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US Natural Gas Exports, Slowly but Surely

While the hints over the past weeks have favored expanded US natural gas exports, the confirmation of Energy Security Ernest Moniz has delayed a final decision on the process, with 19 export applications on hold for more in-depth review.

This has somewhat dampened the momentum following the Department of Energy’s (DOE) decision last Friday to conditionally approve a Texas LNG project.

Then on Tuesday, Moniz was officially sworn in and called for a further review of the proposals before making any final decisions. The review he’s waiting for concerns the potential impact expanded exports would have on domestic natural gas supplies and prices. The question Moniz poses is whether the existing impact study finished last year uses data that is too old.  That study, courtesy of the DOE, established that even in the event of higher domestic prices, natural gas exports would be economically beneficial to the country.

In the meantime, let’s get back to Friday’s momentum, which resulted in a green light for the Freeport LNG Terminal on Quintana Island, Texas. Freeport would be allowed to export up to 1.4 billion cubic feet a day of natural gas to countries without a free-trade agreement (FTA) with the US, for 20 years. Export deals have already signed with Japan’s Osaka Gas and Chubu Electric Power, and with BP Plc.

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Freeport LNG Expansion, L.P. is a wholly owned subsidiary of Freeport LNG Development, L.P. It has four limited partners: Freeport LNG Investments, LLLP, an entity owned by Michael S. Smith; ZHA FLNG Purchaser, LLC, a wholly owned subsidiary of Zachry American Infrastructure, LLC; Texas LNG Holdings, LLC, a wholly owned subsidiary of The Dow Chemical Company; and Turbo LNG, LLC, a wholly owned subsidiary of Osaka Gas Co., Ltd.  

Freeport isn’t out the woods yet, though: It still needs approval from the Federal Regulatory Commission (FERC).

The market responded immediately to the DOE’s conditional approval of Freeport exports, with natural gas prices rising 5% on the previous week.

Freeport is the second export project to win approval from the DOE. The first was over 2 years ago when the DOE approved natural gas exports with non-FTA countries from the Cheniere Energy-owned Sabine Pass LNG Terminal in Cameron Parish, Louisiana.

For investors, the momentum is going in the right direction, despite Moniz’s call for further review.

And foreign companies are rushing to get in on this, hoping to get their hands on cheap US natural gas. There is a lot at stake, and investors are hedging their bets that more projects will be approved in the near future.

The DOE’s Friday approval of Freemont was enough for three other foreign companies to agree to invest $7 billion on another Sempra Energy LNG project in Louisiana—in Hackberry--that hasn’t yet won non-FTA export approval.

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A final investment decision on the part of Japan’s Mitsui and Mitsubishi and France’s GDF Suez will of course depend on export approval. If they get approval, they are targeting 2017 to launch exports.

If the deal goes through, the two Japanese companies will each acquire a 16.6% equity stake, and Sempra will hold on to a majority 50.2% ownership.

The bottom line here is that we are most likely to see more export approvals this year, and beyond, but it’s not going to be a sudden opening of the market. Moniz is under pressure by some critics, including Senate Energy Committee Chairman Ron Wyden (D-Oregon), that last year’s DOE study used outdated data to make unrealistic market assumptions.

The latest news from the Energy Department, as hinted by acting assistant secretary for fossil energy Christopher Smith, is that the Obama administration could issue licenses for natural gas exports every two months.

By. Jen Alic of Oilprice.com




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