DOE Approves Fourth US LNG Export Project
On September 11, 2013, the US Department of Energy (US DOE) announced that it has conditionally authorized Dominion Cove Point LNG to export US LNG to countries that do not have a Free Trade Agreement (FTA) with the United States. Subject to environmental review and final regulatory approval, Dominion’s Cove Point LNG terminal, located in Calvert County Maryland, is conditionally authorized export at a rate of up to 0.77 billion cubic feet of natural gas a day (Bcf/d) for a period of 20 years.)
The US Has Approved LNG Exports of Over 40 Bcf/d
Dominion’s export approval is potentially significant because DOE has now cumulatively authorized non-FTA exports totaling 6.37 Bcf/d of natural gas, or 2.325 Tcf/yr. This includes Cheniere’s Sabine Pass (2.2 Bcf/d), Freeport (1.4 Bcf/d), Lake Charles Exports (2.0 Bcf/d), and Dominion (0.77 Bcf/d). As noted by DOE, this total export volume “moderately” exceeds the 6 Bcf/d volume evaluated by the majority of the economic studies that have used 6 Bcf/d as the “low” export case, including the NERA LNG Study relied upon by the DOE. In addition to the 6.37 Bcf/d of LNG exports to non-FTA countries, the DOE has also authorized LNG export applications for 33.82 Bcf/d to FTA countries.
To put this in perspective, 40 Bcf/d is approximately 312 million metric tons per annum of LNG (using the DOE’s conversion factor of 1 Bcf/d = 7.82 mtpa). Even though not all of the proposed US projects are likely to be built, and most of the FTA countries are not likely to be large LNG importers, 312 mtpa is a LOT of LNG! Currently, the world’s largest LNG exporter is Qatar with export capacity of 77 mtpa. Australia has massive LNG export projects under construction and is expected to rival or even exceed Qatar’s LNG export capacity. So even if just a fraction of the approved 312 mtpa of LNG exports comes to fruition, the US could be a major LNG exporter in the coming decades.
The Approval Process
As required under current US law, in order to approve Dominion’s export project, the DOE had to make a finding that the proposed exports would not be inconsistent with the “public interest.” In reviewing Dominion’s application, the DOE followed the same analysis followed in its most recent approvals of exports from Lake Charles LNG and Freeport LNG.
While a range of factors are considered by the DOE in making the “public interest” determination, the primary focus of the DOE has thus far been on the economic benefits of the proposed exports. As noted in the DOE press release announcing the decision, the development of US natural gas resources is having a “transformative impact” in the US, including spurring economic development and job creation around the country. The DOE also indicated that the increased production of natural gas is expected to continue with the US Energy Information Administration (US EIA) forecasting a record production rate of 69.96 Bcf/d in 2013.
Another factor that seems to influence the DOE’s decision is whether there are contracts in place with LNG buyers, or “off takers.” In Dominion’s case, the capacity of the facility is fully subscribed, with signed 20-year terminal service agreements. Pacific Summit Energy, LLC, a U.S. affiliate of Japanese trading company Sumitomo Corp., and GAIL Global (USA) LNG LLC, a U.S. affiliate of GAIL (India) Ltd., each have contracted for half of the marketed capacity.
Additionally, and as with many of the proposed US export projects, since Dominion Cove Point is an existing LNG import facility, it already has in place much of the necessary infrastructure, including connections to the pipeline grid, LNG storage capacity and an updated pier. It should be noted, however, that the additional CAPEX for constructing the liquefaction/export facilities is not insignificant. Dominion estimates the cost of construction for the export facilities will be $3.4 billion to $3.8 billion, with construction scheduled to begin in 2014, with an in-service date of 2017.
Terms and Conditions of the Authorization
Dominion had requested a 25-year term for the export authorization starting from the date export operations begin. Consistent with the DOE’s approval of the Freeport LNG and Lake Charles LNG projects, the DOE’s authorization is only for a 20-year term. This caution on the part of the DOE is in part due to the fact that the LNG Export Study that DOE commissioned to determine the economic benefits of LNG exports contained projections over a 20-year period only. Going forward, this means that any projects that are approved in the future are likely to be limited to a 20-year approval time period.
In addition to reducing the requested authorization term, the DOE also added a condition that Dominion must commence commercial LNG export operations no later than seven years from the date of the issuance of the Order.
The Path Forward on LNG Export Applications
As in the prior authorizations, the DOE reiterated that it would continue to process the applications currently pending on a case-by-case basis, in the order of precedence previously detailed. During this time, the Department will continue to monitor any market developments and assess their impact in subsequent public interest determinations as further information becomes available, including the EIA’s Annual Energy Outlook Report at the end of 2013.
To date, the DOE has still not detailed what the precise process and procedure is for monitoring the cumulative impact of additional LNG applications. As a result, there continue to be calls from all sides, including a group of industrial users of natural gas and manufactures represented by America’s Energy Advantage, for the DOE to continue to take a “measured approach” in reviewing pending applications and to clarify how DOE will monitor the cumulative impact. These calls are growing louder now that the US has authorized more than the “low” export case of 6 Bcf/d and now that it looks likely that the US will export more LNG than previously suggested.
Three More Companies File LNG Export Applications
At the same time, the DOE’s recent approvals seem to have attracted even more applications to export. According to the most recent list of pending applications, the following three companies have filed export applications in the past month:
Argent Marine Management, Inc. filed an application to export over a 25-year period 20,000 metric tonnes (approximately 1 Bcf) of LNG per year to FTA nations. Argent proposes to transport LNG from a facility in Trussville, Ala. via truck to ports on the U.S. East Coast and then ship the LNG in ISO containers aboard ocean-going vessels.
Eos LNG LLC (EOS) filed an application to export over a 25-year period up to the equivalent of 1.6 Bcf/day (584 Bcf/year) of LNG from a proposed floating liquefaction unit on a barge and LNG storage tanker at the Port of Brownsville, Texas to nations with an FTA with the United States. EOS also filed a separate application to export the same volumes from the same facility to non-FTA nations.
Barca LNG LLC (Barca) filed an application with DOE to export over a 25-year period up to the equivalent of 1.6 Bcf/day (584 Bcf/year) of LNG from a proposed floating liquefaction unit on a barge and LNG storage tanker at the Port of Brownsville, Texas to nations with an FTA with the United States. Barca also filed a separate application to export the same volumes from the same facility to non-FTA nations.
Of particular note is the Argent application since there seems to be growing interest in US LNG Exports to FTA countries and because these applications require automatic approval by the DOE. Accordingly, there is a possibility that much more LNG will leave the US destined to FTA nations than contemplated by the various economic studies that have been released.
The DOE has indicated it has a continuing obligation to continue to assess the cumulative impacts of each succeeding request for export authorization on the public interest with due regard to the effect on domestic natural gas supply and demand fundamentals. How DOE intends to do this remains unclear and with a total (FTA and non-FTA) of more than 40 Bcf/d of LNG exports already approved, it is becoming increasingly important for DOE to clarify how it intends to monitor the cumulative impact. Without such clarity, the fate and timing of additional
US LNG export approvals remains uncertain, as does the potential role for the US as a major LNG exporter.
Susan L. Sakmar is currently a visiting assistant law professor at the University of Houston Law Center and an expert on global gas markets, including LNG and global shale gas development. She is the author of the latest book on LNG,“Energy for the 21st Century: Opportunities and Challenges for LNG.”