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US delays decision on LNG exports

A decision to withhold approvals for US liquefied natural gas (LNG) exports will leave domestic producers cooling their heels until after presidential elections

In delaying a report into the economic impacts of large-scale LNG exports, the Department of Energy (DOE) said it “is committed to taking the time necessary to get the decisions right.” After a previous delay in March, the latest delay will push final authorisation for pending export applications until 2013.

Federal law requires automatic approval of natural gas exports to countries that have free trade agreements (FTA) with the US. But for those that do not, the department reviews proposed exports on a case-by-case basis to ensure they are “consistent” with the public interest.

To date, only one such application has been approved — Chenier Energy’s 2.2 billion cubic feet per day (cf/d) Sabine Pass facility in Louisiana. On 11 September it entered into partial agreements with Total Gas and Power that could support the addition of a fifth liquefaction train.

But another 11 non-FTA applications representing about 16.4bn cf/d are still outstanding. The DOE delays are not sitting well with companies who say they need regulatory certainty to make investment decisions.

In August, a bipartisan group of 44 legislators petitioned Energy Secretary Steven Chu to hasten the review. Those pleas have fallen on deaf ears.

“These investments cannot be made or fully supported without predictable timelines for decision making by the department,” said the letter. “In our collective view, it is time to bring a renewed sense of urgency to the approval process.”

The lawmakers highlighted Canada and Australia’s substantial investments in LNG exports to further emphasise the urgency of their request. Both countries are pushing ahead with major LNG export terminals. In late September Joe Oliver, Canada’s natural resources minister said he expects the country’s first exports to begin in 2014.

The urgency is being driven by low North American natural gas prices, which are prompting producers to look abroad for new markets. Natural gas futures have hovered below $3 per million British thermal units (Btu) for most of the year, closing at $2.78/m Btu in New York on 18 September.

Those are some of the lowest prices since 1999, and are about half of levels producers consider necessary to generate modest returns.

By contrast, offloaded LNG cargoes are fetching more than $16/m Btu in Asia. Japan’s decision to retire its fleet of nuclear reactors by 2040 means that demand is likely to accelerate.

But opponents worry that allowing exports will erode the US’ low-cost advantage and discourage investments in petrochemicals and manufacturing. They fret that allowing exports will increase domestic gas prices by tying them to international markets.

According to the American Public Gas Association, “large-scale export of LNG is antithetical to reducing energy dependence... and will sacrifice America’s unique opportunity to substantially reduce energy dependence”.

But industry counters that it will be forced to cut back drilling and activity — eventually reducing available supply — if prices stay low.

Neither president Barack Obama nor Republican presidential candidate Mitt Romney have been clear on the issue, but both have touted low-cost natural gas the central plank of their plans to create jobs and increase energy security.

Obama’s decision to delay the decision offers little insight into his thinking on the matter. Almost counterintuitively, it seems to suggest he is inclined to allow exports despite the fact that oil and gas producers are almost universally opposed to his policies.

By delaying approval, he avoids angering a core constituency that believes allowing LNG exports will export jobs. Potential exporters may not like having to wait until after 6 November to discover their fate, but it is their best hope.

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