By: Ellen Black, Production Editor
Until recently, domestic production of natural gas was so low that the United States imported it in the form of liquefied natural gas (LNG) to LNG terminals built on the coasts.
However, with the “shale-gas revolution made possible by fracking” and other drilling advances, natural gas is now much more accessible and domestically abundant.
Since natural gas cannot be stored like oil or coal, the glut of this resource must either be used or not drilled until it can be used or sold. This increase in supply, coupled with a constant demand, has resulted in a significant drop in the price of domestic natural gas, creating an artificially low price due to oversupply.
Reasonably, natural gas companies want to increase demand by exporting LNG to countries without this resource, which will pay a much higher price,
yet the current permitting requirements limit exportation.
governs the regulation of natural gas, and contains provision § 717b(a), which governs the exportation and importation of LNG using a standard of “benefiting the public good.” For the first time in decades, in May 2013, two permits to export LNG were conditionally granted, one in Louisiana and one in Texas.
This represents a significant shift in this industry, and has opened the door to at least twenty other such applications to the Department of Energy (DOE).
Originally, all applications for import and export of natural gas underwent the same process of review as analyzed under a public interest standard.
However, as America promulgated more complex free trade agreements in recent years, it has become practice to subject applications for import and export to different standards of review for those countries with and without free trade agreements.
In the Energy Policy Act of 1992
, Congress amended the NGA to include sections 3(a) and 3(c) which govern differences in free trade agreement and non-free trade agreement country applications for export of natural gas. The Economic Regulatory Administration (ERA) is responsible for making the decision whether an application for export is “consistent with the public interest,” which is based on “various factors including security of supply, balance of payments, price of the import or export, national and regional needs for gas, and the eligibility of the purchasers and participants.”
For export permits to free trade agreement countries, with the Energy Policy Act of 1992, there is now an “expedited application process.”
This section also requires that these applications be deemed “consistent with the public interest” and that these applications be “granted without modification or delay.”
As a result of the latter provision, the DOE does not conduct a full public interest analysis of these section 3(c) applications and cannot condition them “by insertion of terms which otherwise might be considered necessary or appropriate.”
There are currently twenty countries with which the U.S. has free trade agreements concerning the treatment of natural gas.
For non-free trade agreement countries, there is a much more in-depth process as dictated by § 3(a) of the NGA, which provides that “the [Secretary of Energy] shall issue such order upon application, unless after opportunity for hearing, [he] finds that the proposed exportation or importation will not be consistent with the public interest.”
This creates “a rebuttable presumption that a proposed export of natural gas is in the public interest.”
For countries without free trade agreements, the DOE issues a notice of the application for import or export in the Federal Register, publishes the Section 3(a) application and all subsequent pleadings and orders on its website, and invites interested persons to participate in the proceedings.
In granting this application, there is “a wider range of considerations for a permit within the public interest review, includes in part environmental concerns, the domestic need for natural gas, and international considerations.
These “non-statutory” criteria are not exhaustive, and have changed over decades with each subsequent agency application.
This difference in permitting schemes thus creates an unnecessarily complicated and bifurcated process for LNG permits. It is in the best interest of the United States to have more exportation LNG, and also a more streamlined and uniform process for permitting.
Bryan Walsh, The Unintended Consequences of Exporting Natural Gas, Time (May 27, 2013),
15 U.S.C. § 717 (2013).
Zach Colman, DOE Gives Green Light to Controversial Natural Gas Export Project, The Hill E2 Wire (May 17, 2013, 1:30 PM),
Shani Harmon, Reining in the Natural Gas Bonanza, Legally: Whether U.S. Law and Policy Restrictions on Natural Gas Exports Are Consistent with International Trade Law, 25 Geo. Int'l Envtl. L. Rev. at 619 (2013).
42 U.S.C. § 7172 (2013).
Report of the Committee on Natural Gas Imports and Exports, 1 Energy L.J. 165 (1980).
Harmon, supra note 8, at 619.
DOE's Program Regulating Liquefied Natural Gas Export Applications: Hearing on LNG Before the House Committee on Oversight and Government Reform, Subcommittee on Energy Policy, Health Care, and Entitlements (March 19, 2013) (statement of Christopher Smith, Acting Assistant Secretary for Fossil Energy).
Harmon, supra note 8, at 620.
DOE, supra note 13.