DOE to halt issuing LNG export licenses

Dec 6

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06 Dec 2011 20:21 GMT

Washington, 6 December (Argus) — US Department of Energy (DOE) will not grant additional licenses to export domestically-produced natural gas to all international markets until completing a review of cumulative economic impacts of liquefaction projects on US markets, a senior agency official said today.

The federal energy regulators appear to be sensitive to political pressure that could arise if LNG exports from the US lift domestic natural gas prices. The agency could reconsider the already granted applications if energy security or other factors are an issue, according to John Anderson, manager of natural gas regulatory activities at DOE’s Office of Fossil Fuels.

Developers have proposed six US liquefaction projects encompassing a total export capacity of 69mn t/yr, or the gas equivalent of 9.5 Bcf/d (269mn m³/d), based on agency records. Cheniere Energy’s proposed 2.2 Bcf/d Sabine Pass liquefaction plant in Louisiana secured DOE permission to export to all international markets in May, following an eight-month review.

But other proposed projects will have to wait until DOE reviews two studies it has commissioned to look into cumulative impacts of liquefaction projects and exports, Anderson said today in Washington, DC, during a briefing hosted by the US Energy Association.

The studies are expected to be completed in the first quarter of 2012, he said.

A study by the Energy Information Administration (EIA) will focus on the effect of LNG exports on domestic prices of natural gas. That EIA study will serve as the basis for analyzing cumulative economic effects of LNG exports that will be conducted by an external contractor.

In addition to cumulative impacts, the agency is looking at adequacy of US natural gas supply, energy security, impact on GDP, balance of trade and other criteria in informing its decision in granting blanket licenses, Anderson said.

A critical factor appears to have been omitted: a project’s commercial viability. Unlike the Federal Energy Regulatory Commission, DOE does not require developers to prove viability, focusing only on analysis of what happens if the terminal is built, Anderson said.

Economic modeling accompanying project applications just assumes that exports are taking place, consultancy ICF International‘s vice president Harry Vidas said during the briefing. ICF prepared the economic analysis that accompanied Cove Point’s application with DOE.

Since commercial viability is not a criterion, projects are effectively considered on the first come-first serve basis. Developers who filed first may secure export licenses and preclude subsequent projects from being realized because of perceived cumulative impact of exports on domestic prices, even if the initial projects are never built.

That scenario is hypothetical, Anderson said, even though it has analogies in the past since only a fraction of proposed US LNG import terminals were built over the past decade.

If economic circumstances change in the future, “we can modify any [export license] order although we respect contract sanctity,” he said.

US laws allow DOE to direct natural gas producers to curtail sales or allocate them to what the federal regulators consider a higher-priority use, according to Anderson.

“We would not want to use [that authority], but we can,” he said.

Source & Proposed North American liquefaction projects

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Posted on December 6, 2011, in Golden Pass, Gulf of Mexico, LNG, Sabine Pass and tagged , , , , , , , , , , , , , . Bookmark the permalink. 3 Comments.