DOE order removes certain restrictions on LNG bunkering

On February 25, 2025, the Department of Energy (DOE) issued an Order Granting Request for Rehearing and Clarification and Modifying Order (Order 5233-A) (the Modified Order) clarifying that DOE will no longer consider ship-to-ship transfers of liquified natural gas (LNG) used as a fuel for marine vessels an “export” for the purposes of Section 3 the Natural Gas Act of 1938 (the NGA) when the receiving ship is located in US ports, US waters or international waters.¹

However, DOE reaffirmed its position that LNG bunkering occurring in the territorial waters of a foreign country or foreign port will be considered “exports” for the purposes of the NGA.

This is a significant development for the US LNG market because the export of LNG is regulated by DOE under Section 3 of the NGA, requiring exporters to submit applications and wait for approval prior to conducting their activities. The DOE’s more narrow interpretation of “exports” set forth in the Modified Order could significantly reduce the regulatory burden placed on the use of LNG as a marine fuel and on the US LNG industry at large.

The Original Order

The Modified Order is a modification of a prior DOE ruling made on December 23, 2024 (Order No. 5233) issued during the final month of the Biden presidential administration (the Original Order), concerning JAX LNG, a coastal LNG facility in Florida which provides ship-to-ship LNG fueling to marine vessels, also known as LNG bunkering.² The Original Order asserted DOE jurisdiction over ship-to-ship transfers of US LNG for use as a marine fuel under the NGA with respect to any such transfers, regardless of whether such transfers were made in US waters, international waters or foreign waters.³ The Original Order imposed significant DOE regulatory oversight over LNG bunkering by considering such ship-to-ship bunkering an “export” of LNG for the purposes of Section 3 of the NGA and requiring that any such “export” be approved by the DOE.⁴

The Modified Order

The Modified Order significantly reduces the scope of DOE jurisdiction over LNG bunkering. In response to Executive Order 14154, Unleashing American Energy, issued by President Donald Trump on January 20, 2025, DOE issued the Modified Order in which DOE (i) withdrew jurisdiction under Section 3 of the NGA over ship-to-ship transfers of US LNG for use as marine fuel when the receiving ship is located in US ports, US waters or international waters, and (ii) will no longer be evaluating the “flag” (or country registration) of the receiving ship for jurisdictional purposes.⁵ By withdrawing jurisdiction over transfers of US LNG bunker fuels made by a vessel to a ship in US ports, US waters or international waters, DOE will no longer consider such transfers to be “exports” for the purposes of Section 3 of the NGA, meaning such ship-to-ship transfers may be executed without seeking DOE approval. Importantly, the clarified scope of the Modified Order continues to impose DOE jurisdiction over ship-to-ship transfers of US LNG made to vessels located in the territorial sea of foreign countries, including foreign ports, which will still be considered an LNG export for the purposes of the NGA.⁶ Finally, the Modified Order clarifies that the DOE does not consider the flag of the receiving vessel relevant for jurisdictional purposes, with such jurisdictional considerations to be based solely upon the location of the vessel receiving US LNG, regardless of such vessel’s registration.⁷

Commercial and industry implications

Though the Modified Order was issued in response to specific activities of JAX LNG, it provides important clarification generally with respect to DOE’s interpretation of Section 3 of the NGA in relation to LNG bunkering. As such, the Modified Order has important implications for any companies that are, or may be, engaged in ship-to-ship transfers of US LNG as well as for other participants in the larger US and international LNG market.

The clarification offered by the Modified Order significantly reduces the regulatory burden placed on LNG market participants, which DOE has indicated has the potential to significantly bolster the use of LNG as a bunkering fuel for marine vessels.⁸ Given LNG’s far lower carbon footprint when compared to other bunker fuel options, the improved commercial viability of LNG refueling is expected to play a significant role in decreasing the carbon emissions associated with marine vessel dependent industries, particularly marine shipping.⁹ Likewise, decreased barriers for LNG refueling creates a market for ships transporting US LNG which are able to provide such services in international and US waters, with the potential to attract a customer base of both domestic and international vessels. Accordingly, this deregulation is expected to increase the demand placed on US LNG facilities capable of directly delivering refueling services to marine vessels as well as those which can facilitate the sale of LNG to vessels seeking to engage in commercial ship-to-ship transfers.

Contractual implications

In light of the clarifications and modifications made by the Modified Order, companies that are engaged in ship-to-ship LNG transfers (including purchasers, sellers and traders) should review their contractual arrangements to confirm the applicable sale and delivery terms to determine whether, or to what extent, the Modified Order could impact their operations and commercial relationships. As clarified in the Modified Order, the key factor for consideration used by DOE in determining whether the ship-to-ship transfer will be considered an “export” under Section 3 of the NGA is limited to the actual geographic location of the relevant receiving vessel. As such, companies should pay particular attention to terms regarding the transfer of title and risk of loss for the LNG to determine whether any operational or contractual revisions should be considered or implemented.

Notably, the Modified Order further contains a requirement that a particular contractual provision be included in subsequent agreements made by JAX LNG concerning the transfer of US LNG exported in accordance with the Modified Order. This contractual provision is as follows:

Customer or purchaser acknowledges and agrees that it will resell or transfer LNG  purchased hereunder for delivery only to countries identified in Ordering Paragraph C of DOE/FECM Order No. 5233-A issued February 25, 2025, in Docket No. 24-73-LNG, and/or to purchasers that have agreed in writing to limit their direct or indirect resale or transfer of such LNG to such countries. Customer or purchaser further commits to cause a report to be provided to JAX LNG, LLC that identifies the country (or countries) into which the LNG was actually delivered, and to include in any resale contract for such LNG the necessary conditions to ensure that JAX LNG, LLC is made aware of all such countries.¹⁰

It is not clear whether this or similar contractual language would be either required or beneficial for any other company besides JAX LNG that is engaged in the ship-to-ship transfer of LNG; however, the inclusion of such language should be noted as part of the previously mentioned contractual agreement review and the analysis of the implications of the Modified Order on LNG bunkering market participants.