Natural gas is a fuel that can be used in many contexts, similar to gasoline, heating oil, and other crude-oil derivatives and is considered more environmentally friendly than oil derivatives. In its gaseous form, natural gas is transported by pipeline. LNG is natural gas cooled to -260 degrees Fahrenheit, at which point it becomes a liquid, and its volume is reduced by 600 times—allowing for ease of transportation via specialized LNG carriers over long distances. This cooling process takes place at liquefaction facilities. Figure 1 illustrates this process. Depending on the context, different units of measurement are used to describe volumes of natural gas and liquefied natural gas, as well as their respective energy content. For the purposes of this report, the conversions used are outlined in table 1. Through 2015, the United States has been a net importer of natural gas, along with Japan, India, South Korea, Taiwan, and others. Ocean transport of LNG began in the late 1950s and early 1960s. According to the International Gas Union, Japan and South Korea are currently the largest importers of LNG, and as of 2014, the largest supplier/exporter of LNG was Qatar, followed by Malaysia, Australia, Nigeria, Indonesia, Trinidad, and Algeria. As discussed in greater detail in the following section, according to DOE, the market for LNG has changed recently due mainly to technology enhancements in the extraction of natural gas from shale formations and changes in energy needs. Several federal agencies oversee or are involved in LNG exports or the U.S. maritime industry: Department of Energy: Under Section 3 of the Natural Gas Act (NGA), the import or export of LNG and the construction or expansion of LNG facilities requires authorization from DOE. In 1984, DOE delegated the responsibility to approve or deny applications for LNG facilities to the Federal Energy Regulatory Commission (FERC). Federal Energy Regulatory Commission: In keeping with its obligation to authorize LNG facility siting and construction under the NGA, FERC reviews applications to construct and operate LNG export facilities onshore or in state waters. FERC’s review is considered a federal action and subject to the National Environmental Policy Act (NEPA). Coast Guard: Within the Department of Homeland Security, the U.S. Coast Guard is responsible for administering and enforcing requirements for U.S.-flag registry (e.g., determining whether vessels meet U.S.-owned-and-built requirements). USCG is also responsible for credentialing mariners and maintains records on all mariners who hold valid merchant mariner credentials, including data on mariners who may serve on U.S.-flag vessels that support the DOD during times of war or national emergencies. Maritime Administration: MARAD’s mission is to foster and promote the U.S. Merchant Marine and the American maritime industry to strengthen the maritime transportation system—including the shipbuilding and repair industry—to meet the economic and national- security needs of the nation. MARAD administers the Federal Ship Financing Program (commonly referred to as Title XI based on the part of the Merchant Marine Act of 1936 that established the program), which provides a U.S. Government guarantee of private loans to (1) U.S. or foreign ship owners for the purpose of financing or refinancing either U.S. flag vessels or eligible export vessels constructed, reconstructed or reconditioned in U.S. shipyards and (2) U.S. shipyards for the purpose of financing advanced shipbuilding technology and modern shipbuilding technology of a privately owned, general shipyard facility located in the United States. In general, under the Federal Credit Reform Act of 1990, appropriations to cover the estimated subsidy costs of a project must be obtained prior to the issuance of any letter of commitments for loan guarantees. Department of Defense: As we have noted, the military strategy of the United States relies, in part, on the use of commercial U.S.- flagged ships and crews and the availability of a shipyard industrial base to support national defense needs. In addition to the roles described above MARAD and DOD jointly manage programs intended to increase capacity for the military, including those related to sealift capacity. Sealift is the process of transporting DOD’s and other federal agencies’ equipment and supplies required during peacetime and war. First, the Voluntary Intermodal Sealift Agreement (VISA) program was established to provide DOD with “assured access” to commercial sealift and intermodal capacity to support the emergency deployment and sustainment of U.S. military forces. To meet national defense or other security needs, DOD may use commercial sealift capacity, to the extent it is available, to meet ocean transportation requirements. This commercial sealift capacity includes U.S.-and-foreign- flagged vessels and/or intermodal capacity to support DOD’s needs. In the event voluntary capacity does not meet DOD’s contingency requirements, DOD may activate VISA as necessary. A second program, the Maritime Security Program (MSP), is administered by MARAD and is intended to guarantee that certain kinds of militarily useful ships and their crews will be available to DOD in a military contingency. Currently, MSP provides direct payment of $3.1 million per year for up to 60 militarily useful U.S.-flagged vessels participating in international trade to support DOD. DOT determines the commercial viability and DOD determines the military usefulness of vessels that seek participation in MSP. According to MARAD, as of October 2015, there were 165 large oceangoing vessels operating under the U.S. flag, 139 of which have been categorized as militarily useful. If needed, vessels in MSP would be activated through the VISA program. According to DOE, due to advances in extraction technologies and growing worldwide demand for natural gas, the United States is expected to become a net exporter of natural gas in the next few years. For decades the United States has been a net importer of natural gas, and as recently as just a few years ago the prospects that the U.S. would become a net exporter in this market seemed doubtful. For example, EIA’s Annual Energy Outlook 2011 did not have any projections for net exports of natural gas by the United States, but the next year’s Energy Outlook did show projected exports and those projections in more recent years have risen. According to EIA, this evolution in the U.S. natural gas industry relates to the discovery of more energy resources as well as advances in hydraulic- fracturing and horizontal-drilling technologies. Moreover, studies we reviewed noted that the pricing of natural gas in many other regions of the world has traditionally been linked to oil prices, while in the U.S. prices are set based on supply and demand conditions in North America. Economic theory suggests that these differing price mechanisms in various regions of the world have encouraged some companies to invest in U.S. natural-gas liquefaction and export facilities with the intent to profitably sell U.S. natural gas in other regions where natural gas prices have generally been higher, particularly when oil prices are high. More recently, however, DOE officials told us that as the LNG export market has developed, oil-linked pricing is coming under pressure as buyers are benefiting from more options and demanding more flexibility in their purchases. Nevertheless, demand for natural gas is expected to be strong with growing demand in the coming years. Beyond the cost of natural gas, there are other key costs that are important in determining U.S. competitiveness in the LNG export market. Unlike the transport of natural gas by pipeline, the transport of LNG requires the product to be stored and transported at extremely low temperatures, necessitating LNG carriers to have expensive technology to accommodate such cold-storage transport. In terms of transportation costs, the United States does not have an advantage over some other sources of natural gas or LNG for the large importing countries in Europe and Asia. For example, according to a study we reviewed as of now, much of Europe is supplied with natural gas by pipeline. As a result, LNG from the United States is less likely to be an economical source of natural gas to that region under many possible market conditions. While some Asian markets—notably Japan and Korea—have little pipeline gas supply, exports from planned liquefaction facilities in Australia and East African countries will have a proximity advantage (that is, shorter and thus likely less expensive transportation) to Asian countries over the United States. As such, according to economic reasoning, the question of the extent to which a cost advantage in gas supply is offset by cost disadvantages in transport plays an important role in determining U.S. competitiveness in the world LNG market. Recent investments in liquefaction facilities are an important indicator that market conditions are such that the United States is expected to be competitive in the market for LNG exports. Despite higher transportation costs for U.S. LNG as compared to LNG from other countries into key export markets in Asia, investors were willing to commit substantial resources to develop the liquefaction facilities needed for that trade, as evidenced by their construction. In particular, five large scale liquefaction facilities are currently under construction in the United States, with one facility expected to come online by the end of 2015 and all five facilities expected to be operational within about 3 years (see table 2). The total daily capacity of these five facilities is nearly 10-billion cubic feet (bcf) of natural gas, which constitutes about 12.4 percent of expected U.S. natural gas production and approximately 18.1 percent of the world’s expected LNG capacity in 2020. The business model used by the U.S. facilities currently under construction has helped to increase the business certainty of the liquefaction facilities, likely increasing their ability to obtain financing.