Update: U.S. Approves Second Terminal to Export Natural Gas
* Freeport first project approved since 2011
* Manufacturers concerned about unlimited gas exports
* Still unclear when DOE will act on other projects
* DOE says applications decided on case-by-case basis
* Lawmaker says more debate needed on gas exports
The Obama administration opened the door to a new era of U.S. energy exports on Friday, approving the first liquefied natural gas project since the start of a heated debate over how best to benefit from the shale energy boom.
The Energy Department's approval of unrestricted natural gas exports from Freeport LNG's Quintana Island, Texas, terminal ends nearly a two-year pause in its review of export applications as the administration addressed concerns that sending unlimited amounts of domestic gas abroad could harm U.S. manufacturers.
While the approval had been widely expected after growing signals that President Barack Obama supported exports, the timing of the decision just one day after the Senate approved a new Energy Department secretary was a surprise. Many observers had expected the administration would wait until Ernest Moniz had settled into his new role before moving ahead.
The green light for Freeport's terminal, which in its first phase will export the equivalent of about two percent of current U.S. gas production, offers little clarity on the future of the more than two dozen LNG projects still awaiting a DOE decision.
The response to Friday's decision was cautiously optimistic on both sides of the debate. Dow Chemical, a major consumer of U.S. gas that fears unfettered exports would drive up prices, said it supported the Freeport decision because it was a measured and balanced approach to LNG exports.
The American Petroleum Institute called the move a step in the right direction, but said the rest of the applications need to be approved swiftly.
Analysts warned that U.S. exporters are racing the clock. Other countries including Canada and Australia are also building up LNG facilities, threatening to soak up market share.
"The window of opportunity is closing quickly so the longer the process takes in getting DOE approval the likelihood that the U.S. will face steeper competition is increasing," said Teri Viswanath, an analyst at BNP Paribas.
TWO YEAR WAIT
Since the department signed off on exports from Cheniere's Sabine Pass terminal in 2011, the first project to apply, a fierce debate over the future of America's natural gas bounty has swept through Washington and elsewhere.
Rapid growth in shale gas output has placed the United States in a position to be a major gas exporter, upending years of expectations that the nation would have to rely increasingly on imports of gas. Freeport LNG, among the first to realize that the import terminal it built in 2008 would likely be useless, moved to revamp it for exports instead.
Some 26 applications have been filed to export natural gas, but a vocal contingent led by Dow Chemical have argued that allowing unlimited exports could raise prices and hinder a resurgence in U.S. manufacturing.
Energy Department authorization is required for gas exports to all but a handful of countries with free-trade agreements. Without approval to export to major gas consumers that don't hold such agreements, including Japan and India, multi-billion dollar LNG export facilities would likely not be economically feasible.
The administration held off on making further decisions in order to study the potential impact on the U.S. economy, which is in the midst of an industrial rebirth thanks in part to the cheap energy offered by an excess of natural gas.
A Energy department-commissioned study by NERA Economic Consulting released late last year found that the more gas exports allowed, the greater the economic benefits.
On Friday, natural gas prices for 2015 and beyond were little moved by the news, trading at around $4.30-$4.60 per million British thermal units (mmBtu). That is only a little bit higher than current prices as traders expect the rapid rise in shale gas production to outstrip demand, including the rise that is likely to come from LNG exports.
The Freeport project, part-owned by ConocoPhillips and Osaka Gas Co Ltd, will allow the company to export up to 1.4 billion cubic feet of natural gas a day for 20 years. Osaka, Chubu Electric Power Co and BP have already committed to buying gas from the project.
FAVORING FRONT OF THE LINE
The department stressed that going forward, applications would be reviewed on a case by case basis. Decisions will be made on the applications in the order in when they were filed with the department and giving preference to the companies which have filed with the Federal Energy Regulatory Commission, which must issue a license for construction of LNG terminals.
Senator Ron Wyden, a prominent skeptic of unrestrained gas exports, said the department's "measured" approach provides a "constructive way for this discussion to go forward."
"Based upon my conversations with DOE it is my expectation that the department will use that process to assess the market impacts of each export decision after it is announced, to ensure American consumers are not harmed by large-scale exports," said Wyden, the democratic chairman of the Senate energy committee.
With critics calling for allowing only a limited amount of exports, supporters of the gas projects have raised concerns that the terminals at the front of the line will have an unfair advantage.
Freeport was at the top of the queue. Other projects near the beginning of the line, include terminals backed by Dominion , Sempra, BG Group and Veresen Inc.
"Everything we've seen to date points to a subset of the pending applications being conditionally approved, a small first tranche," said Kevin Book, energy analyst with ClearView Energy Partners.
The department's approvals are conditional pending FERC's decision on a construction license, a separate process that typically takes months.
MORE DEBATE NEEDED?
Congressman Edward Markey, a prominent critic of gas exports, called the decision to allow exports from Freeport premature.
"The Department of Energy still doesn't even know what the impact of natural gas exports will be on domestic businesses and consumers, but they are approving more exports anyways," Markey said.
Dow Chemical said it does support exports, but "not too much too soon."
Ironically the company owns a 15 percent stake in the Freeport terminal, which it purchased in 2004 on the assumption that it would be forced to import frozen gas to use as its plants.
"We've never been against exports, but we've opposed unfettered exports that risk seeing natural gas prices rise too fast for consumers," said Dow Vice President George Blitz.
He said the company would not be investing in the export portion of the terminal.
--By Ayesha Rascoe (C) Reuters 2013.