Although several companies hope one day to export liquefied natural gas (LNG) from export facilities in North America, analysts at Scotland’s energy analyst group Wood Mackenzie warn that the prospects for many domestic exports are far from certain.

In a report released Wednesday, the global energy and mining research and advisory firm said the U.S. Department of Energy’s (DOE) process for approving additional LNG export licenses was becoming increasingly politicized.

“For projects able to deliver in the short window before 2018, U.S. LNG exports into the Pacific, in particular, could feature payback periods of less than five years, so U.S. LNG projects able to move quickly enjoy significant first-mover advantages,” said Noel Tomnay, the firm’s head of global gas research. “However, overall capacity build will likely be constrained by the speed at which liquefaction facilities can be developed to meet this window, with their progress slowed by environmental and regulatory hurdles.”

Those hurdles include a study on the potential macroeconomic impact of LNG exports on domestic natural gas prices (see Daily GPI, March 5). Results from the study, which is being conducted by an undisclosed private consultant for the DOE, are expected this spring.

“Given these hurdles, U.S. LNG exports are likely to be under 3.5 Bcf/d (28 million tons per annum, or MMtpa) in the time frame to 2018, less than the 4-12 Bcf/d (31-94 MMtpa) envisaged by the EIA [U.S. Energy Information Administration] in its rapid and slow ramp-up scenarios,” Tomnay said.

Cheniere Energy Partners LP, through its proposed Sabine Pass Liquefaction LLC facilities in Cameron Parish, LA, holds the only license from DOE’s Office of Fossil Energy to export LNG to nonfree trade agreement (FTA) countries (see Daily GPI, May 23, 2011). Other applications to export U.S. LNG to non-FTA countries are on hold, pending the results of the macroeconomic study. But Wood Mackenzie cautioned that it was possible the DOE could ultimately decide to restrict the number and volume of export licenses to non-FTA countries, pointing out that current applicants are proposing to export a combined 12.5 Bcf/d (97.5 MMtpa) of U.S. LNG.

“Export licenses for non-FTA countries could be determined by proposed projects’ place in the filing queue, with those that submitted early better positioned, particularly if a cap is imposed,” Tomnay said. “This could result in capacity being approved which may not be the most technically or commercially viable, possibly restricting the pace of capacity build further.”

Sabine Liquefaction has signed LNG sale and purchase agreements with four companies in the last four months — Korea Gas Corp. (Kogas), BG Group plc, Gail (India) Ltd. and Gas Natural Fenosa — for a combined 2.1 Bcf/d of LNG (see Daily GPI, Jan. 31; Jan. 27; Dec. 13, 2011; Nov. 22, 2011).

Wood Mackenzie said the recent fast pace of U.S. LNG contracting had more to do with a tightening global LNG market rather than a weak North American gas market. The analysts warn that Pacific prices will weaken as more U.S. projects — including the redevelopment of existing regasification facilities and brownfield development — are brought online.

“While brownfield projects are expected to be lower cost than greenfield facilities, not all brownfield sites are created equal,” said Amber McCullagh, senior analyst for Wood Mackenzie’s North American gas research. “The best brownfield sites can be redeveloped into liquefaction at levelized costs of $2.50/MMbtu. But sites with environmental restrictions, site limitations or infrastructure constraints exacerbated by the rights of existing regasification capacity holders, look likely to face higher costs.”

Wood Mackenzie predicted that after 2018, incremental U.S. LNG exports to Asia will be restricted by competition, rather than the pace of export approvals, and could face a downturn as well.

“Some buyers will be put off by the lean specification and political risk associated with U.S. LNG exports and will have limited appetite for U.S. LNG in their procurement portfolio,” McCullagh said. “If U.S. LNG was able to secure around 5.1 Bcf/d (40 MMtpa) — [which is the] equivalent to half of the potential market for new Pacific LNG by 2022 — it would be doing very well indeed.”

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