Publication | February 2016
On the afternoon of Friday, February 5, 2016, the US Department of Energy's Office of Fossil Energy ("DOE/FE") quietly issued a groundbreaking 234-page order further integrating the North American LNG industry and answering important questions regarding the export of LNG from Canada made from US-sourced natural gas. In Order 3768 granting an application by Pieridae Energy (USA) Ltd. ("Pieridae") – a Norton Rose Fulbright client in both the US and Canada – the DOE issued its first authorization to export natural gas from the United States to Canada, and after liquefaction in Canada, to re-export from Canada to countries lacking Free Trade Agreements with the US requiring national treatment for trade in natural gas ("non-FTA countries"). [1] While similar in many respects to the earlier orders the DOE/FE has issued authorizing entities to export liquefied natural gas ("LNG") to non-FTA countries via LNG Terminals located in the US, this order (the "Pieridae Order") is the first to treat exports to non-FTA countries via a Canadian Terminal – the Goldboro LNG Project – on par with exports from US terminals.
In issuing the order, the DOE/FE had to tackle two critical questions: First, are there sufficient benefits associated with the long-term export of natural gas to support a finding that such exports are not inconsistent with the public interest even without the billions of dollars of direct capital investment and thousands of jobs connected with the development of operation of LNG terminal in the US? [2] Second, what environmental review is required under the National Environmental Policy Act ("NEPA")?
With regard to the public interest, Pieridae's application documented numerous benefits from the proposed exports, including (a) revenues from (and US jobs created by) the production, transportation and sale of natural gas in the US, the value of which dwarf even the enormous investment associated with LNG terminals, and (b) cross-border benefits stemming from the interdependency of the US and Canadian economies. After weighing the facts presented by Pieridae, along with information developed separately by the DOE/FE and the arguments of intervenors and commenters, the DOE/FE concluded that the proposed exports were consistent with the applicable public interest standard and Pieridae's application should be granted. Pieridae Order at page 226.
With regard to the necessary level of NEPA review, the DOE/FE agreed with Pieridae that the Canadian facilities required to implement the proposed export were beyond its purview, stating: "because the Goldboro [LNG] Project [is] to be located in Nova Scotia, Canada, [it] is outside the scope of our environmental review under NEPA in this proceeding, which necessarily focuses on potential environmental impacts within the United States." Pieridae Order at page 190. Further, with regard to environmental impacts within the US, the DOE/FE concluded:
"We find that a detailed environmental analysis of increased natural gas production and/or pipeline construction or expansion would be too speculative for consideration in this proceeding because these possible impacts cannot be described with sufficient specificity to make their consideration useful for reasoned decision-making. Such increased production and possible pipeline build-out is not "reasonably foreseeable" for purposes of NEPA analysis. We therefore find that NEPA does not require our environmental review to include induced upstream natural gas production, nor does it require us to consider impacts associated with pending or anticipated projects not related to this authorization."
Additionally, as requested by Pieridae, the DOE/FE issued a Categorical Exclusion with respect to Pieridae's proposed use of specific border crossing facilities at the juncture of the Maritimes & Northeast ("M&N") US Pipeline and the M&N Canada Pipeline, determining that "no new construction will be required in the United States to support the proposed exports." Pieridae Order at page 205.
With the Pieridae Order, the path is now paved for further integration of the US Canadian natural gas and LNG industries improving the ability of both countries to effectively compete in the current low-cost natural gas environment and encouraging the development of additional LNG export facilities that can contribute to a lower carbon global environment, as well as a stronger global economy and more stable geopolitical conditions.
These Pieridae firsts are significant additions to the many other North American LNG industry firsts achieved with the help of lawyers who are currently a part of Norton Rose Fulbright's industry leading North American LNG practice, including:
[1] Immediately thereafter, the DOE approved a second, similar, application by Bear Head LNG Corporation and Bear Head LNG (USA), LLC, also filed by Norton Rose Fulbright US LLP – Order 3770.
[2] As noted in our May 27, 2015 Norton Rose Fulbright – Legal Update, "DOE answers key US- Canada LNG export question", available at: http://www.nortonrosefulbright.com/knowledge/publications/129147/doe-answers-key-us-canada-lng-export-question, DOE has determined that, although the export of natural gas would be from the US to Canada (a Free Trade Agreement Country), which exports would typically be deemed to be in the public interest as a matter of law, because the natural gas would be converted to LNG and re-exported from Canada to Non-Free Trade Agreement Countries, a full Natural Gas Action Section 3(a) public interest review is required.
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