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US LNG export approvals should hinge on contracts, FERC process: think tank


The Obama administration needs to reform its process for approving applications to ship liquefied natural gas to countries without free trade agreements with the US in order to quell the fears of both consumers and producers, according to a Washington-based think tank.

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"There is a need to reform the existing rules pertaining to exporting LNG to non-FTA countries in order to reduce the risk and uncertainty that is hurting both producers and consumers," the report states.

In the report by the Brookings Institution Energy Security Initiative, the authors call for the administration to require export terminal applicants to complete a pre-filing process with the US Federal Energy Regulatory Commission and have at least some contracts in place before being considered for approval.

"Both requirements are costly and will encourage only serious projects to move forward," the authors, Charles Ebinger and Govinda Avasarala, wrote. Ebinger heads the Energy Security Initiative and Avasarala is a senior research assistant at the Brookings Institution.

The Department of Energy is required by law to quickly approve applications to export LNG to countries that have FTAs with the US, but can deny or modify applications to ship supplies to non-FTA countries if it finds an application is not in the public interest.

But Ebinger and Avasarala wrote that this public interest determination is "too vague" and creates "investor uncertainty."

This uncertainty could be eliminated by tying the public interest determination to whether FERC's pre-filing process has been completed and certain supply contracts have been signed, they wrote.

"In other words, if a company completes its pre-filing process and contracts out a given percentage of its capacity, the exports are deemed to be in the public interest," they wrote.

DOE has approved three non-FTA applications totaling 5.6 Bcf/d, but 19 applications totaling 23.6 Bcf/d are still pending.

DOE is considering these applications based on the order in which they were received and whether the applicant initiated a pre-filing process with FERC.

After each LNG export application approval, DOE has said it will assess the cumulative impact of future approvals, but the report says this is ineffective due to the lengthy gap between an application's approval and its impact on the market.

Instead, Ebinger and Avasarala said, DOE should simply audit its gas export policy every five years.

"Such an audit would identify what happened to domestic natural gas supply, demand, prices, and international markets during each five-year period," they wrote. "Policy adjustments, if determined necessary, could be made following the review."

The report also counters arguments to either put a volumetric cap on export approvals or allow all applications to be approved at the same time.

"Both of these approaches are treacherous to implement and may increase, rather than decrease, uncertainty," the authors wrote.

--Brian Scheid,
--Edited by Keiron Greenhalgh,