA authorization without providing notice of each individual application or applying other procedures generally conducted for non-FTA export applications under the DOE’s regulations.  Prior to this final rule, the DOE noticed an application and conducted a public interest review before authorizing small-scale exports of natural gas to non-FTA countries.

The new rule does not apply to exports to countries with which the United States has entered into an FTA that requires national treatment for trade in natural gas (i.e., FTA countries).  The new rule cannot be used to increase the export authorization of an existing export facility, including a large-scale facility.  Additionally, the final rule does not affect existing DOE authorizations or the DOE’s evaluation of any non-FTA application that does not meet the criteria for small-scale natural gas exports.

As this rule shows, there is a robust and evolving niche market for smaller-scale LNG projects.  On the export side, there is a second tranche of credible buyers who want cargoes smaller than those of the large LNG carriers serving traditional terminals.  The DOE explained that the small-scale natural gas export market involves exports of small volumes of natural gas from the United States to countries primarily in Central America, South America, and the Caribbean.  The DOE noted that the small-scale export market has developed as a solution to the practical and economic constraints limiting large-scale natural gas exports to these countries.  The final rule is also consistent with the DOE’s policy of minimizing federal control and involvement in energy markets and promoting energy diversification.

_{1 Small-Scale Natural Gas Exports, 83 Fed. Reg. 35106 (July 25, 2018).}

_{2 10 C.F.R. part 1021, subpart D, appendix B5.7 (2018).}