The great US LNG export stampede

Comments: 0

The granting of a LNG export licence to Freeport LNG last month by the US Department of Energy was significant on several levels. Most importantly, the 127-page determination that the DoE issued – Order 3282 – gave a detailed insight into the government’s current thinking on the issue. It now looks highly likely that the US is on a trajectory that will make it as significant an LNG-producing country as Qatar and Australia – in terms of production capacity if not actual export volumes – by the middle of the next decade.

That is the main conclusion reached in an in-depth article published in the latest issue of LNG Business Review*, of which I was one of the authors. The article highlights a key issue that many seem to have missed.

Long and winding road: Already seven projects have entered the long and expensive process of a formal application with the Federal Energy Regulatory Commission (FERC) for approval to site, construct and operate their projects. According to Charif Souki, the CEO of Cheniere – the only company to have so far reached the end of this long road – securing such an approval takes between 18 months and two years, and costs around $100 million. Clearly, such a commitment can be taken as a sign of serious intent.

Moreover, another seven projects have entered the pre-filing process with the FERC, which is mandatory in the case of LNG export projects, and which specifies that companies then have to wait at least six months before making a formal application.

The Magnificent Seven: Looking only at the seven projects that have progressed through to formal applications, one – Cheniere’s Sabine Pass – already has four trains under construction with total capacity of 18 mtpa. A second – Freeport LNG – expects FERC approval in the first half of next year, following which it expects to take FID on two 4.4 mtpa trains. The capacity of both trains has already been contracted, subject to FID.

Those two projects alone would create export capacity of 26.8 mtpa. To put that in context, in 2012 only one country produced more LNG than this and that was Qatar (which produced an impressive 77.1 mtpa). If the other five projects were to come to fruition, the US would have production capacity of 78.5 mtpa, more than Qatar has today.

Add to that Excelerate’s 4.4 mtpa Lavaca Bay FLNG project, which expects to file its formal application in August and the total rises to 82.9 mtpa. To look at it another way, that is more than a third of total global LNG output of 238 mtpa in 2012.

What now? The big question therefore, is how many more projects is the government likely to issue with export approvals? The government’s view, as expressed in Order 3282, is clear. Despite two years of endless and heated debate, two major reports looking into the economic impacts on the US of exporting LNG, and a consultation process that drew hundreds of thousands of responses, the DoE’s view has changed very little.

To quote from the LNG Business Review article: “What is particularly interesting about Order 3282 is how similar the conclusions are to those reached in Order 2961 granting a non-FTA licence to Sabine Pass, issued more than two years ago. [Most big LNG-consuming countries do not have Free Trade Agreements (FTAs) with the US and so require so-called non-FTA export licences.] Order 2961 is a crucial document that appears to have been largely ignored by many of those taking part in the debate that has raged for the past two years.

“Taking Order 3282 as a whole, it seems reasonable to assume, firstly that the DoE will grant at least some of the other proposed projects licences to export to non-FTA countries, but that, at some point, the potential levels of export volumes will become an issue. The potential export volumes considered in the Energy Information Administration (EIA) report [which looked at how exports would affect domestic US gas prices and was published in January 2012] – 6 Bcf/d (45 mtpa) and 12 Bcf/d (90 mtpa) – could well turn out to be important lines in the sand, with 6 Bcf/d almost certainly acceptable, but 12 Bcf/d looking rather high.”

New era: The issue has been complicated by the confirmation by the Senate of Ernest Moniz, a Massachusetts Institute of Technology physicist, as the new energy secretary. Trying his best to keep all sides happy, Moniz has said he will conduct his own review of the issues. That said, he has made clear in recent testimony to the House of Representatives energy and commerce committee, and following this month’s EIA conference in Washington, that he expects further non-FTA licences to be approved before the end of the year.

It seems highly unlikely that Moniz will entirely overturn the carefully constructed arguments that the DoE has presented, not just in Order 3282, but in the Sabine Pass order it issued more than two years ago.

As the article in LNG Business Review concludes: “ . . . [LNG] buyers will welcome the wider implications, given the broadening range of commercial options that the development of large-scale US exports will present. It appears that, once again, the LNG industry is on the threshold of a new, more sophisticated and more flexible era.”

Alex Forbes

* If you would like to receive a complimentary copy of the latest issue of LNG Business Review please send an e-mail to [email protected]

 Related articles:

Excelerate Energy – Floating ideas and defying the sceptics