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The Appeal of US LNG Exports

By Peter Staas on Apr. 24, 2014

The US Dept of Energy ostensibly will play a role in picking the winners by determining which projects ultimately secure permits for exports to nations with which the US lacks a free-trade agreement.

Thus far, the regulator has approved a total of 10.9 billion cubic feet per day (83.5 mmtpa) of export capacity for unrestricted shipments, a volume that would propel the US into the ranks of the top three LNG producers.

The agency will consider each application on an individual basis and weigh the cumulative effect of previous authorizations when granting approvals. Accordingly, the projects at the top of the review list stand the best chance of gaining approval.

Applying to the Dept of Energy for a permit to export LNG costs hundreds of dollars–one of the reasons for the profusion of proposed projects.

However, getting the go-ahead from the Federal Energy Regulatory Commission (FERC), which assesses the safety and environmental effects of proposed liquefaction capacity, can cost between $50 and $100 million.

Given these expenses, the list of would-be LNG exporters that have applied for FERC approval is considerably shorter and reflects a higher level of commitment than seeking an export permit.

Brown-field facilities that contemplate adding liquefaction capacity to existing import terminals face fewer impediments to securing FERC approval relative to green-field proposals in the Pacific Northwest, where environmental opposition is strong.

Nevertheless, the markets ultimately will dictate which projects move forward and which fall by the wayside.

Building natural-gas liquefaction and export facilities requires a significant capital investment, especially green-field developments; regardless of how many liquefaction facilities ultimately obtain FERC’s approval for construction, the financial markets should favor projects that have secured long-term capacity reservation agreements from customers.

These onerous capital requirements traditionally have prevented overbuilding on the supply sde within the global LNG market. And too many export terminals could spoil the party by driving up US natural-gas prices, killing the impetus for additional development.

The table below highlights the five US LNG export projects that have secured long-term supply agreements with potential customers; these commitments give these proposals pole position to actually move forward.

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