00-10895. Office of Fossil Energy: Phillips Alaska Natural Gas Corporation and Marathon Oil Company; Application To Amend Authorization To Export Liquefied Natural Gas

AGENCY:

Office of Fossil Energy, DOE.

ACTION:

Notice of application.

SUMMARY:

The Office of Fossil Energy (FE) of the Department of Energy (DOE) gives notice of receipt of an application filed jointly on March 22, 2000, by Phillips Alaska Natural Gas Corporation (PANGC) and Marathon Oil Company (Marathon) to amend their authorization to export liquefied natural gas (LNG) from the Kenai peninsula of Alaska to Japan. The Applicants seek approval of a revision in the pricing provisions of their Japanese sales contracts. The application is filed under section 3 of the Natural Gas Act and DOE Delegation Order Nos. 0204-111 and 0204-127. Protests, motions to intervene or 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, June 1, 2000.

ADDRESSES:

Office of Natural Gas & Petroleum Import & Export Activities, 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:

Patrick J. Fleming, Allyson C. Reilly, Office of Natural Gas & Petroleum Import & Export Activities, Office of Fossil Energy, U.S. Department of Energy, Forrestal Building, Room 3E-042, 1000 Independence Avenue, SW, Washington, DC 20585, [phone], [phone].

Diane Stubbs, Office of the Assistant General Counsel for Fossil Energy, U.S. Department of Energy, Forrestal Building, Room 6E-042, GC-75, 1000 Independence Avenue, SW, Washington, DC 20585, [phone].

SUPPLEMENTARY INFORMATION:

PANGC, a Delaware corporation with its principal place of business in Bartlesville, Oklahoma, is a wholly owned subsidiary of Phillips Petroleum Company, a Delaware corporation. Marathon, an Ohio corporation with its principal place of business in Houston, Texas, is a wholly owned subsidiary of USX Corporation, also a Delaware corporation. PANGC and Marathon are not affiliated with each other. They own and operate natural gas liquefaction and marine terminal facilities at Kenai, Alaska.

The Applicants have maintained an uninterrupted export relationship with Japan's two largest utilities, The Tokyo Electric Power Company Inc. (Tokyo Electric) and Tokyo Gas Company Limited (Tokyo Gas) since 1967.^[1] The most recent of numerous amendments ^[2] to the Applicant's original export authorization was granted by DOE/FE Opinion and Order No. 1473 (Order 1473) on April 2, 1999. It extended their authority to export up to 64.4 trillion British thermal units (TBtus) ^[3] of LNG per year through March 31, 2009.^[4]

DOE/FE Opinion and Order No. 261-D, issued March 21, 1995, approved the currently authorized pricing formula applicable to the Applicants' LNG export sales.^[5] This formula is described in an April 19, 1994, “Third Amendatory Agreement” to the Applicants” June 17, 1988, LNG sales contract with Tokyo Electric and Tokyo Gas. It reflects the weighted average price over periods of three consecutive months relative to all crude oils imported into Japan each month. The crude oil prices are obtained from Japan Exports and Imports Monthly, a publication of the Japan Tariff Association. The arithmetic average price is subject to a ceiling of $26.00 per barrel and a floor of $13.00 per barrel. If the arithmetic price is outside this range, the formula provides for redetermination of the contract price.

In response to changes in the Japanese LNG markets, the parties met in 1999 to discuss the comparability of Alaska LNG pricing with that of other projects supplying LNG to Japan under long-term contracts. As a result of these discussions, they signed a “Fourth Amendatory Agreement” on November 16, 1999, which revises the authorized pricing formula. The applicants ask DOE to approve the new formula for use during the period April 1, 1998, to March 31, 2004.

Under the new formula proposed by the Applicants, the price is calculated monthly based primarily on the weighted average price of all crude oils imported into Japan in the third month prior to the time the LNG is unloaded. In addition, the revised price formula includes an adjustment factor to keep the Applicants' LNG competitive with other sales of LNG in the Japanese market.^[6] Redetermination of the contract price is triggered when the weighted average price of crude oil is outside the range of $11.00 to $25.00 per barrel.

The Applicants assert the revised formula is similar to the price formulas used by most other LNG projects that sell into the Japanese market. They also assert the new formula will permit “more market responsive” pricing, thereby maintaining the competitiveness of their LNG exports.

The application of PANGC and Marathon to amend their authorization to export LNG from Alaska to Japan will be reviewed pursuant to section 3 of the Natural Gas Act,^[7] as amended by section 201 of the Energy Policy Act of 1992 (Pub. L. 102-486), and the authority contained in DOE Delegation Order Nos. 0204-111 and 0204-127.^[8] Under section 3, an export from Alaska to a foreign country must be authorized unless there is a finding “it will not be consistent with the public interest.” ^[9] Section 3 thus creates a statutory presumption in favor of approval of this application which opponents bear the burden of overcoming.

Furthermore, in evaluating an export application, the Department applies the principles described in DOE Delegation Order No. 0204-111, which focuses primarily on domestic need for the natural gas to be exported and the Secretary's natural gas import policy guidelines, which presume trade arrangements freely negotiated by commercial parties will benefit the public.^[10]

The Department previously determined there is no domestic need for the LNG exports affected by the revised price formula and will evaluate the requested amendment based on whether it is in accord with DOE's international gas trade policy.^[11] Parties that may oppose this application should comment in their responses on this issue as it relates to the contract price revision. The Applicants assert the proposed amendment is in the public interest. Parties opposing the amendment bear the burden of overcoming this assertion.

NEPA Compliance

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 the basis for any decision on the application must, however, file a motion to intervene or notice of intervention, as applicable. The filing of a protest with respect to this 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 Natural Gas & Petroleum Import & Export Activities at the address listed above.

It is intended that a decisional record on this 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, a notice will provide notice 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 PANGC and Marathon is available for inspection and copying in the Natural Gas & Petroleum Import & Export Activities Docket Room, 3E-042, at the above address. The docket room is open between the hours of 8:00 a.m. and 4:30 p.m., Monday through Friday, except Federal holidays.

Issued in Washington, DC, on April 21, 2000.

John W. Glynn,

Manager, Natural Gas Regulation, Office of Natural Gas & Petroleum Import & Export Activities, Office of Fossil Energy.

Footnotes

1.  See Federal Power Commission Order issued April 19, 1967 (37 FPC 777).

2.  See DOE/ERA Opinion and Order No. 49 (1 ERA ¶70,116, December 14, 1982) (extended export authority); DOE/ERA Opinion and Order 49-A (I ERA 170,127, 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); DOE/ERA Opinion and Order No. 261 (1 ERA ¶ 70,130, July 28, 1988) (extended export authority); DOE/FE Opinion and Order No. 26 1-A (I FE ¶ 70,454, June 18, 1991) (amended pricing formula); DOE/FE Opinion and Order No. 26 1-B (I FE 170,506, December 19, 1991) (transferred authorization from Phillips 66 Natural Gas Company to PANGC; DOE/FE Opinion and Order 261-C (I FE ¶ 70,607, July 15, 1992) (increased annual export authority from 52 trillion Btu's to 64.4 trillion Btu's—the provision for yearly sales of up to 106 percent of annual contract quantity remained unchanged); DOE/FE Opinion and Order No. 26 1-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); and DOE/FE Opinion and Order No. 1473 (2 FE ¶ 70,317) (extended export authority).

3.  The gaseous equivalent to approximately 64.4 billion cubic feet.

4.  Order No. 1473 was issued in FE Docket No. 96-99-LNG.

5.  Supra note 2. DOE/ERA Opinion and Order No. 261, the lead Order in this sequence of authorizations, was issued July 28, 1988, in ERA Docket No. 88-22-LNG.

6.  For example, if the weighted average price of crude oil imported into Japan is $18.00 per barrel (equivalent to $3.10 per million Btu (MMBtu), DOE calculated the LNG would be sold for $3.37 per MMBtu using the current pricing scheme. In contrast, DOE estimated the LNG sales price would be $3.44 per MMBtu under the new contract methodology. (The heat content of one barrel of crude oil is approximately 5.8 MMBtu).

7.  15 U.S.C. § 717b.

8.  See 49 F.R. 6684, February 22, 1984. On January 6, 1989, certain functions including the regulation of natural gas imports and exports, were transferred from the Economic Regulatory Administration (a predecessor of FE) to FE. DOE Delegation Order No. 0204-127 specifies the transferred functions (54 FR 11436, March 20, 1989).

9.  See supra note 5.

10.  See 49 FR 6684, February 22, 1984. While those policy guidelines deal specifically with imports, the principles are applicable to exports as well (Yukon Pacific Corporation, DOE/FE Opinion and Order No. 350, 1 FE ¶ 70,259 (1989), reh'g denied, 1 FE ¶ 70,303 (1990).

11.  See supra note 2.