On February 11 the U.S. government gave a green light to Sempra Energy’s LNG export terminal in Louisiana. The approval is the sixth over the last year. Sempra’s Cameron project on the Gulf Coast calls for the export of 1.7 billion cubic feet (bcf) per day when completed, bringing the total approved export volume to 8.5 bcf per day. Sempra Energy’s stock price jumped 1% in midday trading.
The Cameron facility was originally constructed to receive imports of LNG, back when the U.S. thought it was running out of natural gas. The surge in shale gas production has many companies, including Sempra Energy, investing billions to turn around these facilities for export. Sempra Energy plans on putting in $6 to $7 billion to overhaul the facility with construction beginning in 2014. When completed in 2017, the Cameron terminal will consist of three liquefaction trains.
DOE’s approval was critical to the project moving forward. The U.S. government more or less automatically approves permits for LNG exports to countries with which the U.S. has a free-trade agreement. Non-FTA countries receive much greater scrutiny, with DOE weighing whether or not they are deemed to be in the “public interest.” Sempra Energy signed a 20-year deal with Japan’s Toho Gas Company to deliver LNG. The U.S. and Japan do not have a free-trade agreement.
Related Article: Consumers Paying More as Nat Gas Cash Prices Spike
Democratic Senator Mary Landrieu (LA) quickly released a press release touting the project’s benefits. “It waited more than two years for a DOE’s approval to continue expansion that benefits not only Louisiana, but also the nation’s economy. With this final approval from DOE, Sempra can complete its export facility.” Sen. Landrieu’s office also said the project will inject $10 billion into the local economy, creating 3,000 jobs in the process.
Her comments come at an auspicious time for proponents of liberalizing the nation’s fossil fuel export laws. On the same day of the Cameron approval, Sen. Landrieu took the helm of the Senate Energy Committee, where she will presumably preside over a push to not only open up the U.S. to more LNG exports, but also repeal limits on crude oil exports.
While there is opposition among certain industry groups, environmentalists, and consumer advocate organizations, the move to export LNG seems all but inevitable at this point. Although it is moving much too slow for the oil and gas industry, the administration has steadily doled out approvals for export facilities. There is little reason to believe there won’t be more in the offing. The Republican led House Energy and Commerce Committee released a report on February 4, 2014, calling on the Obama administration to accelerate the rate of approvals. Whereas the administration is treading much lighter with the higher profile Keystone XL project, the President apparently is not worried too much about blowback from the left on the LNG issue.
Related Article: Shale Boom Prompts Calls for Expanded US Oil and Gas Exports
But the industry feels time is of the essence. The first movers have locked in long-term contracts with their Asian customers, but Japan – which alone accounts for 40% of the LNG market – is aggressively moving to create a more liquid spot market. This will give greater leverage to buyers at the expense of producers. The Japanese Ministry of Economy, Trade and Industry (METI) wants to launch futures contracts for LNG by March 2015. METI will require Japanese LNG importers to report their prices, and by averaging them together, Japan will create a new benchmark spot price. It sees this as a step towards a full blown dollar-denominated futures market. If LNG trade becomes more liquid, oil-linked contracts will begin to disappear, and trade will move towards a much more global LNG market.
That means that U.S. exporters won’t be able to benefit from such a huge spread between the Asian spot price and the Henry Hub price. For this reason, the U.S. gas industry and their allies in Congress are pushing for a swifter DOE approval process.
By Nicholas Cunningham