The U.S. Department of Energy (DOE) this week gave Marcellus Shale gas producers hope for a waterborne route to market for the product that they have so much of.

DOE conditionally authorized Dominion Cove Point LNG LP to export domestically produced liquefied natural gas (LNG) from the Cove Point LNG Terminal in Calvert County, MD, to countries that do not have a free trade agreement (FTA) with the United States.

“Cove Point’s Maryland location gives it proximity to the Marcellus Shale,” Canaccord Genuity analysts said in a note Wednesday. “The Marcellus is the fastest-growing U.S. natural gas play and currently produces over 8 Bcf/d. The export facility can provide a relief valve for excess Marcellus gas and adds the potential for premium pricing as that gas could reach international markets.”

Canaccord analysts said Cabot Oil & Gas, Range Resources Inc. and Southwestern Energy Co. are the producers most leveraged to the Marcellus and the ones poised to benefit most if exports from Cove Point come to fruition.

Pan EurAsian Enterprises analysts said two years ago that “production from the Marcellus Shale has limited access to the rest of the U.S. markets [besides the Northeast]. This may have the effect of throttling Marcellus production and driving prices down and making export markets a more attractive alternative [see Shale Daily,Sept. 14, 2011].”

Subject to environmental review and final regulatory approval, Cove Point was conditionally authorized to export at a rate of up to 0.77 Bcf/d for 20 years. This is the fourth such approval issued by DOE and follows the August approval for Lake Charles Exports LLC to export up to 2 Bcf/d (see Daily GPI, Aug. 8). DOE has now authorized up to 6.37 Bcf/d of LNG exports to non-FTA countries.

The existing regasification terminal has connections to the pipeline grid, LNG storage capacity and an updated pier. Construction will chiefly entail adding liquefaction capability. According to Dominion Cove Point, the facility will have access to Appalachian gas, including from the Marcellus, as well as gas from the Gulf of Mexico, Midcontinent, Rockies and Canada. Affiliate Dominion Transmission Inc. is said to operate the largest underground gas storage system in the country, as well as the Dominion South Point trading hub.

With the approval for Dominion Cove Pointcoming 35 days after the previous approval — for Lake Charles Exports LLC — 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.”