Watson: Implications of LNG Pause

Monique Watson is a partner in the Washington, D.C., office of Vinson & Elkins, where she advises energy clients on legal and regulatory requirements, particularly in the area of oil and gas pipelines.

The U.S. Energy Information Administration recently issued a report on the impact of LNG exports on the U.S. natural gas market, stating “the United States became the world’s largest LNG exporter during the first half of 2022, when U.S. LNG exports averaged nearly 11.2 billion cubic feet per day.”

Despite acknowledging the U.S.’ LNG worldwide dominance, in January 2024, the Biden administration announced a “temporary pause on [the U.S. Department of Energy’s] pending decisions on exports” of LNG to non-Free Trade Agreement countries until the DOE “can update the underlying analyses for authorizations.”

DOE is undertaking a major review of the analysis to determine when exports of LNG to non-FTA countries are in the public interest. This analysis will be subject to public comment once it is updated. (Ironically, with drone attacks and global conflicts changing by the day, there is an exception to the LNG pause for unanticipated and immediate national security emergencies.)

The U.S. has 14 FTAs with 20 countries that comprise about 40% of U.S. goods exports. That means there are far more non-FTA countries than FTA countries.

Potential implications

The Natural Gas Act provides the statutory regime that governs the “exportation of natural gas in foreign commerce.” NGA section 3 prohibits any person from exporting natural gas to a foreign country without receiving authorization from the Federal Energy Regulatory Commission. FERC is responsible for “approv[ing] or deny[ing] an application for the siting, construction, expansion or operation of an LNG terminal.”

DOE has exclusive jurisdiction over authorizing exports of the LNG commodity by evaluating “whether authorizations for the export of LNG” to non-FTA countries “is consistent with the ‘public interest.’” DOE’s current LNG analyses “are roughly five years old.” Exports to FTA countries are automatically deemed to be in the public interest.

Regulatory uncertainty

The historic consistency and predictability of the LNG application review process at FERC and DOE has facilitated the development of LNG since 2016. The DOE LNG pause, regardless of its alleged temporary duration, creates regulatory uncertainty for pending LNG projects and new LNG applications before FERC and DOE. And our allies worldwide, who depend on U.S. exports as they try to move away from hostile nation energy supplies, are equally uncertain about the goal of this pause.

At FERC, the LNG pause may impact projects in the pre-filing stage and pending LNG applications. Nonetheless, it has been reported that FERC will continue to evaluate and process LNG applications. While this sounds positive, FERC is down to three commissioners, and Commissioner Allison Clements has announced that she is not seeking a second term after her term expires on June 30. If Clements leaves before one or more new commissioners is confirmed, FERC will be without a quorum and unable to act on LNG applications. This possibility of delay creates regulatory uncertainty for LNG applicants.

DOE’s LNG pause, coupled with its April 2023 policy statement affirming the seven-year deadline for authorization holders to commence exports of LNG to non-FTA countries, demonstrates that LNG applicants are facing great regulatory uncertainty. LNG developers need the ability to export LNG to FTA and non-FTA countries.

National security

The White House stated that “the U.S. remains unwavering in our commitment to supporting our allies around the world” and that the LNG export pause “will not impact” the U.S. from “supplying LNG to our allies in the near-term.” Since 2023, roughly half of U.S. LNG exports went to Europe, and many of those countries are non-FTA countries. Indeed, as the war between Ukraine and Russia staggers forward, the U.S.’ LNG exports are more critical than ever.

Recognizing the importance of LNG domestically and worldwide, the Senate Energy and Natural Resources Committee held a hearing in February to examine DOE’s LNG pause. Sen. Joe Manchin (D-W.Va.) stated that the U.S.’ “first priority is ensuring that none of our exports harm U.S. families, businesses or our economy,” and the U.S. also has “a responsibility to our allies and trading partners who may have no other choice but to turn to countries that don’t share our values if they can’t count on American support.” He also expressed concern that “politicizing LNG exports is reckless and dangerous, and it could empower and enrich Russia, Qatar and Iran.”

Critical questions remain. Will DOE’s LNG pause result in limiting LNG exports to those applicants who have already received authority to export LNG to non-FTA countries? If so, will the existing LNG terminals be able to accommodate the increasing gas supply? Will DOE’s LNG pause have negative impacts on other domestic end users or any positive impact on climate change? In the short term, DOE’s pause creates regulatory and national security uncertainties both at home and abroad.