After months of debate over whether the shale gas boom will allow the US to join the global gas market through LNG exporting, the Obama administration may have finally signaled its intentions. Last week, the Administration issued an approval for a $10 billion LNG facility in Texas. The decision could be a milestone in the U.S. transition toward becoming a major supplier of world energy markets. Many US manufactures still hope that the current supply glut will be used exclusively to give a competitive edge through low fuel prices.
The Freeport LNG terminal operated by ConocoPhillips (COP) is the first terminal approved in two years and could be the start of a trend with others being approved shortly. Freeport is only the second terminal to win this license, with 19 other applications outstanding, the longest of which has been waiting for 28 months. Although this is just one project out of many seeking approval, it signals that the Department of Energy believes the benefits from exporting gas outweigh concerns about the possible downsides for the U.S. economy—namely that domestic prices could rise as gas leaves American shores. The DOE had approved just one export terminal for exports to non-free trade agreement countries, Cheniere Energy’s (LNG) Sabine Pass Terminal in May 2011.
Christopher Smith, the Energy Department official in charge of shaping the Obama administration’s policy on exporting natural gas is a former Chevron employee. He recently stated, “We have what I think is a great dilemma, which is: How do we best and most prudently take advantage of what is a tremendous and important resource?”
In testimony this week during a Senate Energy and Natural Resources Committee forum on natural-gas exports, Smith said, “Essentially, it’s first-in, first-out with priority given to those projects that have initiated that FERC pre-filing process, which is the part of the evaluation where you start spending more serious sums of money. As we go through this process, some companies will make the argument that they should be ahead of other companies because they’ve achieved certain milestones, and I think that’s an argument we understand and that we’re sympathetic to.”
New Energy Secretary Ernest Moniz, who was sworn in on Tuesday, reaffirmed to reporters that he plans to review economic data on natural gas exports before the department acts on any of the remaining applications. Moniz, speaking to reporters after a brief speech to a forum on global energy efficiency, said he wants to complete his review as quickly as possible.
“Right now we have no plans of commissioning new studies, but everything’s on the table until I have done my analysis,” he said. “That’s my commitment to (Senate Energy Committee) Chairman Wyden.”
The government must approve natural gas exports for countries with which the U.S. lacks free-trade agreements, including such trading partners as Japan. International companies, responding to a ravenous global appetite for natural gas, particularly in Japan and Europe, want access to shale gas from the United States.
Japan’s liquefied natural gas imports have surged after the shutdown of nuclear power in the wake of the Fukushima disaster and were up by 11 percent last year. Japanese imports account for about one-third of the world’s total liquid gas market, according to a recent study by Bernstein research.
Japanese utility executives have said they want to reduce the prices they are paying by tying them to United States supplies. This month Japan’s Mitsubishi and Mitsui and France’s GDF Suez committed to invest $6 billion to $7 billion in a Louisiana LNG development backed by US based Sempra Energy (SRE). GDF Suez predicts that the plant will begin operations in 2017. The companies’ final decision to make their investment will depend on the project’s receiving necessary permits, GDF Suez said.
In a statement, Sempra Energy estimated that the foreign partners would be putting up $6 billion to $7 billion in return for just under half the equity in the project, which is forecast to yield 12 million metric tons of liquefied natural gas annually for 20 years. In return, they will receive all the gas. Sempra will retain a stake of just over 50 percent.
As the outstanding applications are reviewed, each company will still have to convince the government on a case-by-case basis that their plans have merit. It is important to remember that among Moniz’s “all-of-the-above” energy strategy, he was co-chair of an MIT study that recommended that “the U.S. should not erect barriers to natural gas imports or exports.”