[Federal Register Volume 83, Number 243 (Wednesday, December 19, 2018)]
[Rules and Regulations]
[Pages 65078-65080]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-27449]



[[Page 65078]]

-----------------------------------------------------------------------

DEPARTMENT OF ENERGY

10 CFR Part 590


Eliminating the End Use Reporting Provision in Authorizations for 
the Export of Liquefied Natural Gas

AGENCY: Office of Fossil Energy, Department of Energy.

ACTION: Policy statement.

-----------------------------------------------------------------------

SUMMARY: The Department of Energy's Office of Fossil Energy (DOE/FE) is 
discontinuing its practice, adopted in 2016, of including an ``end 
use'' reporting provision in orders authorizing the export of 
domestically produced natural gas, including liquefied natural gas 
(LNG), issued under section 3 of the Natural Gas Act (NGA). Under this 
practice, many authorization holders are currently required to track 
and report the country (or countries) of destination into which their 
exported LNG or natural gas was ``received for end use.'' Due to 
practical concerns about this reporting requirement and a 
reconsideration of the need for the requirement given those concerns, 
DOE/FE has determined that it is prudent to discontinue this 
requirement in export authorizations going forward. DOE/FE will revert 
to its prior practice of requiring authorization holders to report, in 
relevant part, the country (or countries) into which the exported LNG 
or natural gas ``was actually delivered.'' DOE/FE believes this action 
will enhance the accuracy of information provided by authorization 
holders and will reduce administrative burdens for the U.S. LNG export 
market. This policy statement affects only future export authorizations 
issued by DOE/FE. However, concurrently with the issuance of this 
policy statement, DOE/FE is issuing a blanket order removing the end 
use provision from applicable existing export authorizations issued 
from February 2016 to present.

DATES: This policy statement is effective on December 19, 2018.

FOR FURTHER INFORMATION CONTACT: Amy Sweeney, U.S. Department of Energy 
(FE-34), Office of Regulation, Analysis, and Engagement, Office of 
Fossil Energy, Forrestal Building, Room 3E-042, 1000 Independence 
Avenue SW, Washington, DC 20585, (202) 586-2627, email: 
[email protected]; or Cassandra Bernstein or Shawn Flynn, U.S. 
Department of Energy (GC-76), Office of the Assistant General Counsel 
for Electricity and Fossil Energy, Forrestal Building, Room 6D-033, 
1000 Independence Avenue SW, Washington, DC 20585, (202) 586-9793 or 
(202) 586-5359, email: [email protected] or 
[email protected].

SUPPLEMENTARY INFORMATION:
I. Statutory Background
II. Regulatory Background
III. Policy Statement
IV. Administrative Benefits
V. Approval of the Office of the Secretary

I. Statutory Background

    The Department of Energy is responsible for authorizing exports of 
natural gas to foreign nations pursuant to section 3 of the NGA, 15 
U.S.C. 717b.\1\ Under section 3(c) of the NGA, exports of natural gas 
to countries with which the United States has entered into a free trade 
agreement (FTA) requiring national treatment for trade in natural gas 
and with which trade is not prohibited by U.S. law or policy (FTA 
countries) are ``deemed to be consistent with the public interest.'' 
Therefore, applications authorizing natural gas and LNG exports to FTA 
countries must be granted ``without modification or delay.'' \2\ 
Section 3(a) of the NGA governs exports to any other country with which 
trade is not prohibited by U.S. law or policy (non-FTA countries). DOE 
has consistently interpreted section 3(a) of the NGA as creating a 
rebuttable presumption that a proposed export of natural gas to non-FTA 
countries is in the public interest.\3\ Accordingly, DOE conducts an 
informal adjudication and grants the application unless DOE finds that 
the proposed exportation to non-FTA countries will not be consistent 
with the public interest.\4\
---------------------------------------------------------------------------

    \1\ The authority to regulate the imports and exports of natural 
gas, including liquefied natural gas, under section 3 of the NGA (15 
U.S.C. 717b) has been delegated to the Assistant Secretary for 
Fossil Energy in Redelegation Order No. 00-006.02, issued on 
November 17, 2014.
    \2\ 15 U.S.C. 717b(c). The United States currently has FTAs 
requiring national treatment for trade in natural gas with 
Australia, Bahrain, Canada, Chile, Colombia, Dominican Republic, El 
Salvador, Guatemala, Honduras, Jordan, Mexico, Morocco, Nicaragua, 
Oman, Panama, Peru, Republic of Korea, and Singapore. FTAs with 
Israel and Costa Rica do not require national treatment for trade in 
natural gas.
    \3\ See Sierra Club v. U.S. Dep't of Energy, 867 F.3d 189, 203 
(D.C. Cir. 2017) (``We have construed [NGA section 3(a)] as 
containing a `general presumption favoring [export] authorization.' 
'') (quoting W. Va. Pub. Serv. Comm'n v. U.S. Dep't of Energy, 681 
F.2d 847, 856 (D.C. Cir. 1982)).
    \4\ See id. (``there must be `an affirmative showing of 
inconsistency with the public interest' to deny the application'' 
under NGA section 3(a)) (quoting Panhandle Procedures & Royalty 
Owners Ass'n v. Econ Regulatory Admin., 822 F.2d 1105, 1111 (D.C. 
Cir. 1987)).
---------------------------------------------------------------------------

II. Regulatory Background

    DOE's regulations implementing section 3 of the NGA are codified at 
10 CFR part 590. Under 10 CFR 590.404, DOE/FE 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.'' \5\ In the long-term and short-term export 
authorizations issued by DOE/FE to date (both to FTA and non-FTA 
countries), DOE/FE imposes conditions on the authorization holder.\6\ 
These conditions include certain reporting requirements, including 
those described below.
---------------------------------------------------------------------------

    \5\ 10 CFR 590.404 (emphasis added).
    \6\ The terms ``authorization'' and ``order'' are used 
interchangeably for purposes of this policy statement.
---------------------------------------------------------------------------

A. Long-Term LNG Export Authorization Orders--2011 to January 2016

    In 2011, DOE/FE issued its first long-term export authorization to 
a LNG export project to be located in the lower-48 states. From that 
time through January 2016, DOE included two reporting provisions in 
every long-term LNG export authorization order that are relevant here.
    First, DOE/FE required the long-term LNG export authorization 
holder to include the following provision in any agreement or other 
contract for the sale of LNG exported pursuant to its authorization:

    Customer or purchaser acknowledges and agrees that it will 
resell or transfer U.S.-sourced natural gas in the form of LNG 
purchased hereunder for delivery to the countries identified . . ., 
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 [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, and to include 
in any resale contract for such LNG the necessary conditions to 
insure that [the long-term LNG export authorization holder] is made 
aware of all such actual destination countries.

    Second, as part of the monthly reporting requirements imposed as a 
condition in these long-term LNG export authorization orders, DOE/FE 
required the authorization holder to report, for each LNG cargo, ``the 
country (or countries) of destination into which the exported LNG was 
actually delivered.''
    Importantly, for all the orders issued during this timeframe, this 
language remains in effect. DOE/FE did not amend those orders to change 
these two reporting provisions and is not doing so through this policy 
statement. However, beginning in February 2016, DOE/FE incorporated 
different language for these two reporting provisions in long-term

[[Page 65079]]

(and some short-term) LNG export authorization orders, as explained 
below.

B. Long-Term LNG Export Authorization Orders--February 2016 to Present

    On February 5, 2016, DOE/FE granted the applications of certain 
Canadian companies requesting authorization to export U.S.-sourced 
natural gas by pipeline to Canada, where the companies planned to 
export U.S. natural gas to Canada by pipeline, then liquefy the U.S. 
natural gas and export it in the form of LNG to other countries.\7\ 
These applications raised novel legal and policy considerations. In 
particular, DOE/FE was concerned about the potential for U.S.-sourced 
natural gas to be exported to a neighboring FTA country (Canada or 
Mexico), then re-exported as LNG from those countries to non-FTA 
countries without DOE/FE having knowledge of the final destination 
country. Such a situation could lead to a company attempting to 
circumvent the public interest review requirement of NGA section 3(a) 
by transiting U.S.-sourced natural gas through a FTA country to a non-
FTA country. Additionally, as the U.S. LNG export market developed, 
DOE/FE sought greater transparency about where U.S.-sourced natural gas 
was being delivered and used around the world.
---------------------------------------------------------------------------

    \7\ See Bear Head LNG Corp. and Bear Head LNG (USA), DOE/FE 
Order No. 3770, FE Docket No. 15-33-LNG, Opinion and Order Granting 
Long-Term, Multi-Contract Authorization to Export U.S.-Sourced 
Natural Gas by Pipeline to Canada for Liquefaction and Re-Export in 
the Form of Liquefied Natural Gas to Non-Free Trade Agreement 
Countries (Feb. 5, 2016); Pieridae Energy (USA) Ltd., DOE/FE Order 
No. 3768, FE Docket No. 14-179-LNG, Opinion and Order Granting Long-
Term, Multi-Contract Authorization to Export U.S.-Sourced Natural 
Gas Natural Gas by Pipeline to Canada for Liquefaction and Re-Export 
in the Form of Liquefied Natural Gas to Non-Free Trade Agreement 
Countries (Feb. 5, 2016).
---------------------------------------------------------------------------

    To address these issues, DOE/FE began adding an ``end use'' 
reporting requirement as a condition to all long-term (and some short-
term) LNG export authorizations issued on or after February 5, 2016. At 
that time, DOE/FE did not find that the addition of this end use 
provision required notice in the Federal Register.
    Under this provision, authorization holders are currently required 
to include the following provision in any agreement or other contract 
for the sale or transfer of LNG exported pursuant to its long-term LNG 
export authorization:

    Customer or purchaser acknowledges and agrees that it will 
resell or transfer U.S.-sourced natural gas in the form of LNG 
purchased hereunder for delivery to the countries identified in . . 
. 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 [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, and to include in any resale contract for such LNG the 
necessary conditions to insure that [the long-term LNG export 
authorization holder] is made aware of all such actual destination 
countries.

    Likewise, as part of the monthly reporting requirements, 
authorization holders are required to report, for each LNG cargo, ``the 
country (or countries) of destination into which the exported LNG was 
actually delivered and/or received for end use.''
    In its orders, DOE/FE has defined ``end use'' to mean ``combustion 
or other chemical reaction conversion process (e.g., conversion to 
methanol).'' \8\ To date, DOE/FE has included this end use provision in 
more than 40 export authorization orders.
---------------------------------------------------------------------------

    \8\ See, e.g. Pieridae Energy (USA) Ltd., DOE/FE Order No. 3639, 
FE Docket No. 14-179-LNG, Order Granting Long-Term, Multi-Contract 
Authorization to Export Natural Gas to Canada and to Other Free 
Trade Agreement Nations (May 22, 2015) at 3 n. 7.
---------------------------------------------------------------------------

III. Policy Statement

    DOE/FE has become aware that it is impracticable, if not 
impossible, for authorization holders to comply with the end use 
reporting requirement. For example, a cargo of LNG could be offloaded 
and regasified in one country, and a portion of the U.S. natural gas 
could be re-exported by pipeline to another country or countries--
without the direct knowledge or control of the parties to the initial 
export from the United States. As another example, an offloaded volume 
of U.S. LNG could be commingled with non-U.S. LNG before it is 
delivered to the end user. Some portion of this mixture could be 
reloaded and relocated to another country or countries before it is 
delivered to the end user, again without the direct knowledge or 
control of the parties to the initial U.S. export. In light of these 
possibilities, companies have expressed concern that the end use 
provision could put their export authorization(s) in jeopardy if they 
cannot strictly comply with it--i.e., if they are unable to determine 
exactly where their exports were ``received for end use.''
    Most recently, on October 29, 2018, Sempra LNG & Midstream, LLC 
(Sempra) filed comments in a different DOE/FE proceeding but 
preemptively raised the following concern about the end use reporting 
requirement: \9\
---------------------------------------------------------------------------

    \9\ Sempra LNG & Midstream, LLC, Info. Collection Extension, OMB 
Control No. 1901-0294, Form FE-746R Natural Gas Imports and Exports, 
at 4 (Oct. 29, 2018).

    [A]uthorization holders and Registrants may have limited 
visibility into the final end use country once a cargo of LNG has 
been delivered[.] . . . The inherent fungibility of natural gas 
poses a particular challenge for authorization holders, Registrants, 
and their customers in tracking molecules of the commodity to their 
ultimate end use destination.'' \10\
---------------------------------------------------------------------------

    \10\ Id. at 5.

    Upon review of this issue, DOE/FE has determined that it is prudent 
to revert to the original (i.e., pre-February 2016) destination 
language, which requires authorization holders to report the country 
(or countries) into which the exported LNG or natural gas ``was 
actually delivered''-- not ``received for end use.''
    Based on its analysis of the LNG export market, DOE/FE believes 
this change is in the public interest. DOE has determined that, for the 
reasons described herein, there is currently insufficient concern about 
authorization holders attempting to circumvent the public interest 
review process for non-FTA exports to justify an end-use reporting 
requirement--particularly given the compliance difficulties encountered 
by authorization holders. Among other reasons, all U.S. LNG export 
terminals operating or currently under construction have long-term 
authorization to export to both FTA and non-FTA countries. Second, 
presently there is no LNG ``hub'' located in a FTA country. Although 
the development of a LNG hub that facilitates physical trades in a FTA 
country could present an opportunity to transit U.S.-sourced natural 
gas through a FTA country to a non-FTA country, DOE/FE believes this 
risk is small given the development and transparency of the LNG export 
market at this time. Finally, re-exports of all LNG cargoes represent a 
very small percentage of LNG trade.\11\
---------------------------------------------------------------------------

    \11\ See, e.g., Internat'l Gas Union, 2018 World LNG Report, at 
7, available at: https://www.igu.org/sites/default/files/node-document-field_file/IGU_LNG_2018_0.pdf (``Globally-traded LNG 
volumes increased by 35.2 [million tons] MT in 2017, setting a new 
annual record of 293.1 MT. . . . After remaining stable during 2016, 
global re-export activity dropped by 39% [year-on-year], with only 
2.7 MT re-exported by 11 countries during the year . . . .'').
---------------------------------------------------------------------------

    For these reasons, DOE gives notice that DOE/FE is discontinuing 
its practice of including an end use provision in any export 
authorizations issued pursuant to section 3 of the NGA. In future long-
term LNG export

[[Page 65080]]

authorization orders, DOE/FE will revert to its prior practice of 
requiring authorization holders to report, in relevant part, the 
country (or countries) into which the exported LNG or natural gas ``was 
actually delivered.'' In keeping with current practice, if a cargo of 
LNG exported from the United States makes multiple physical deliveries 
(a ``split cargo''), each country receiving delivery of U.S. LNG must 
be reported as a destination.
    This policy statement applies only to future orders. Concurrently 
with this policy statement, DOE/FE is issuing a blanket order to remove 
the end use provision from existing authorizations issued on or after 
February 5, 2016.\12\ DOE/FE has included a list of the affected export 
authorizations in that blanket order.\13\
---------------------------------------------------------------------------

    \12\ See U.S. Dep't of Energy, DOE/FE Order No. 4322, FE Docket 
Nos. 14-179-LNG, et al., Order Removing End Use Reporting Provision 
from Existing Export Authorizations (Dec. 13, 2018).
    \13\ Id. (Appendix).
---------------------------------------------------------------------------

IV. Administrative Benefits

    In this policy statement, DOE/FE is not proposing any new 
requirements for applicants or authorization holders under 10 CFR part 
590. Rather, DOE/FE's intent is twofold: To enhance the accuracy of LNG 
reporting information provided by authorization holders, and to 
minimize administrative burdens on authorization holders in the U.S. 
LNG export market and those who may purchase U.S. LNG.

V. Approval of the Office of the Secretary

    The Secretary of Energy has approved publication of this policy 
statement.

    Signed in Washington, DC, on December 13, 2018.
Steven E. Winberg,
Assistant Secretary for Fossil Energy Office of Fossil Energy.
[FR Doc. 2018-27449 Filed 12-18-18; 8:45 am]
 BILLING CODE 6450-01-P