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DOE Issues Second LNG Export Permit

DOE Issues Second LNG Export Permit

DOE Issues Second LNG Export Permit

Increased Production Puts Exports in Play

There was an interesting twist recently on the effort by U.S. energy companies to secure export licenses for liquefied natural gas (LNG) to non-free trade agreement (FTA) countries. When the Department of Energy approved an export permit for one company, another would-be exporter – and potential competitor – issued a statement lauding the decision.

That’s certainly not something that you often see, but every interim approval of an LNG export permit application helps to further open the door to profitably release pressure on the growing bubble of U.S. domestic natural gas supply.  It is understandable that one industry participant will celebrate – at least momentarily – the success of a competitor because each favorable regulatory precedent helps build the case for the next applicant.
 
The DOE announced on May 17 that it granted a conditional export authorization to Freeport LNG, which applied to export 1.4 billion cubic feet per day (Bcf). The approval is the second issued by the DOE. The first was granted in 2011 to Cheniere Energy’s subsidiary Sabine Pass Liquefaction, which seeks to export 2.2 Bcf, DOE says. The two provisional approvals are for facilities that want to add export capability, even though they were originally built to import LNG.

Beyond these two approved projects – and other pending applications to similarly modify existing import facilities – momentum is growing for proposals to construct plants designed specifically for exports. The export of LNG requires obtaining a license from DOE. While the department is required to issue licenses for exporting LNG to countries that share an FTA with the U.S., it holds greater discretion in issuing licenses to export gas to non-FTA countries.  Since most LNG-importing countries do not have an FTA with the U.S., the export license is critical to the success of any LNG export project.  Industry participants know full well that sales opportunities in non-free-trade countries – such as Japan, the largest LNG importer – are critical for success and are encouraged by every regulatory decision that keeps those markets in play.

The export applications have run into opposition. Some opponents fear that shipping gas out of the U.S. will tighten supplies and raise prices. Others object on the grounds that it could lead to increased gas production through hydraulic fracturing.

In a related development, Black & Veatch announced on May 21 that it commissioned the boil-off gas reliquefaction project at Sempra Energy’s Cameron LNG receiving terminal in Hackberry, La. The project uses Black & Veatch’s PRICO® technology to reliquefy the gas that boils off from the LNG storage tank. Reliquefaction allows the plant operator to return the gas to the tank instead of being forced to send it to the pipeline system during unfavorable market conditions.

Sempra has also applied to the DOE for authorization to export from the Cameron terminal.

An important but mostly overlooked fact in recent debates about LNG exports is that the U.S. has shipped LNG from Alaska to Japan since 1969.  The volumes from the Kenai project have been relatively small by current standards, and the commercial advantages have dwindled to the point where its operator, ConocoPhillips, has effectively halted plans for future exports and allowed the export license to expire on March 31 without applying for a renewal.

The declining Cook Inlet gas supplies historically used for the exports from the Kenai project have been increasingly viewed as crucial to south-central Alaska – one of the screening criteria used by the DOE in its regular reviews of the Kenai export license.

Currently, the state of Alaska is exploring prospects to pipe natural gas from the North Slope to south-central Alaska where it could be liquefied and exported to markets in the Asia-Pacific region. In contrast with the older Kenai capability, the proposed south-central operation would be on a much larger scale and might involve a public-private partnership.

No doubt the strategy for the North Slope LNG project will be influenced by regulatory decisions being made now for other export projects. The North Slope project likely would deliver part of its surplus gas supply to the south-central Alaska and – who knows – but the Kenai export project might also come back to life.
Black & Veatch has also advised the state of Alaska on issues involving the North Slope gas reserves and LNG.

June 2013 Issue

   Subject Matter Experts:

  
Deepa Poduval
   Principal Consultant
   Black & Veatch’s Management Consulting Division
   PoduvalD@bv.com

   Dr. James Gooding
   Geoscientist
   Black & Veatch’s Management Consulting Division
   GoodingJ@bv.com 


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The U.S. has Free Trade Agreements with 17 countries, listed by the U.S. International Trade Administration (http://trade.gov/fta) as Australia, Bahrain, Canada, Chile, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Jordan, Mexico, Morocco, Nicaragua, Oman, Peru, Singapore.

Archives of Energy Strategies Report.

@black_veatch