A “whole lot more” oil and natural gas infrastructure is needed to accommodate the projected tripling of U.S. liquefied natural gas (LNG) exports over the next decade, but domestic challenges need to be overcome so the country can succeed in an increasingly competitive global market, industry executives said Tuesday.
Speaking on a panel at the Pipeline & Gas Journal’s Pipeline Opportunities Conference in Houston, Cheniere Energy Inc.’s Guy Nichols, director of marine operations, said the Jones Act was among the chief challenges facing infrastructure buildout in the United States. The federal statute enacted in 1920 limits shipments to U.S. ports to ships built in the United States and owned by U.S. citizens.
The decades-old law, originally drafted in part to protect the shipping industry and the growth of commerce, has been hotly debated particularly in New England. The region, which lacks adequate pipeline capacity to transport gas during periods of strong demand, brought in Russia-sourced LNG this winter to meet demand during a particularly frigid period.
The 3.25 Bcf Gaselys vessel originated from Russia's new $27 billion Yamal LNG terminal above the Arctic Circle on the Yamal Peninsula and then was re-exported from Grain LNG in the UK before landing in New England. The vessel was estimated to have delivered 2.89 Bcf at the Everett import terminal in Boston in late January.
Even before then, the governors of Connecticut, Massachusetts, New Hampshire, Rhode Island and Vermont in December raised the issue of modifying the Jones Act to allow more LNG shipments into the natural gas-starved region. The governors jointly called for "working with congressional delegations to address whether the Jones Act should be modified to ensure that LNG can be delivered in a timely manner during winter months."
Along with pursuing more LNG shipments, the governors called for examining additional infrastructure, including gas storage, in key areas that could be used by gas-fired power plants.
Modifications and other waivers to the Jones Act are “hard to get,” according to Nichols. Puerto Rico was granted a 10-day waiver in 2017 after Hurricane Maria -- the deadliest Atlantic hurricane since 2004 -- slammed the commonwealth, killing thousands and knocking out power to the entire island of more than three million residents.
Meanwhile, building U.S. vessels is uneconomic, Nichols said. Some U.S. ships were built decades ago but “only two are still running.” Citing a Government Accountability Office study, Nichols said the cost today to build a U.S. LNG vessel is about $600 million, which is triple the cost of a Korean vessel, which at the end of 2017 cost about $182 million to build. The ships would also take three times as long to build if done so in the United States, the study found.
Trade policy also stands in the way of infrastructure buildout in the United States, said attorney Kevin Ewing, a partner at Bracewell. Last September, the Trump administration enacted a 10% tariff on $200 billion worth of Chinese products. Beijing retaliated with tariffs of 5-10% on more than 5,000 products imported from the United States, including LNG at 10%. Analysts have been divided over whether the tit-for-tat tariffs will or will not impact a "second wave" of U.S. LNG projects.
Cheniere in February 2018 -- months before the trade spat ensued-- signed two deals with a unit of state-owned China National Petroleum Corp. for 1.2 million metric tons/year for 25 years. It is unclear whether other deals are awaiting a resolution to the trade war.
Meanwhile, Trump, who was headed to Texas on Wednesday for fundraising and to sign executive orders (EO) that could speed up pipeline infrastructure, has also demanded $5.7 billion for a wall along the U.S.-Mexico border. After failing to come to an agreement with Congress on funding for the wall last December, a five-week partial government shutdown began.
“There are a number of different directions in which the current administration is heading,” Ewing said. “We have some tension in the current foreign policy that translates into regulatory challenges.”
Land use and cumbersome regulatory processes also stand in the way of ensuring the United States has adequate infrastructure in place to accommodate more gas exports. While modifications to existing facilities only take about five years to get through the regulatory and construction process, greenfield projects can take double that time before entering service, according to Ewing.
In particular, executives said improvements and modifications need to be made to the National Environmental Policy Act (NEPA), cited by some as the most difficult part of getting through the FERC process. “The worst thing we can do is cut corners on NEPA process,” but legislation needs to fix the process, said Sempra Energy’s Bill Lasinger, director of Federal Energy Regulatory Commission relations.
In addition, water quality certifications have become an increasing barrier to some infrastructure development projects, according to executives. While acknowledging the important role states have under the federal Clean Water Act, the process has been abused by states to interrupt projects up and down the East Coast, they said.
“It’s just good regulatory policy to have a streamlined process regardless of whether it’s Republican or Democratic in nature,” Ewing said.
Panelists also indicated they’d prefer to work through a more streamlined regulatory process rather than under presidential EOs when trying to get potential projects off the ground.
“There needs to be a joint effort between the states and the feds to get through the obstacles,” Lasinger said.
The world is not going to wait for the United States to get their ducks in a row, according to Freeport LNG’s Lance Goodwin, vice president of business development. Freeport is expected to bring online the first train at its export facility along the Texas coast later this year, but Goodwin noted that Russia too “has gone bullish on LNG” and Qatar has projects of its own.
“If we want to be able to compete at all, we need to get our regulatory process streamlined and get going.”