Natural gas: Why are export terminal permits necessary?

Holland explains the story behind why the Department of Energy needs to approve the building of export terminals for liquified natural gas.

Rogelio V. Solis/AP/File
This October 2012 file photograph shows cooling towers at the KGen Power Corporation natural gas-fired plant in Jackson, Miss. While companies require a permit to export natural gas, coal was never considered for such regulation because it is not a ‘natural monopoly,’ Holland writes.

Last year, the Department of Energy (DOE) granted Cheniere Energy a permit to export liquefied natural gas (LNG) from a terminal at Sabine Pass in Louisiana. The terminal is currently used as an LNG import terminal, but the company has plans to convert it into an export terminal, with exports beginning by 2015. The permit has been challenged by the Sierra Club, but is expected to be approved.

However, there are about 15 total other permit applications outstanding, with only the one permit accepted. After approving exports from the Sabine Pass terminal, the Obama administration put a hold on further approvals until a Department of Energy study on the economic implications of exports is completed. That study was originally due out in March, then the DOE said it would be released by the end of the summer, now the study is expected before the end of the year. (Read more: Investment Opportunities in Natural Gas)

Complicating the picture further, there have been 18 permit applications to export LNG to countries with which the US has a Free Trade Agreement, of which 13 have been approved and 5 are pending.

When looking through all this, it was not clear to me why the Department of Energy needs to approve the building of export terminals for LNG. After all, there is no federal permit necessary to export coal or, for that matter, almost any other good or service (note: crude oil exports require a permit too – I will cover that in a future post).

History of Natural Gas Imports and Exports

After some digging, I learned that, under the Natural Gas Act of 1938, the Federal Power Commission (now defunct, with its powers transferred to the Secretary of Energy or the Federal Energy Regulatory Commission) was given jurisdiction over interstate trade of natural gas. As part of this act, it was made illegal to import or export natural gas without a permit. The law says the Department of Energy “shall issue” such a permit unless it finds the proposal to “not be consistent with the public interest.”

The reason for interstate regulation for natural gas when the bill was passed was that natural gas was a ‘natural monopoly’ similar to electric utilities or phone companies and therefore required government regulation. Because of the high infrastructure costs of building pipelines (akin to building power lines or telephone lines), the sellers of natural gas could exert monopoly power since they were usually the sole seller of gas to customers.

Exports to countries with which the U.S. has a Free Trade Agreement are subject to a lower level of regulatory scrutiny. Under the Energy Policy Act of 1992, Congress deemed that exports to countries with which the U.S. has a free trade agreement “shall be deemed to be consistent with the public interest, and applications for such importation or exportation shall be granted without modification or delay.” This provision was inserted to bring the US into compliance with the provisions of NAFTA, then being negotiated among the U.S., Canada, and Mexico(Read more: What’s So Bad About Exporting Gasoline?)

The Energy Policy Act of 2005 further updated the Natural Gas Act to include regulation of LNG import and export terminals – a technology that did not exist when the original legislation was being considered in 1938. The legislation included certain provisions meant to speed the approval process for LNG terminals. Ironically, the reasoning at that time was that the U.S. was due to begin importing LNG, and they would need to rapidly build new terminals.


So – while companies require a permit to export natural gas, coal was never considered for such regulation because it is not a ‘natural monopoly.’ On the contrary, coal companies in the 19th Century suffered from the monopolistic tendencies of the railroad companies, one of the major factors leading to the creation of the Interstate Commerce Commission (ICC) in 1887, and the ensuing ‘Trust Busting’ progressive era, led by Teddy Roosevelt.

It is interesting that a legislative history regarding monopoly power has created very different regulatory regimes for the exports of coal and natural gas. Each deserves government scrutiny to determine what is in the national interest, but current law only gives an opportunity for such scrutiny to gas exports, giving a regulatory boost to coal exports over gas. My preference would be to give gas exports a priority over coal, but current law leaves it with gas.

Source: Why Are Permits Needed for LNG Export Terminals?

You've read  of  free articles. Subscribe to continue.
Real news can be honest, hopeful, credible, constructive.
What is the Monitor difference? Tackling the tough headlines – with humanity. Listening to sources – with respect. Seeing the story that others are missing by reporting what so often gets overlooked: the values that connect us. That’s Monitor reporting – news that changes how you see the world.

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to

QR Code to Natural gas: Why are export terminal permits necessary?
Read this article in
QR Code to Subscription page
Start your subscription today