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US LNG study gives green light to export rush

07 Dec 2012 15:57:54 | lmd

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An increase of US LNG exports is projected to reap economic benefits, even in cases of unlimited LNG capacity, according to a long-awaited study commissioned by the US Department of Energy (DOE), which gives a wholehearted endorsement of the US liquefaction push.

"In all of these cases, benefits that come from export expansion more than outweigh the losses from reduced capital and wage income to US consumers, and hence LNG exports have net economic benefits in spite of higher domestic natural gas prices," according to the study's key findings.

The study - submitted on 3 December by the New York-based consulting firm NERA Economic Consulting - was made available by the federal energy agency on 5 December.

The DOE has effectively imposed a moratorium on approving LNG export licenses for non-free-trade-agreement (FTA) nations since the autumn of 2011, after initially approving Cheniere Energy's 18m tonne per annum (mtpa) Sabine Pass scheme in Louisiana.

Over the past year 19 project filings have stacked up in the regulatory queue, with 14 projects seeking requests to export to non-free-trade-agreement countries. In total, 209mtpa has been requested to export to trade-friendly nations, include Sabine Pass' project, and 173mtpa has been sought for non-FTA countries, according to the DOE.

The US DOE has a statutory mandate to approve export licenses to free trade agreement nations if the application process meets regulatory requirements.

"All in all, this is incredibly positive development for the industry," David Wochner, a partner with the US-based law firm Sutherland specialising in energy regulation.

The NERA consultants study is the second part of the two-fold study commissioned by the US DOE.

Last January, the US Energy Information Administration (EIA) published its examination of the impact on domestic gas prices under various scenarios based on shale production and LNG export project ramp-up.

Consultation period

Now that the second part of the study has been completed, the US DOE will accept comments on the report from 5 December until 24 January, according to the agency's notice. A response period will be held until 25 February.

Once the comment and response windows have concluded, the DOE is then expected to take up the consideration of the projects in the order of which they were filed, with preference given to projects in the Federal Energy Regulatory Commission (FERC) pre-filing stage, ICIS understands.

At least nine of the projects meet this criteria, as US pipeline major Kinder Morgan made the move on Wednesday to initiate pre-filings for its two import terminals, a 4mpta proposal for Elba Island and a 11.5mpta plan for the Gulf LNG facility.

The findings bode well for the pending projects that have awaited the finalisation of commercial agreements with liquefaction offtakers, particularly those with advanced offtake agreements.

Freeport LNG, which is considered the next in line for consideration, expects full approval of its export application next quarter, after the public comment period has finished, according to a company statement.

"We are pleased that the administration's study supports our view that LNG exports will be very positive to our country's economy and energy security," according to Freeport LNG, which has signed 2.2mtpa agreements for 20 years each with Japanese utilities Chubu Electric Power and Osaka Gas.

The outcome of the study, however, does not guarantee the approval of each LNG project. Environmental opposition, particularly from the advocacy group Sierra Club and US lawmakers such as Sen. Ron Wyden, a Democrat from Oregon, have called for greater scrutiny from regulators on the pending export applications.

"This doesn't necessarily mean that DOE licenses every single project," Wochman noted. "The DOE will continue to do a thorough analysis of each project."

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