[Federal Register Volume 72, Number 45 (Thursday, March 8, 2007)]
[Notices]
[Pages 10507-10509]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-4162]


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DEPARTMENT OF ENERGY

[FE Docket No. 07-02-LNG]


Office of Fossil Energy; ConocoPhillips Alaska Natural Gas 
Corporation and Marathon Oil Company; Application for Blanket 
Authorization To Export Liquefied Natural Gas

AGENCY: Office of Fossil Energy, DOE.

ACTION: Notice of application.

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SUMMARY: The Office of Fossil Energy (FE) of the Department of Energy 
(DOE) gives notice of receipt of an application filed jointly on 
January 10, 2007 by ConocoPhillips Alaska Natural Gas Corporation 
(CPANGC) and Marathon Oil Company (Marathon), requesting blanket 
authorization to export on their own behalf or as agents for others on 
a short-term or spot market basis from existing facilities near Kenai, 
Alaska up to 99 Trillion British thermal units (TBtu's) (approximately 
99 Billion cubic feet (Bcf)) of liquefied natural gas (LNG) to Japan 
and/or one or more countries on either side of the Pacific Rim over a 
two year period commencing April 1, 2009 and terminating March 31, 
2011.
    The application is filed under section 3 of the Natural Gas Act (15 
U.S.C. 717b), as amended by section 201 of the Energy Policy Act of 
1992 (Pub. L. 102-486), and DOE Delegation Order No. 00-002.00G (Jan. 
29, 2007) and DOE Redelegation Order No. 00-002.04C (Jan. 30, 2007). 
Protests, motions to intervene, notices of intervention, and written 
comments are invited.

DATES: Protests, motions to intervene or notices of intervention, as 
applicable, requests for additional procedures, and written comments 
are to be filed at the address listed below no later than 4:30 p.m., 
eastern time, April 9, 2007.

ADDRESSES: Office of Oil and Gas Global Security and Supply, Office of 
Fossil Energy, U.S. Department of Energy, Forrestal Building, Room 3E-
042, FE-34, 1000 Independence Avenue, SW., Washington, DC 20585.

FOR FURTHER INFORMATION CONTACT:
Larine Moore or Beverly Howard, Office of Oil and Gas Global Security 
and Supply, Office of Fossil Energy, U.S. Department of Energy, 
Forrestal Building, Room 3E-042, FE-34, 1000 Independence Avenue, SW., 
Washington, DC 20585. (202) 586-9478; (202) 586-9387.
Edward Myers, Office of the Assistant General Counsel for Fossil Energy 
and Energy Efficiency, U.S. Department of Energy, Forrestal Building, 
Room 6B-159, 1000 Independence Ave., SW., Washington, DC 20585. (202) 
586-3397.

SUPPLEMENTARY INFORMATION:

Background

    CPANGC, a Delaware corporation with its principal place of business 
in Anchorage, Alaska, is a wholly-owned subsidiary of ConocoPhillips 
Company, a publicly traded Delaware corporation. Marathon is an Ohio 
corporation with its principal place of business in Houston, Texas. 
CPANGC and Marathon are not affiliated with each other. The applicants 
are joint indirect owners of natural gas liquefaction and marine 
terminal facilities near Kenai, Alaska (Kenai LNG Facility) on Cook 
Inlet in Southcentral Alaska.\1\
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    \1\ The Kenai LNG Facility is owned by the Kenai LNG 
Corporation. CPANGC has a 70-percent ownership interest and Marathon 
has a 30-percent ownership interest in Kenai LNG Corporation.
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Existing Long-Term Authorization

    The applicants hold an existing long-term authorization to export 
LNG to Japan granted to CPANGC predecessor Phillips Petroleum Company 
(Phillips) and Marathon by the Federal Power Commission in 1967.\2\ 
Phillips and Marathon were specifically authorized to export LNG from 
the State of Alaska to supply Tokyo Electric Power Company Inc. (Tokyo 
Electric) and Tokyo Gas Company Limited (Tokyo Gas) for a 15-year 
period terminating on May 31, 1984. The order also authorized Phillips 
and Marathon to construct the necessary liquefaction and marine 
terminal facilities in the Cook Inlet Basin near Kenai, Alaska. The 
long-term export authorization was subsequently amended and extended by 
the Economic

[[Page 10508]]

Regulatory Administration (ERA) at various times between 1982 and 
1987.\3\
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    \2\ See, Phillips Alaska Natural Gas Corporation and Marathon 
Oil Company, 37 FPC 777 (April 19, 1967).
    \3\ See, DOE/ERA Opinion and Order No. 49 (1 ERA ] 70, 116, 
December 14, 1982) (extended export authority); DOE/ERA Opinion and 
Order No.49-A (1 ERA ]``70,127, April 3, 1986) (transferred 
authorization from Phillips Petroleum Company to Phillips 66 Natural 
Gas Company); DOE/ERA Opinion and Order No. 206 (1 ERA ]``70,128, 
November 16, 1987) (amended pricing formula).
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    On July 28, 1988, ERA granted CPANGC, then known as Phillips 66 
Natural Gas Company, and Marathon an extension of the long-term 
authorization to export LNG to Japan for a term of 15 years, ending 
March 31, 2004. FE subsequently approved amendments of the long-term 
authorization at various times between 1991 and 1995.\4\
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    \4\ See, DOE/ERA Opinion and Order No. 261 (1 ERA ] 70,130, July 
28, 1988) (extended export authority); DOE/FE Opinion and Order No. 
261-A (1 FE ]``70,454, June 18, 1991) (amended pricing formula); 
DOE/FE Opinion and Order No. 261-B (1 FE ]70, 506, December 19, 
1991) (transferred authorization from Phillips 66 Natural Gas 
Company to PANGC); DOE/FE Opinion and Order No. 261-C (1 FE 
]``70,607, July 15, 1992) (increased annual contract quantity from 
52 trillion Btu's to 64.4 trillion Btu's--the provision for yearly 
sales up to 106 percent of annual contract quantity remained 
unchanged); DOE/FE Opinion and Order No. 261-D (1 FE ]``71,087, 
March 2, 1995) (amended pricing formula); DOE/FE Opinion and Order 
No. 261-E (2 FE ] 71,429, July 18, 1997) (dismissed complaint).
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    On April 2, 1999, in DOE/FE Order No. 1473, FE granted CPANGC 
predecessor Phillips Alaska Natural Gas Corporation (PANGC) and 
Marathon a further five-year extension of the long-term authorization 
to annually export up to 64.4 TBtu's of LNG to Japan commencing April 
1, 2004 through March 31, 2009.\5\ The commencement date proposed by 
the applicants for the blanket export authorization coincides with the 
anticipated termination of the applicants' currently effective long-
term authorization issued in Order No. 1473.
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    \5\ See, Phillips Alaska Natural Gas Corporation and Marathon 
Oil Company, DOE/FE Opinion and Order No. 1473 (2 FE ] 70,317, April 
2, 1999).
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    On June 20, 2000, FE granted PANGC and Marathon approval of a 
revision in the pricing provisions of their Japanese sales 
contracts.\6\
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    \6\ See, DOE/FE Opinion and Order No. 261-F (2 FE ] 70,506, June 
20, 2000) (amended pricing provisions of Japanese sales contracts).
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Existing Blanket Authorization

    On April 10, 2000, in DOE/FE Order No. 1580, FE granted PANGC and 
Marathon blanket authorization to export up to 10 TBtu's (10 Bcf) of 
LNG from the Kenai LNG facility to international markets in the Pacific 
Rim over a two year period beginning on the date of the first 
export.\7\ Although this blanket authorization was intended to 
supplement the long term authorization issued in DOE/FE Order No. 1473, 
the blanket authorization issued in DOE/FE Order No. 1580 has not been 
activated to date and no exports of LNG under this blanket 
authorization have been made.
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    \7\ See, Phillips Alaska Natural Gas Corporation and Marathon 
Oil Company, DOE/FE Opinion and Order No. 1580 (2 FE ] 70,472, April 
10, 2000).
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Current Application

    In the instant application, the applicants initially requested that 
FE vacate the blanket authorization issued in DOE/FE Order No. 1580 
contemporaneous with, and conditioned on, the issuance of the proposed 
blanket authorization sought in this application. However, by letter 
dated February 16, 2007, the applicants subsequently notified DOE that 
they are contemplating the activation of the blanket authorization 
issued in DOE/FE Order No. 1580. The applicants further state in the 
February 16 letter that if they activate the Order No. 1580 blanket 
authorization before the Department issues a favorable order in the 
instant proceeding, it will not be necessary for the Department to 
vacate the Order No. 1580 authorization. Alternatively, the applicants 
state that if the Department issues a favorable order herein before the 
applicants activate the Order No. 1580 authorization, then the 
applicants seek to reserve the ability to activate the Order No. 1580 
authorization prior to the time period covered by the instant 
application.

Public Interest Considerations

    In support of their application, CPANGC and Marathon state there is 
no regional need for the volume of LNG that they seek authority to 
export during the two year time period of the proposed authorization. 
The applicants commissioned separate studies by two independent 
consulting firms, Netherland, Sewell & Associates (NSAI) and Resource 
Decisions (RD), to assist in determining the regional need for the 
natural gas proposed to be exported as LNG. The NSAI study evaluates 
natural gas reserves in the Cook Inlet region of Alaska and the RD 
study provides an analysis of the available supply and the effective 
demand for Cook Inlet natural gas during the term of the proposed 
blanket authorization. The RD study, in particular, postulates 
``Expected Cases'' and ``Stress Cases'' for natural gas supply and 
demand in Southcentral Alaska in order to discern the possible impact 
of the export of LNG on regional need from 2006 through the first 
quarter of 2011. The applicants state the Expected Demand Case employs 
the most likely estimates for Southcentral Alaska natural gas demand 
and the Expected Supply Case employs the most likely estimates for Cook 
Inlet natural gas supply. The Stress Demand Case, on the other hand, 
reportedly employs regional natural gas demand assumptions that are 
higher than expected and the Stress Supply Case employs Cook Inlet 
natural gas supply assumptions that are lower than expected. The 
applicants project that under all of the analyzed scenarios, there are 
sufficient supplies of natural gas and other energy sources to meet 
both the regional demand of Southcentral Alaska and the foreign export 
market during the two year period of the proposed export 
authorization.\8\
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    \8\ See Resource Decisions, Economic Analysis of Kenai LNG 
Export (January 2007) included as Appendix C to the application of 
CPANGC and Marathon filed January 10, 2007; and Netherland, Sewell & 
Associates report evaluating natural gas reserves in the Cook Inlet 
region of Alaska (January 4, 2007), included as Appendix D to the 
application of CPANGC and Marathon filed January 10, 2007.
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    With respect to national need, CPANGC and Marathon state that 
shipment of LNG from the applicants' Kenai LNG facilities to the lower 
48 states does not appear to be a viable option due to certain 
regulatory and economic hurdles. The applicants emphasize that the 
requirements of Section 27 of the Merchant Marine Act of 1920 (46 
U.S.C. 883), commonly known as the Jones Act, would present a 
substantial regulatory hurdle. The applicants also emphasize that there 
are no existing U.S. west coast LNG receiving terminals and the cost of 
shipping Kenai LNG to U.S. east coast or Gulf Coast LNG receiving 
terminals would vastly exceed the cost of transporting the same LNG to 
Japan and/or another customer in the Pacific Rim due to the distances 
involved.
    The applicants assert that approval of the requested authorization 
to export Cook Inlet LNG from Kenai to Japan and/or one or more 
countries on either side of the Pacific Rim will provide tangible 
benefits to the Alaskan economy and to U.S. national interests. The 
applicants maintain that the Kenai LNG Facility provides a stable 
source of income and employment in Southcentral Alaska, an area noted 
for seasonal unemployment and a marked cyclical response to world oil 
price changes. The operation of the Kenai LNG Facility reportedly 
provides employment generating an estimated $15.9 million dollars in 
personal income.\9\ The State of Alaska and its citizens also benefit 
from royalty payments on the LNG and from production and corporate 
income tax receipts. The applicants assert that a

[[Page 10509]]

denial of the application will lead to the end of LNG exports from the 
Kenai LNG Facility by early 2009, resulting in a major loss in benefits 
to the State of Alaska. The applicants further assert that shutdown of 
the Kenai LNG Facility would cause a shut-in of the flowing gas 
supplies that would otherwise be produced from the Cook Inlet 
reservoirs and could result in permanent loss of natural gas reserves 
and deliverability. In this regard, the applicants maintain that once 
flowing wells are shut-in, there is no guarantee that those supplies 
will be available in the future at the same rate of production or that 
reserves will not be lost permanently. Finally, CPANGC and Marathon 
note the beneficial impact of the exportation of LNG on the balance of 
payments between the U.S. and Pacific Rim countries during the two year 
term of the proposed blanket authorization.
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    \9\ In 2005 dollars.
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DOE/FE Evaluation

    This export application will be reviewed pursuant to section 3 of 
the Natural Gas Act, as amended, and the authority contained in DOE 
Delegation Order No. 00-002.00G (Jan. 29, 2007) and DOE Redelegation 
Order No. 00-002.04C (Jan. 30, 2007). In reviewing LNG exports, DOE 
considers domestic need for the gas and any other issue determined to 
be appropriate, including whether the arrangement is consistent with 
DOE's policy of promoting competition in the marketplace by allowing 
commercial parties to freely negotiate their own trade arrangements. 
Parties that may oppose this application should comment in their 
responses on these issues. CPANGC and Marathon assert the proposed 
authorization is in the public interest. Under section 3 of the Natural 
Gas Act, as amended, an export from the United States to a foreign 
country must be authorized unless ``the proposed exportation will not 
be consistent with the public interest.'' Section 3 thus creates a 
statutory presumption in favor of approval of this application, and 
parties opposing the authorization bear the burden of overcoming this 
presumption.
    The National Environmental Policy Act (NEPA), 42 U.S.C. 4321 et 
seq., requires DOE to give appropriate consideration to the 
environmental effects of its proposed decisions. No final decision will 
be issued in this proceeding until DOE has met its NEPA 
responsibilities.

Public Comment Procedures

    In response to this notice, any person may file a protest, motion 
to intervene or notice of intervention, as applicable, and written 
comments. Any person wishing to become a party to the proceeding and to 
have their written comments considered as a basis for any decision on 
the application must file a motion to intervene or notice of 
intervention, as applicable. The filing of a protest with respect to 
the application will not serve to make the protestant a party to the 
proceeding, although protests and comments received from persons who 
are not parties will be considered in determining the appropriate 
action to be taken on the application. All protests, motions to 
intervene, notices of intervention, and written comments must meet the 
requirements specified by the regulations in 10 CFR part 590. Protests, 
motions to intervene, notices of intervention, requests for additional 
procedures, and written comments should be filed with the Office of Oil 
and Gas Global Security and Supply at the address listed above.
    A decisional record on the application will be developed through 
responses to this notice by parties, including the parties' written 
comments and replies thereto. Additional procedures will be used as 
necessary to achieve a complete understanding of the facts and issues. 
A party seeking intervention may request that additional procedures be 
provided, such as additional written comments, an oral presentation, a 
conference, or trial-type hearing. Any request to file additional 
written comments should explain why they are necessary. Any request for 
an oral presentation should identify the substantial question of fact, 
law, or policy at issue, show that it is material and relevant to a 
decision in the proceeding, and demonstrate why an oral presentation is 
needed. Any request for a conference should demonstrate why the 
conference would materially advance the proceeding. Any request for a 
trial-type hearing must show that there are factual issues genuinely in 
dispute that are relevant and material to a decision and that a trial-
type hearing is necessary for a full and true disclosure of the facts.
    If an additional procedure is scheduled, notice will be provided to 
all parties. If no party requests additional procedures, a final 
opinion and order may be issued based on the official record, including 
the application and responses filed by parties pursuant to this notice, 
in accordance with 10 CFR 590.316.
    The application filed by CPANGC and Marathon is available for 
inspection and copying in the Office of Oil and Gas Global Security and 
Supply docket room, 3E-042, at the above address. The docket room is 
open between the hours of 8 a.m. and 4:30 p.m., Monday through Friday, 
except Federal holidays. The application is also available 
electronically by going to the following Web address: http://www.fe.doe.gov/programs/gasregulation/index.html.

    Issued in Washington, DC, on March 2, 2007.
Robert F. Corbin,
Manager, Natural Gas Regulatory Activities, Office of Oil and Gas 
Global Security and Supply, Office of Fossil Energy.
[FR Doc. E7-4162 Filed 3-7-07; 8:45 am]
BILLING CODE 6450-01-P