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Wellinghoff: Globalization of Gas 'Inevitable'

While this is "out of my area of expertise, I think...it's inevitable that natural gas is going to be a world commodity, and that because of very substantial price differentials between the price in this country and the prices in Europe and Asia it will happen," FERC Chairman Jon Wellinghoff said during a roundtable briefing with reporters last week at the agency's headquarters in Washington, DC.

As to how big a role the U.S. will play in the global export market, "we have to look at how long it will take to build the infrastructure to do that...It's certainly clear that the infrastructure to export substantial amounts of natural gas is going to take more than five years to do," he said Thursday.

Wellinghoff said exports of liquefied natural gas (LNG) may exert "some upward pressure" on domestic gas prices. But by the time export infrastructure is constructed, he said "other [factors] may affect prices here more significantly than exports, such as additional natural gas for generation." Power generators no longer see coal as the "low-cost alternative" to gas anymore.

As more and more companies invest in LNG export facilities, Commissioner Cheryl LaFleur last Monday questioned how long the U.S. will maintain its technology edge in the development of shale gas that is driving the trend towards LNG exports. "One issue that I've been thinking a lot about...as all the people rush to put their money into export facilities, [is] how long the technological [and price] advantage that the U.S. appears to hold in unconventional gas" will last, she said during a meeting of the Natural Gas Roundtable in Washington, DC.

"There are shale plays in other parts of the world [Europe, Asia and Australia], but the supporting infrastructure isn't there yet to take advantage of that...Estimates vary as to how long our advantage of being the only one doing this will last...My experience is that these technological cycles seem to be shorter...as we move forward all the time," she told executives and regulators.

The Federal Energy Regulatory Commission (FERC) earlier this month approved a proposal by Cheniere Energy's Sabine Pass Liquefaction LLC and Sabine Pass LNG LP to site, construct and operate facilities to liquefy domestic natural gas for export to markets worldwide (see NGI, April 23). This was the Commission's first authorization of a project to export LNG from production resources within the United States.

According to the Commission, four other projects to liquefy natural gas for export are in the pre-filing process. These include proposals filed by Jordan Cove Energy Project LP to build an export liquefaction facility in Oregon, Freeport LNG to build export capability in Brazoria County, TX (see NGI, Nov. 29, 2010); Energy Transfer Equity LP's Trunkline LNG Co., Trunkline LNG Export and Trunkline Gas Co. units to build a natural gas liquefaction project in Lake Charles, LA ( see NGI, April 10); and Cheniere Energy to develop an LNG export liquefaction in Corpus Christi, TX, with the gas primarily to be supplied from the Eagle Ford Shale in South Texas (see NGI, Dec. 19, 2011).

And "I keep hearing about lots of ones [other export projects] that may be in the works," Wellinghoff said. Another export project, formerly to import LNG, popped up in Oregon last week (see related story). But the FERC chief noted that the Commission is not in a rush to proceed with these projects. It will act on the projects "probably as quickly as we acted on Sabine Pass...It took us a while because we needed to look at environmental and safety issues."

In other news, LaFleur said she supported legislative reform of Section 5 under the Natural Gas Act (NGA) to make the refund effective date for gas pipeline shippers consistent with the refund effective date for power customers under the Federal Power Act (FPA).

Under the NGA, pipeline shippers become eligible for refunds only when FERC issues a decision on a Section 5 NGA complaint (prospective refunds), assuming it is favorable to shippers, rather than from the date a complaint is filed with FERC (retroactive refunds). In 1988 Congress amended the FPA to make power customers eligible for retroactive refunds. For years, gas customers have urged have Congress to do the same to the NGA see NGI, April 23).

Wellinghoff said until Congress gives FERC broad authority under the NGA to order retroactive refunds for gas pipeline shippers, the Commission would be vigilant of individual interstate pipeline's returns on equity (ROE). It's "incumbent upon [us] to survey these pipelines to make sure [they are] not over-recovering" their cost of service, he said.

The Commission would continue to look for patterns and practices that might signal ROE over-recovery, he said.

On the rate side, "the location of the gas and all the shale plays are having...considerable impact on our pipeline ratemaking. Pipelines are being utilized differently as a result of the new resources. Capacity values have dropped on many of the long-haul pipelines as strong production growth in the Marcellus and other shale basins displace flows from further away," LaFleur said.

A few years ago, FERC began seeing a "wave of filings" to abandon facilities and services on offshore pipelines, she noted. Now the agency is starting to see proposals to restructure rates closer to the market area part of a pipeline. Downstream customers are objecting to paying for rates for service on the whole length of the pipeline.

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