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DOE Lets Out A Little More of the Shale Gale

The U.S. Department of Energy (DOE) apparently has come to the conclusion that U.S. shale gas is too good a thing to not share with the rest of the world in larger quantities.

Last week, DOE conditionally authorized the export of up to 1.4 Bcf/d of liquefied natural gas (LNG) from the Freeport LNG Terminal on Quintana Island, TX, to non-Free Trade Agreement (FTA) countries for 20 years. It is the second such approval the department has granted, and numerous other projects are in line to see if/when they will secure the same.

The approval of exports from the terminal proposed by Freeport LNG Expansion LP and FLNG Liquefaction LLC, which would be built alongside the company's import terminal, came about 24 hours after new Secretary of Energy Ernest Moniz was approved by the U.S. Senate (see Daily GPI, May 17).

"The development of U.S. natural gas resources is having a transformative impact on the U.S. energy landscape, helping to improve our energy security while spurring economic development and job creation around the country," DOE said. "This increase in domestic natural gas production is expected to continue, with the Energy Information Administration (EIA) forecasting a record production rate of 69.3 Bcf/d in 2013."

It is the second export license to non-FTA countries to be granted by DOE. The department granted the first authorization to export LNG to non-FTA countries in May 2011 for the Sabine Pass LNG Terminal in Cameron Parish, LA, in the amount of up to 2.2 Bcf/d (see Daily GPI, May 23, 2011).

The Freeport export facility is one of four proposed export terminals that have made it through the Federal Energy Regulatory Commission's (FERC) pre-filing process and is at the stage of seeking a certificate for construction of the terminal (see Daily GPI, April 17).

Just hours after Moniz was confirmed by the Senate Thursday, industry groups began calling for the new energy secretary to approve LNG export applications. "We look forward to working with the secretary and urge him to quickly approve LNG export applications," said Jack Gerard, president of the American Petroleum Institute. "With his confirmation complete, Moniz is now in a position to conclude the extensive review of...pending LNG export permits and accelerate the approval process," said Bill Cooper, president of the Center for LNG.

The U.S. Chamber of Commerce, a free trade proponent, applauded the DOE decision and the next step toward domestic natural gas exports. Karen Harbert, CEO of the Chamber's Institute for 21st Century Energy, said the action "represents an important next step in the recognition that America is well positioned to be a global energy leader. American innovation and a greater understanding of our resources has made it clear that we are now in a position to become more self-reliant and still be able to export energy resources as market conditions warrant."

Exports to countries that are parties to an FTA with the United States are presumed to be in the public interest and are routinely approved. For countries that do not have an FTA with the United States, the Natural Gas Act directs DOE to grant export authorizations unless it finds that the proposed exports "will not be consistent with the public interest."

In many cases, the proposed U.S. LNG export projects need non-FTA export authorization -- and the wider variety of potential LNG markets it provides -- in order to go forward. However, some project backers, for instance Kinder Morgan Inc., have said their projects can proceed even without non-FTA authorization.

Kinder Morgan has two terminals at which it is planning export capabilities: the Gulf LNG Terminal in Pascagoula, MS; and the Elba Island LNG facility in Georgia. Both have FTA export approval. "We believe we will be able to put together a project at Elba that will be non-FTA, and it will have some optionality to expand if and when we got [non-FTA export approval]," CEO Rich Kinder said last fall (see Daily GPI, Oct. 19, 2012).

In recent days, rumors of imminent action by DOE on the export question were being heard. During a recent earnings conference call, executives with Energy Transfer Partners LP (ETP), which is seeking non-FTA authorization for its Trunkline LNG Gulf Coast terminal, sounded like children waiting up for Santa. "...[W]e are very optimistic that within a short period of time, within 60-90 days, that we will receive our non-FTA permit..." said ETP COO Mackie McCrea (see Daily GPI, May 10).

For Freeport DOE said it conducted "an extensive, careful review of the application" for non-FTA export status. It considered the economic, energy security and environmental impacts -- as well as public comments for and against the application and nearly 200,000 public comments related to the associated analysis of the cumulative impacts of increased LNG exports -- and determined that export from the terminal at a rate of up to 1.4 Bcf/d for a period of 20 years was not inconsistent with the public interest, the agency said.

The Dow Chemical Co. had been a vocal opponent of exporting domestic gas for fear that it would raise the price of the commodity in the United States where it uses natural gas as a fuel and a feedstock (see Shale Daily, March 12). However, the company later changed its tune, emphasizing the need for a balanced approach to export approvals. On Friday Dow said it supported DOE's action on Freeport LNG. "The DOE appropriately executed a public interest determination as obligated under the law. As the DOE considers remaining requests, it is important we create an environment that fosters production and smart regulation," Dow said.

LNG export foe and Senate Energy and Natural Resources Committee Chairman Ron Wyden (D-OR) (see Daily GPI, Jan. 11) appeared to soften his tone on the export question following the DOE announcement. "The Department of Energy's announcement today that it will be making export decisions on a case-by-case basis provides a constructive way for this discussion to go forward that's consistent with my belief that a measured approach on exports will provide the greatest advantage for the U.S economy," Wyden said.

Independent Petroleum Association of America (IPAA) CEO Barry Russell said, "Natural gas exports have the potential to provide a market for America's abundant natural gas supplies, which will allow the U.S. to take advantage of the economic and security gains that follow from a freer market of natural gas."

America's Natural Gas Alliance (ANGA) COE Marty Durbin was pleased with the DOE action, but he urged haste at the agency. "While this is a positive step, we would like for the administration to pick up the pace of approvals so that the markets can decide which projects go forward," Durbin said. "Experts ranging from the Energy Department, to the Brookings Institution, to Deloitte and others have all examined the potential impact of natural gas exports on our economy, and have identified a wide range of benefits."

The Sierra Club has argued against LNG exports on the basis that they would stimulate natural gas demand and, consequently, more hydraulic fracturing well stimulation in shale gas plays. The environmental group didn't try to hide its disappointment Friday. "...[T]he additional fracking and gas production exports would induce is unacceptable," the group said. "For the public good, natural gas needs to stay in the ground, and the administration needs to double down on clean energy..."

If the Freeport liquefaction and export project advances, it will do so in a crowded market. According to analysts at Barclays Commodities Research, 14 liquefaction plants are currently under construction around the world, representing 9.8 Bcf/d, or 75 million tonnes per annum (mtpa) of capacity slated to come online from 2013 to 2017. "Another 1.9 Bcf/d (14.5 mtpa) targeting start-ups in the same period has reached final investment decision and are awaiting the start of construction," Barclays said in a note Friday. "In total, 11.7 Bcf/d (89.6 mtpa) will likely come on stream by 2017."

DOE said it will continue to process the applications for non-FTA export currently pending on a case-by-case basis, "in the order of precedence" previously detailed. In December, DOE said that if it decided to approve broad exports to the world market, it would consider first those projects that already had begun the lengthy review that the FERC conducts before it approves the siting and construction plans of export facilities (see Daily GPI, Feb. 12; Dec. 7, 2012).

As further information becomes available at the end of the year, including the EIA's 'Annual Energy Outlook Report,' DOE said it will "assess the impact of any market developments on subsequent public interest determinations."

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