For over two years Congress has complained about delays in the government permitting process for liquefied natural gas (LNG) export-terminals, and several bills were introduced to accelerate the processing of natural gas export applications.
In mid-2014 the Department of Energy (DOE) made changes to expedite the approval process, and now low natural gas prices have slowed industry interest in LNG exports. Today Congress and industry are focused on increasing the volumes of crude oil that can be exported, although legislation is stalled in Congress.
By late October DOE had approved five LNG export terminals that are under construction, located in:
- Sabine, La.
- Hackberry, La.
- Freeport, Texas.
- Cove Point, Md.
- Corpus Christi, Texas.
Another plant proposed for Sabine Pass, La., is approved but not under construction.
In the United States 22 export terminals have been proposed and are in various stages of the review process. In addition, dozens of export terminals are proposed for Canada.
With low natural gas prices, most people expect that the majority of the proposed export terminals will not be constructed.
However, a few plants probably will export gas, even in today’s low-price regime: Cheniere Energy Inc., for example, announced it would ship LNG from its Sabine plant in January, becoming the first exporting plant in the lower 48; and the Kenai, Alaska, LNG export plant started exporting in 1969, was mothballed in 2013 and then restarted in mid-2015.
In another twist, the Trans-Pacific Partnership would eliminate the need for much of the procedure for approving LNG export terminals, because exports to countries that have trading agreements with the United States are automatically approved.
The dream of selling U.S. natural gas into a global market in which prices are set in energy-output parity to crude oil selling at $100/barrel has vanished. Parity with a Brent oil price of $50/barrel would put natural gas at under $9 per million BTUs (MMBTU), which may be less than the cost to liquefy, transport and regasify the product – and real prices may be even lower. The Energy Intelligence Group reported September spot prices of $7.10/MMBTU for Northeast Asia.
The distant future may be no brighter.
Bloomberg, FGE energy consultants and others expect the global LNG market to be oversupplied for the next decade. However, a Bloomberg Intelligence analyst observed that U.S. brownfield plants, built on existing LNG import facilities, would be least likely to suffer delays or cancellations in low-price markets.
Continuing low prices can be blamed on a large and enduring natural gas surplus that is propelled by:
♦ U.S. gas production, driven by shale gas, is projected to fall slightly in 2016, but can grow quickly if prices rise.
In fact, unconventional gas production has proven more cost-efficient than expected. U.S. Energy Information Administration (EIA) data show that U.S. dry gas production has continued to grow as prices have fallen. A year ago Henry Hub spot prices were around $4/MMBTU. In August they were $2.77.
EIA reports that in August, for the second consecutive month, dry gas production was the highest since they began reporting. In fact, August 2015 production was almost 7 percent above August 2014.
♦ Northern Alaska holds over 100 trillion cubic feet of discovered and undiscovered natural gas resources (U.S. Geological Survey) awaiting a decision to build a pipeline from Alaska’s North Slope – a decision that would not be made until at least 2018-19.
Of course, there have been past proposals for natural gas pipelines from northern Alaska that have come to naught.
♦ Australia has over 100 TCF of economically demonstrated resources of conventional natural gas (Australian government).
Australia is projected to surpass Qatar as the world’s largest gas exporter by about 2018. Australian LNG will be the major competitor to U.S. LNG for Asian markets.
♦ The European Union committed to reduce its dependence on Russian natural gas after the 2006 and 2009 supply disruptions.
As U.S. production expanded, producers hoped to export to what seemed like a potentially growing European market, and U.S. legislators pushed for accelerated permitting of LNG export terminals to support our European allies.
Russia, however, remains their main supplier; 42 percent of EU natural gas imports were from Russia in 2014, although this represents a 10 percent drop in import volume. The Ruble continues to lose value against the dollar, increasing profit margins for Russian producers allowing them to sell at below-market prices.
Russia is expected to undercut U.S. LNG prices for many years.
♦ On the other side of the supply-demand equation, European demand for natural gas is declining with increased energy efficiency and the shift to renewable energy. In addition, weak Asian economies and the return of nuclear power in Japan also push down demand.
Of the many bills to accelerate approval of export facilities introduced in Congress in 2014, none passed both houses of Congress. There is much less activity this year, probably reflecting progress in permitting export terminals and low gas prices.
H.R. 351, the LNG Permitting Certainty and Transparency Act, which has passed the House, is sponsored by Rep. Bill Johnson (R-Ohio). It would require accelerated review of export applications and disclosure of the specific destination(s) of the exports. A similar measure, S. 33, was introduced in the Senate by Sen. John Barrasso (R-Wyo.). Neither of these bills is likely to get to the president.
In fact, in the current natural gas price environment, analysts expect that the United States will not need all the export facilities that have already been approved.
Meanwhile, Congress – especially Republicans, but including some Democrats – has been especially interested in legislation to end the 40-year ban on crude oil exports, and the House voted in October to lift the ban. The president, however, announced his intention to veto the measure if it gets to his desk, and the Senate seems unlikely to pass a stand-along oil export bill.
One early-November tactic to force the end of the oil export ban was to make it an amendment to the highway transportation bill. That effort failed to get the necessary support of the House Rules Committee.
Additional efforts to pass a bill will continue.