On Thursday, the U.S. Energy Department announced that it will no longer issue conditional approvals for proposed LNG export terminals. It would also commission a new study of the effect additional exports might have on domestic gas prices.
Until now, companies would file for conditional approval from the Energy Department while waiting for the completion of a longer – and costlier – process at the Federal Energy Regulatory Commission. The FERC permission process costs about $100 million and includes environmental reviews required by the National Environmental Policy Act. The change in Energy Department approvals means that they also will now require companies to carry out the NEPA review before obtaining permission.
Liquefied Natural Gas (LNG) export authorizations are required for exports to non-Free Trade Agreement (FTA) countries, which include China and Japan – major LNG importers.
The Department of Energy website states that “the proposed changes to the manner in which LNG applications are ordered and processed will ensure our process is efficient by prioritizing resources on the more commercially advanced projects, while also providing the Department with more complete information when applications are considered and public interest determinations are made.”
Currently, more than 30 companies have asked the Energy Department for permits, and about two dozen are still waiting. According to Jason Bordoff, director of the Columbia University Center on Global Energy Policy, most of these projects may never be built because of market conditions or financing obstacles. The DOE website explains that the move will allow the Department to “prioritize resources on the more commercially advanced projects.”
But Bill Cooper, president of the Center for Liquefied Natural Gas, a trade association, said that “my initial reaction is that it’s probably not good. What DOE is doing is moving the goal posts.” He said that although the FERC process is expensive, companies feel it is predictable — whereas the Energy Department authorization is less certain and therefore it’s good to have a preliminary decision at the outset of the FERC process.
The DOE along with the Energy Information Agency (EIA) and an external energy consultant will carry out a study on the economic impact of exporting between 12 billion and 20 billion cubic feet of LNG a day. The projects approved so far would send 9.27 billion cubic feet of gas abroad.
The ability to export large quantities of LNG to markets in Europe and Asia would be good news for shale gas explorers, who struggle to cope with high extraction costs and low local gas prices. Sending the gas abroad would increase the prices and make economical wells that are currently operating at a loss.
On the other hand, U.S. chemical plants, which are currently profiting from low-priced feedstocks, are concerned that rising gas prices will make them less competitive in the global market.
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