LNG issue needs real solution

Solutions are helpful but only when they fix what’s broken. If not, and good intentions go awry, the fix can do more harm than good. Case in point: the Department of Energy’s latest attempt to fix the broken permitting process for Liquefied Natural Gas (LNG) exports. It’s become a fiery subtext in the energy export debate, creating political friction where none need exist. Let me explain.

First, let’s talk good intentions. To its credit, the Department recognizes that change is needed and is utilizing its regulatory authority to reset the process for identifying priorities, reviewing projects at different stages in the pipeline and aligning limited resources. But here’s the rub: the proposed rule for which the Department is seeking comment neither improves the process such that resources can be deployed efficiently and in a timely manner nor streamlines the process to inject the level of certainty necessary for companies who want to market LNG to actually engage.

In addition to the Department, the Congress has jumped into the fray and is offering additional solutions. The House, for example, recently passed a bill that seeks to address needed reforms but falls short of what’s required to bring stability, certainty and innovation to the process. As well, senators of both political stripes are crafting measures to deal with the LNG bottleneck. Unfortunately, most of the proposed solutions to date share the same defects found in the Department’s proposed rule.

Let’s start with the Department’s efforts. In fairness to my former colleagues, the Department is right to recommend a shuffling of the deck such that projects which are further along in the development cycle and have necessary resources and commitments, be reviewed and allowed to move forward before those which lag farther behind. Where the Department strays is in its desire to suspend its policy of issuing preliminary commitments of approval and its decision to issue final permits only after the Federal Energy Regulatory Commission (FERC) has completed its National Environmental Protection Act (NEPA) process.

This is a big deal. Issuing a permit post-NEPA process is an excessively burdensome threshold and significantly increases the commercial risk for project developers. Also, one could argue that there is even more potential to waste taxpayer resources since FERC could conceivably conduct an expensive permitting process only to have the Department deny a permit to exports to non-FTA nations, making an LNG terminal non-economic.

Only one senator, John Hoeven (R) of North Dakota, has recognized this issue and has a proposal that finds the proper balance between the competing interests of the Department of Energy, the FERC process, industry, and project developers. In a nutshell, he is shopping an approach that would have the Department continue its practice of issuing preliminary permit pending FERC approval, but make consideration contingent on pre-filing a project for FERC licensing. As well it would require the Department issue a preliminary permit within 45 days. Further, it puts in place the appropriate regulatory structure for companies to engage, compete and eventually, for the nation, to realize the economic benefits.

Here’s why this approach works. A pre-filing standard supports both public policy and commercial goals.  From the Department’s perspective it creates the kind of efficient deployment of resources that the agency attempted to accomplish in its proposed rule. Because the pre-filing process can cost as much as one hundred million dollars, it creates a bar that ensures the Department will only consider projects likely to go forward. In contrast, current policy is to review applications in order of receipt regardless of their prospects for advancement and success. 

Significantly, this approach is good for another reason: it does not undermine the environmental review process. The Department maintains its role in the process as a coordinating agency with FERC, meaning it can continue to comment and advise FERC during the NEPA process. By working with FERC in real time, the Department avoids the possibility of creating conditions on its permit that could potentially be in conflict with FERC’s final permit, or requiring some sort of extra-NEPA process.  Already, FERC imposes significant conditions on its permits -- in one case over 70 -- so the Department of Energy will have ample opportunity to be heard and FERC has demonstrated its willingness to listen.

From a developer’s perspective, this approach is the right one because it removes the uncertainty that is dogging the current permit process allowing for informed decision-making on when and where to commit critical resources. By issuing a preliminary approval, the Department of Energy minimizes a project’s regulatory risk and allows developers to begin negotiations with potential customers abroad.

Finally, from the FERC’s perspective, it can better gauge overseas demand and the potential utilization rate for these facilities, as well as judge potential market implications. 

While the process has been far from pretty, what has emerged from the considerable debate, public commentary and political wrangling, is a Senate solution that is worthy of serious consideration. If consensus can be reached in short order, it will be a win not only for those who are engaged in the LNG export space but also for the economy at large.

Maddox is a former senior official at the U.S. Department of Energy; A fellow at the American Action Forum; and is associated with The Livingston Group. he is a lobbyist with no clients in natural gas or related fields.

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