Movement on US LNG Export Projects
The LNG export stalemate that has long plagued US liquefaction project proponents this month made a breakthrough.
Freeport LNG has inched that much closer to joining the ranks of Cheniere Energy after securing consent to ship out LNG to an unlimited list of importing countries.
The Department of Energy’s approval is at this point conditional upon environmental issues, but nonetheless marks an important and long-awaited step towards the US monetising its abundant shale gas resources on the global stage.
Cheniere’s Sabine Pass LNG was the first and until recently, only, export project to win government approval to send the fuel to countries which do not hold a free trade agreement with the US.
Following this decision, the energy department went into lockdown while it reviewed just how much US gas should be made available for export, leaving a host of wannabe-developers in limbo waiting for the next “yes”.
The US was once set to be a huge LNG importer, leading developers to build numerous regasification terminals.
The relatively recent discovery of shale gas resources in North America has changed the picture dramatically.
With its own domestic reserves, the import of natural gas from overseas has become largely unviable, prompting many companies to either abandon new plans for regas or adapt online terminals to incorporate liquefaction capabilities.
This, along with several new export-only projects, has elevated the US into a position of great interest as a potential LNG supplier.
Large corporations throughout the world have been champing at the bit to secure stakes in projects or off-take agreements for the LNG volumes.
Holding up progress, however, was political unease over how much of the volumes should be kept for domestic consumption and concerns over the price implications of exporting natural gas.
The Department of Energy, responsible for deciding the fate of export applications, had postponed any decision-making on other LNG projects while it waited on the results of a two-part study into the matter.
The LNG Export Study was completed and put out for public comment in December 2012.
It consisted of an Energy Information Administration analysis looking into the effect of increased natural gas exports on domestic energy markets and an independent study from NERA Economic Consulting considering the macroeconomic impacts of LNG exports from the US.
According to NERA, in each scenario it considered, “the US was projected to gain net economic benefits from allowing LNG exports. Moreover, for every one of the market scenarios examined, net economic benefits increased as the level of LNG exports increased”.
The study also concluded that “natural gas price changes attributable to LNG exports remain in a relatively narrow range across the entire range of scenarios”.
The DoE intends to use the LNG Export Study as a reference point when reviewing applications.
In developer Flex LNG’s application for the Freeport project, the DoE said: “by three measures of supply, there are adequate natural gas resources to meet demand associated with the Flex application.
“Because these supply estimates have changed over time, however, DoE will continue to monitor them to inform future decisions.”
“We hasten to add that DoE will take a measured approach in...reviewing the other pending applications to export domestically produced LNG.
“Specifically, DoE will 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.”
The DoE said it did not yet deem it necessary to make a decision on the volume of exports it ultimately expects to approve.
“In issuing this [Freeport] order, DOE makes no decisions regarding any future cases,” said the department.
The approval of Freeport’s project is therefore by no means set to open the floodgates for further approvals.
This regulatory uncertainty over LNG exports from the US does not seem to have quashed interest, however.
The DoE is currently reviewing 20 applications for long-term export of LNG to non-FTA countries. These requests total around 26 billion cubic feet per day of LNG. Some developers have filed several applications covering expansion volumes at the same project.
Meanwhile, the Federal Energy Regulatory Commission, responsible for OK-ing the infrastructure-side of such projects, has recently put out a list of proposed and potential projects.
This shows 12 liquefactions plans which have been submitted to FERC so far, along with a further six potential US sites identified by project sponsors.
Such a large number of potential LNG plants shows developers have confidence in the natural gas reserves available in the US. It remains to be seen how much the government will get behind exports to allow these projects to reach fruition.
Rachael Meredith