DOE Approves Third US LNG Export Project to Non-FTA Countries
On Wednesday, August 7, 2013, the US Department of Energy (US DOE) announced it had approved the third US LNG export project by granting Lake Charles Exports LLC conditional authorization to ship up to 2 Bcf/d of LNG to countries with which the US does not have a free trade agreement, so-called “non-FTA” countries.
The approval follows just a couple of months after the DOE gave the green light to Freeport’s export project.
The Lake Charles approval was sooner than many had expected but not soon enough for some US policy makers and industry leaders that have been pushing the White House to pick up the pace on approvals, claiming that the “window of opportunity” for US LNG exports was closing. U.S. Sen. Lisa Murkowski, R-Alaska, has been a vocal supporter of energy exports as a way to boost a struggling US economy. Just a day before the Lake Charles approval, Sen. Murkowski, the ranking member of the Senate Energy and Natural Resources Committee, released a white paper outlining her support for exporting LNG to non-FTA countries. Sen. Murkowski’s home state of Alaska currently has the only existing US LNG export facility, the tiny Kenai LNG facility, which came on-line in 1969 to export LNG to Japan. After more than 40 years of exports, Kenai LNG is currently sitting idle while more gas supplies are sought. Somewhat ironically, it has also been suggested that Kenai LNG might need to be converted to an LNG import terminal if gas production in the Kenai area isn’t sufficient to meet local demand.
With the latest approval of Lake Charles, the DOE still has about 20 pending applications to export LNG to non-FTA countries and still has not set out a timeline for additional approvals. For now, DOE has indicated it will review each application on a case-by-case basis while giving preference to companies that are already moving through the pre-filing process at the Federal Energy Regulatory Commission (FERC). The next project in the queue awaiting DOE's approval is Dominion Resources Inc.'s Cove Point, Md., LNG import terminal.
Heeding calls by a group of industrial users of natural gas and manufactures represented by America’s Energy Advantage the DOE indicated that it will continue to take a “measured approach” in reviewing the other pending applications and will continue to assess the cumulative impacts of each succeeding request for export authorization on the public interest with due regard to the effect on domestic natural gas supply and demand fundamentals. In keeping with the performance of its statutory responsibilities, DOE has the authority to attach appropriate and necessary terms and conditions to authorizations. For example, both the Freeport and Lake Charles projects had applied for a 25-year export period but the DOE reduced this to a 20-year term beginning from the date of first exports in part because the LNG Export Study that DOE commissioned to determine the economic benefits of LNG exports contained projections over a 20-year period.
Going forward, the DOE will continue to proceed with caution in approving additional export projects for several valid reasons the DOE has articulated:
(1) the LNG Export Study, like any study based on assumptions and economic projections, is inherently limited in its predictive accuracy;
(2) applications to export significant quantities of domestically produced LNG are a new phenomena with uncertain impacts; and
(3) the market for natural gas has experienced rapid reversals in the past and is again changing rapidly due to economic, technological, and regulatory developments.
In short, the DOE has correctly recognized that “The market of the future very likely will not resemble the market of today.”
Susan L. Sakmar is currently a visiting assistant law professor at the University of Houston Law Center and an expert on global gas markets, including LNG and global shale gas development. She is the author of the latest book on LNG,“Energy for the 21st Century: Opportunities and Challenges for LNG,”