By John Kemp
LONDON, Sept 12 Based on regulatory approvals so
far and sales contracts already signed, the United States will
export much more liquefied natural gas (LNG) by the end of the
decade than most analysts thought possible even a year ago.
In late 2011, the U.S. Department of Energy commissioned
NERA Economic Consulting to study the impact of exports on the
U.S. economy under a number of scenarios.
NERA was asked to analyse the effects of LNG exports limited
to a relatively low level (6 billion cubic feet per day) or a
high one (12 bcf/d), with exports ramping up to full volume
slowly (1 bcf/d per year) or rapidly (3 bcf/d per year). NERA
was also asked to examine the case in which there was no limit
on the volume of gas exported.
Publishing its finding in December 2012, NERA found there
would be a net benefit to the economy under all scenarios, and
the more LNG exported the bigger the net benefit would be.
"Scenarios with unlimited exports always had higher net
economic benefits than corresponding cases with limited
exports," NERA concluded.
While NERA argued unlimited exports would be best for the
economy, the inclusion of the 6 bcf/d and 12 bcf/d scenarios
strongly implied the government thought volumes would be in this
range, and perhaps should be limited to it through the approval
However, the Department of Energy has so far received
applications on behalf of 24 projects to be allowed to export up
to 32.4 bcf/d, nearly three times as much as contemplated in the
high NERA scenario.
With the approval of an application from Dominion Cove Point
on Wednesday, the department has now approved four
projects, authorising them to export up to 6.37 bcf/d.
The pace of approvals is picking up. New approvals are
coming at a rate of one every 6-8 weeks.
If this continues, the total volume is likely to breach the
12 bcf/d level by March 2014, raising questions about what
criteria the department will use to decide which ones to approve
and how many it intends to authorise in total.
WYDEN SOUNDS ALARM
In approving export applications the department recognises
"the potential cumulative impact" according to its order
approving Cove Point.
However, the assumptions that underpinned the department's
own export study and the economic study it commissioned from
NERA already look out of date.
Senator Ron Wyden, chairman of the Senate Energy and Natural
Resources Committee, who has opposed exports and questioned the
findings in the earlier studies, has begun to sound the alarm.
Responding to the Cove Point approval, Wyden, a Democrat
from Oregon, said: "With today's approval, the United States is
now squarely in the range that experts are saying is the most
likely level of U.S. natural gas exports."
"If the Department of Energy approves exports above that
range, the agency has an obligation to use most recent data
about U.S. natural gas demand and production and prove ... that
these exports will not have a significant impact on domestic
prices and in turn on energy security, growth and employment,"
he added in a statement.
LNG ALREADY SOLD
Some observers doubt whether all of these projects will be
built. But of the four projects already approved, three have
signed firm contracts with overseas buyers for all their
capacity. Two other projects which have not yet received formal
approval have also already contracted their capacity.
In total, would-be LNG exporters have signed firm contracts
to export 4.7 bcf/d (34 million tonnes per annum).
Counterparties who have agreed to buy exported LNG include
established customers like BG Group, Total, BP
, Centrica, Sumitomo, Osaka Gas, Chubu
Electric Power, the Gas Authority of India and Korea
Cheniere Energy's Sabine Pass Liquefaction project,
which is the most advanced, has already awarded engineering,
procurement and construction (EPC) contracts for four LNG trains
to Bechtel. Trains 1 and 2 are schedule to be completed in
2015/16. Trains 3 and 4 will be finished by 2016/17.
Cheniere has already sold output from two more production
units, Trains 5 and 6, and just needs regulatory approval.
Cheniere hopes to award EPC contracts for both trains in the
second half of 2014.
Freeport LNG's projects is less advanced, but has awarded a
front-end engineering design (FEED) contract to Chicago Bridge &
Iron and Zachry International, which is the last and
most expensive piece of work before making a final investment
decision (FID) to proceed.
Cove Point, which only got the final go ahead from the
Department of Energy on September 11, had already awarded an EPC
contract to IHI Engineering & Construction and Kiewit, according
to the company's website, with an in-service date of 2017.
If the department continues to process applications at the
current rate and in the promised order, the next approvals will
be for Freeport's expansion project (1.4 million tonnes per
annum), Sempra's Cameron LNG (1.7 mtpa), Jordan Cove (0.8 mtpa),
LNG Development Company (1.25 mtpa) and Cheniere Marketing (2.1
Most are big and established players in the gas industry,
and most of these projects are highly likely to be built, taking
exports above 12 bcf/d.
Eventual export volumes will depend on world demand,
competing supplies developed in other countries and U.S.
domestic gas prices. Current worldwide LNG export capacity is
around 37 bcf/d, with another 10 bcf/d already under
construction or being planned.
"With additional projects in the planning stages in Qatar,
Australia, Canada and elsewhere, the world may simply not need
LNG from the United States ... Consumers will have other
options," according to a study issued by Senator Lisa Murkowski
"The window for the United States to join the global gas
trade will not be open indefinitely," Murkowski warned. "In fact
it is narrowing, and there is a real possibility that the nation
will miss out on a historic opportunity," the study concluded.
Murkowski is the highest-ranking Republican on the Senate
Energy and Natural Resources Committee, and a strong supporter
of gas exports, and has called on the department to speed up its
approval process. Murkowski's home state of Alaska eventually
hopes to host its own LNG export project to supply customers in
CONDITIONS FOR APPROVAL
Approving Dominion Cove Point, the Department of Energy
noted the total volume of exports so far approved "only modestly
exceeds the 6 bcf/d volume evaluated by NERA."
The department insisted it will continue taking a measured
approach. "Specifically, the Department of Energy will continue
to assess the cumulative impacts of each succeeding request for
export authorisation," according to the order.
The department claims it will attach "appropriate and
necessary terms and conditions to the authorisations" and "other
conditions will be applied as necessary." Officials also claim
the department can modify or rescind prior approvals, and issue
supplemental orders if it finds necessary, under powers
contained in Natural Gas Act.
This has led to enormous uncertainty about how many more
export applications the department will approve, and in what
circumstances it might modify or rescind some of them.
Despite their differing views, Wyden and Murkowski have
joined together to ask the department to clarify the
circumstances in which it would modify of revoke applications
that have already been granted in a letter to Secretary of
Energy Ernest Moniz.
Among the questions they want the department to answer is
what factors it would consider in deciding whether to suspend or
revoke an export authorisation, and whether the cumulative
impact of exports might be one of them, as well as what rights
an exporter would have to challenge the decision.
In reality, once the department has given its approval, it
is hard to see any circumstances under which the permission
could be rescinded.