With its fourth non-free trade agreement (FTA) liquefied natural gas (LNG) export authorization Wednesday, the U.S. Department of Energy has approved a volume of exports that is beginning to make some nervous. While approvals have gathered pace, some feel that a pause is coming.
With the latest approval -- that for Dominion Cove Point LNG LP (see Daily GPI, Sept. 12) -- coming 35 days after the previous -- for Lake Charles Exports LLC (see Daily GPI, Aug. 8) -- DOE's pace has quickened. The department waited 80 days between the second and third approvals and two years between the first and second. Analysts at ClearView Energy Partners LLC wrote that the 35-day interval between the last two approvals is faster than the 45 days they had been assuming would be the case.
In its Cove Point announcement, DOE made note of the Energy Information Administration's upcoming "Annual Energy Outlook," (AEO) which should be released in early December. The report is expected to give DOE more current data with which to evaluate the potential market impact of exports.
"Even if EIA's supply and price projections don't change significantly, a new AEO presents new information, potentially justifying a pause," ClearView said. "Early evidence of any changes in EIA's underlying model could become available when the agency releases its 'Winter Fuels Outlook' on Oct. 8, 2013."
Predictably, a pause in approvals would be welcomed by some and jeered by others.
"...[W]e urge DOE to continue the momentum and move forward with the 20 applications that remain pending," said Center for Liquefied Natural Gas President Bill Cooper. "With a robust regulatory process in place and thorough review conducted, LNG exports will clearly be a win-win for our economy, industries and consumers."
DOE has now approved up to 6.37 Bcf/d of exports to non-FTA countries, modestly surpassing the 6 Bcf/d volume used in modeling by NERA Economic Consulting for the "low" case in its exports study (see Daily GPI, Dec. 7, 2012), ClearView noted.
"We are now approaching a volume of LNG exports that many experts project will impact price and volatility for natural gas," said America's Energy Advantage Chair Jennifer Diggins, a spokeswoman for gas consumer Nucor Corp. "We're increasingly concerned with the process and data DOE is using to justify more exports of American natural gas to our global competitors...DOE should immediately undertake a review of the cumulative impacts of its decisions up to this point, and clearly articulate in advance its criteria for determining the public interest under the law."
In the opinion of some analysts who have studied the global LNG market, the volume of exports ultimately approved by DOE is moot because it will be the market that ultimately governs how much LNG leaves U.S. terminals.
Last summer, Ken Medlock, a Baker Institute energy fellow at Rice University in Houston, told NGI the United States will be "lucky to see more than 1 Bcf/d" of exports 10 years from now. "I don't think it's going to be a huge number [see Daily GPI, Aug. 9, 2012]." Last fall, LCI Energy Insight and Energy Ventures Analysis said exports from North America (Canada, Alaska and the Lower 48) will be about 10 Bcf/d in 10 years if 60% of the Asian market's uncontracted LNG demand is captured by North American terminals (see Daily GPI, Oct. 15, 2012).
Analysts at Goldman Sachs Commodities Research said some export terminal projects could have trouble attracting financing for fear of a capacity overbuild. Besides the financing hurdle, there also is the necessary Federal Energy Regulatory Commission approval. When tallying up global LNG, Goldman only counts the 5.9 Bcf/d of U.S. export proposals that have announced offtake agreements, analysts said Thursday. These include Cove Point, Sabine Pass, Freeport LNG and Cameron LNG.
"We continue to see LNG exports as one of the four major drivers of the 21 Bcf/d of U.S. gas demand growth we expect in the next seven years, with the other three main drivers being pipeline exports to Mexico [see Daily GPI, Feb. 11], Industrial demand for gas and regulation-induced coal-to-gas switching as coal-fired power generators are retired," Goldman said.
How much of a demand driver LNG exports become, of course, depends upon the global market. This week ConocoPhillips Vice President Mike Nazroo said at an industry conference in Australia LNG supply could outstrip demand, The Australian reported.
"In the longer term, capacity additions look set to catch up with, and even overtake demand," the newspaper quoted Nazroo saying. "Much of this supply growth is set to come from the Australian project wave, but there will be competing projects from North America, East Africa, Nigeria and Russia."