DOE issues three rulings favorable to LNG exporters

The US Department of Energy (DOE) has issued a policy statement, a blanket order and a proposed interpretive rule relieving some of the reporting requirements for liquefied natural gas (LNG) exporters. First, DOE’s Office of Fossil Energy (DOE/FE) issued a policy statement, effective December 19, 2018, eliminating the end use reporting provisions in authorizations for the export of LNG.[1] The policy statement affects only future export authorizations issued by DOE/FE. Second, concurrently with the policy statement, DOE/FE issued a blanket order removing the end use provision from 42 long-term and short-term export authorizations issued between February 2016 and December 2018.[2] Third, DOE/FE issued a proposed interpretive rule clarifying the types of contracts and purchase agreements associated with the export of natural gas and LNG that must be filed with DOE/FE under an export authorization.[3] The proposed interpretive rule also clarifies that DOE/FE should be notified of any changes to the information submitted during the application process, including the execution of any contract or purchase agreement, within 30 days of the execution of the contracts.

Policy statement on LNG destination reporting

Under Section 3 of the Natural Gas Act (NGA), DOE is responsible for authorizing exports of natural gas to foreign nations. Under DOE regulations implementing Section 3 of the NGA, DOE has broad authority to “issue a final opinion and order and attach such conditions thereto as may be required by the public interest after completion and review of the final record.” From 2011 through January 2016, DOE included two reporting provisions in every long-term LNG export authorization order. Originally, DOE required the long-term LNG export authorization holder to include language in any agreement or other contract for the sale of LNG exported that the customer commit to “cause a report to be provided to [the long-term LNG export authorization holder] that identifies the country of destination, upon delivery, into which the exported LNG or natural gas was actually delivered.” As part of the monthly reporting requirements, DOE/FE required the authorization holder to report “the country (or countries) of destination into which the exported LNG was actually delivered.”

In February 2016, DOE/FE began incorporating different language for these two reporting provisions in LNG export authorization orders. To address concerns that a company would transit US-sourced LNG through a country with which the US had a free trade agreement (FTA) to a non-FTA country, DOE/FE added an “end use” reporting requirement to all long-term (and some short-term) LNG export authorizations issued on or after February 5, 2016. Authorization holders were required to include language in any agreement or other contract for the sale of LNG exported that the customer commit to “cause a report to be provided to [the long-term LNG export authorization holder] that identifies the country of destination (or countries) into which the exported LNG or natural gas was actually delivered and/or received for end use.” Likewise, the monthly reporting requirement was changed to require the authorization holder to report “the country or countries of destination into which the exported LNG was actually delivered and/or received for end use.” DOE/FE defined “end use” to mean “combustion or other chemical reaction conversion process.”

Upon review, DOE/FE has now determined it is impracticable for authorization holders to comply with the end use reporting requirement. DOE/FE reversed the reporting provisions back to the original destination language, which requires authorization holders to report the country (or countries) into which the exported LNG was actually delivered, not received for end use. DOE/FE will no longer include an end use provision in any export authorizations issued pursuant to Section 3 of the NGA. Because the policy statement applies only to future orders, DOE/FE issued a blanket order to remove the end use provision from existing authorizations issued on or after February 5, 2016. As noted, DOE Order No. 4322 removed the end use provision from 42 long-term and short-term export authorizations issued between February 2016 and December 2018. The 42 orders are identified in the Appendix of DOE Order No. 4322.

For additional information, please see the Policy Statement and the DOE Order.

Proposed interpretive rule on filing of contracts and purchase agreements

DOE/FE rulings under Section 3 of the NGA authorizing LNG export require authorization holders to provide DOE/FE with “a copy of all relevant contracts and purchase agreements.” DOE regulations also impose a continuing obligation on authorization holders to notify DOE/FE “as soon as practicable, of any prospective or actual changes to the information submitted during the application process upon which the authorization was based, including, but not limited to, changes to the terms and conditions of any applicable contracts.”

Through the proposed interpretive rule, DOE/FE seeks to clarify the types of “contracts and purchase agreements” associated with the export of natural gas that are “relevant.” DOE/FE proposes that the following types of executed, long-term binding commercial agreements associated with the export of natural gas be considered “relevant” (collectively, Executed Agreements):

1. natural gas supply agreements;
2. terminal service agreements;
3. LNG purchase and sale agreements (including long-term commercial agreements covering “free on board” sales subsequent to a terminal service agreement);
4. liquefaction tolling agreements, liquefaction and regasification tolling capacity agreements, and similar types of agreements; and
5. any other natural gas export contractual agreements that are associated with the first sale or transfer of natural gas at the point of export and that specify the volume of natural gas under contract (including heads of agreements, memoranda of understanding and letters of intent if and when they become fully binding and effective).

In addition, DOE/FE proposes to interpret the phrase “as soon as practicable” with respect to the continuing obligation on authorization holders to provide DOE/FE with any new agreements or changes to mean within 30 days of execution.

Public comments on the proposed interpretive rule will be accepted until January 18, 2019.

For additional information, please see the proposed interpretive rule.

Key implications and takeaways

According to the DOE/FE, the elimination of the end use reporting requirement will enhance the accuracy of information provided by authorization holders and reduce administrative burdens for the US LNG export market. The reversion to the prior policy will ease companies’ concern that the end use provision could put their export authorizations in jeopardy if they could not strictly comply with it. With regard to the clarification on the filing of agreements, the DOE/FE proposal will reduce potential confusion and regulatory burdens. Although the elimination of the end use reporting provision took effect on December 19, 2018, the clarification on the filing of agreements and any changes to the agreements is subject to a public comment period and will become effective only after the DOE/FE issues a subsequent ruling.

[1] Eliminating the End Use Reporting Provision in Authorizations for the Export of Liquefied Natural Gas, 10 C.F.R. § 590 (2018).

[2] U.S. Dep't of Energy, DOE Order No. 4322, FE Docket Nos. 14-179-LNG, et al., Order Removing End Use Reporting Provision from Existing Export Authorizations (Dec. 13, 2018).

[3] Filing of Contracts and Purchase Agreements Associated With the Export of Natural Gas, 10 C.F.R. § 590 (2018).