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Will the US become an LNG Exporter?

Just five years ago, many oil and gas experts believed that U.S. natural gas production was declining.  In fact, the Department of Energy (DOE) predicted as recently as 2009 that the U.S. would become dependent on foreign natural gas for decades to come.

However by 2010, breakthroughs in technology allowing extracting natural gas from shale became a game-changer, and now large-scale imports of natural gas seem unlikely.  In fact, the Energy Information Administration (EIA) predicted in its 2012 report that the U.S. will become a net Liquefied Natural Gas (LNG) exporter by 2016.

The Department of Energy is currently taking applications to export domestically produced LNG, and there are eight possible exporting ports that might come into service in the next year.

Estimates suggest that the U.S. economy could gain up to $4 billion each year from LNG exports.  As shown in the graph below, natural gas is much cheaper in the U.S. than other markets, meaning that exporting to other markets is favorable to operators.  Additionally, building new LNG export facilities would create a substantial number of temporary construction jobs.

In this blog post, we’ll discuss two promising projects for exporting LNG, as well as the federal regulations surrounding the issue.

The LNG Exporting Approval System

Before the United States can become an LNG exporter, potential operators must receive approval.  Because natural gas exports are restricted by the National Gas Act, the DOE must find the exports to be “in public interest” before exporting will be allowed.  If the importing country has a Free Trade Agreement (FTA) with the U.S., then public interest is assumed and the Federal Energy Regulatory Commission (FERC) will approve the application.

Unfortunately, relatively few countries that import significant amounts of LNG have FTAs with the U.S., with the exception of South Korea.  Only the Sabine Pass Project (more details below) has been approved for export to non-FTA markets because it passed an environmental review by the FERC in addition to being found to be in the public interest.

In addition to FTA regulation, there are political worries about becoming an LNG exporting country.  One such worry is that exports might cause domestic gas prices to go up.  The DOE stated in June that it would delay ruling for projects until it studied the possible effects on the economy.

Two Projects of Note:  Sabine Pass and Freeport

The most important project to date is the Sabine Pass Liquefaction Project, which was approved by the FERC on April 16, 2012.  Sabine Pass is the first project to get approval and the only project with approval for export to non-FTA countries.

The project is located in Cameron Parish, Louisiana and owned by Cheniere Energy Partners.  The export terminal will consist of up to 4 modular LNG trains (a facility used to compress natural gas into liquefied natural gas) with a capacity of 4.5 million tons per year.  These trains will begin functioning on staggered intervals:  Trains 1 and 2 are projected to come online in 2015 and 2016, and the next two will follow in 6-9 month intervals.

The operator, Sabine Liquefaction, has entered into long-term delivery contracts with BG Gulf Coast LNG, LCC, Gas Natural Fenosa, KOGAS, and GAIL Ltd.  The project has received DOE and FERC approval for 2.2 billion cubic feet of daily LNG exports.  Applications for another 10.3 billion cubic feet are under review.

In Texas, Freeport LNG is proposing to add a liquefaction infrastructure at Quintana Island Terminal that can export LNG at a capacity of 13.2 million metric tons per annum.  The gas will be supplied from interconnecting intra-state pipeline systems, and then pretreated near Freeport LNG’s existing metering, compression, and underground storage facilities.  Gas will be exported via marine transit through Freeport Harbor Channel.

Conclusion:  LNG Exporting – A Likely Scenario

Exporting LNG will add an entirely new industry to the energy sector, potentially helping the U.S. economy generate up to $4 billion in profit. Although it’s difficult to say what the long-term employment impact will be, building exporting facilities will create short-term employment gains in construction and technical trades. With several projects approved, it is becoming likely that the U.S. will become an LNG exporting country.

Clover specializes in placing professionals in the oil and gas industry. If you are an Operator seeking to augment Project Teams, contact Jeff.W@clovergs.com

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