Energy Secretary Ernest Moniz may be new at his job, but he successfully dodged a barrage of questions from the audience and reporters as to when his department would approve more licenses for liquefied natural gas (LNG) exports at the Energy Information Administration’s (EIA) Energy Conference last Monday.
The Department of Energy (DOE) will act on as many non-Free Trade Agreement (FTA) applications “as we can responsibly get through” this year, Moniz said. “We will do them in the order as posted” on DOE’s website, he said. The number of LNG export questions and the relatively high percentage of Asia attendees and reporters from Asian news services among the 900-plus attending the first day of the event in Washington, DC was an indication of interest stretching beyond U.S. borders.
The price disparity between natural gas in Japan ($16-$18) and the U.S. Henry Hub ($3-$4) has increased the demand for gas from the United States in Japan, said Wolfgang Moehler, CERA director of global LNG. He noted that LNG currently accounts for 10% of the global gas market.
The CERA executive attempted to quell industry concerns that shale development in foreign countries could disrupt U.S. LNG exports down the road. “None of these countries will develop [their shale resources] as quickly” as the United States, Moehler said.
Some foreign countries, like China, have major shale resources. But “we don’t expect significant movement on the China unconventional production before 2020,” and thus it poses very little threat to the U.S. LNG export market, he noted. “China’s [shale industry] is still very much in its infancy.”
But, the United States may face other obstacles. “The U.S. [could] actually be one of the first to suffer from an over-supply because others have potentially lower operating costs…for liquefaction,” he told NGI.
In fiery testimony before a subcommittee of the House Committee on Energy and Commerce in Washington, DC, last week, Center for Liquefied Natural Gas President Bill Cooper said DOE’s queue for deciding LNG applications is arbitrary and unlawful. DOE has approved LNG export applications for the Freeport LNG Terminal on Quintana Island, TX, and the Sabine Pass LNG Terminal in Cameron Parish, LA (see NGI, May 20, May 23, 2011). But “the problem is that there is no certainty as to when DOE will make a decision on the remaining 15 applications,” Cooper said.
“Once the public comment period ends, DOE should make a decision based on the merits of the application. DOE’s effort to proceed by arbitrarily creating its own queue to approve LNG export applications is unlawful, and essentially changes the rules midstream.”
In December, DOE announced an order of precedence for processing applications to export LNG to non-FTA countries (see NGI, Dec. 10, 2012). The agency said it would begin processing beginning with pending DOE applications where the applicant had already received approval to begin the Federal Energy Regulatory Commission’s (FERC) pre-filing process, followed by pending DOE applications not yet in the FERC pre-filing process, and then all future DOE applications as they were received.
The queue is unlawful because it was effectively an amendment to federal regulations but was not subject to notice and comment requirements, and it because it was applied retroactively to 15 pending applications, Cooper said. “A rule promulgated cannot have a retroactive effect unless expressly authorized by Congress. The Natural Gas Act does not authorize such retroactive application. Any new rule promulgated by DOE will have consequences to events already completed — namely, when an applicant chooses to file at DOE in the first instance.”
There are currently 16 long-term applications to export LNG to non-FTA countries pending before DOE. Officials from DOE and FERC told the subcommittee that they are moving forward with their evaluations of the various applications, but were unable to say exactly how long those processes would take.
“We’re in relatively new territory with export applications for construction,” said Jeff Wright, director of FERC’s Office of Energy Projects. “The import applications for regasification facilities were much simpler, given that we’d get all the information that we would need, including the pre-filing period, we would authorize LNG import facilities somewhere between 18-24 months. With export facilities the engineering is much more critical. It’s much more safety-conscious, environmental-conscious, because of the use of refrigerants and natural gas liquids. What we’re seeing is that we’re very dependent on the applicant being able to finish its engineering studies to supply us with the information for our evaluation…we would love to get our formal application review done in 18-24 months.”
There are at least 18 LNG export projects in some stage of planning or development in the United States in addition to Cheniere’s under-construction Sabine Pass, and five more in Canada, according to analysts at Raymond James.
“Of course, many of these projects will fall by the wayside, but at this point, we think that between three and five U.S. LNG projects will come online by 2020, along with a couple in Canada,” the analysts said.
The applications filed earliest “have somewhat of a lower bar” to win approval at DOE, Moehler said. Permits further down the road will be evaluated “on a cumulative perspective,” meaning that the department will take into consideration the amount of LNG that it has already approved for export to countries to non-FTA countries.
As for the European market, it finds itself in the “quirky aspect” of having to rely on imports because it does not have sufficient storage capacity, said Ira Joseph, executive director of international gas for the PIRA Energy Group. Working gas inventory in Europe is only 60% of the size of the North American market, he noted.
Because of the limited storage, the United Kingdom has to rely on “considerable amounts of imports.” While there has been a disconnect between the Henry Hub and European gas prices since 2009, Joesph expects the prices to become “more closely tied” when North American exports begin.
The International Energy Agency projects that two-thirds of U.S. LNG exports will find their way to the Pacific Rim, said Jason Bordoff, director on Global Energy Policy at Columbia University.
Alaska is looking to build a bigger LNG facility to take advantage of the Asian market, said Sen. Lisa Murkowski (R-AK). But “before we can export Alaska North Slope [gas] from a terminal in the southern part of the state, we need to be able to move it from the North Slope. That’s our biggest challenge. It’s about an 800-mile project and it’s difficult.” She noted that discussions on the project are moving forward, and producers are working together.
“This will be one of the biggest…projects in the world when it comes to transporting LNG.” Murkowski said Alaska’s “real fear” is that it may “get aced out of the game here” if it doesn’t move more quickly on the pipeline and export facilities. “We see other nations moving in and signing long-term contracts.”
Alaska’s market for LNG will be Japan, South Korea and Taiwan, according to Murkowski. It has been supplying Japan with LNG for the past 40 years. The gas came from the Cook Inlet, but she said resources are beginning to wane there.
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