Guess Who’s Trying to Slow Down LNG Exports Now

by | published April 1st, 2014

As the rush to export liquefied natural gas (LNG) gathers steam, our portfolio is primed for even bigger gains.

Make no mistake, LNG exports are now set to hand us one of the best investment opportunities of the decade.

That’s a stunning reversal from just seven years ago, when everyone agreed the U.S. would be using LNG imports to meet 15% of its gas needs by 2020.

However, the unconventional shale boom (shale, tight, coal bed methane) has changed everything we used to think about natural gas.

Now, even the most conservative Russian estimates acknowledge that the U.S. could be providing between 6% and 8% of all LNG exports worldwide by 2020.

In fact, Cheniere Energy Inc. (NYSE:LNG) has already, garnered no less than five huge multi-billion dollar 20-year contracts with some of the largest European and Asian importers.

But new developments have suddenly thrown up another hurdle that threatens to delay all of this economic promise.

Here’s the countermove that’s brewing in Washington D.C right now…

A New Wrinkle in the LNG Export Debate

At the 11th hour, the Environmental Protection Agency has now stepped in.

At issue is the application by Sempra Energy (NYSE:SRE) for permission to export LNG from a terminal at Cameron, La.

You see, despite the fact that the Department of Energy (DOE) authorized exports in this case over a month ago, the Federal Energy Regulatory Commission (FERC) must still approve all export permits.

That’s where the Environmental Protection Agency (EPA) has figured in.

The U.S. environmental regulator has again raised concerns about what the export of LNG may mean to the aggregate production of natural gas.

Specifically, the EPA has recommended that FERC review the proposed Sempra Energy export project to determine the potential environmental effects of more natural gas drilling. The EPA released its findings on March 3, but FERC only published its findings on Friday (March 28).

In its findings, the EPA urged FERC to weigh the indirect greenhouse gas emissions and other environmental effects that would result from the increase in gas drilling required to supply exports from the Cameron plant.

Now both sides on the issue of drilling regard the EPA assessment as a new wrinkle in the debate over how much LNG should be exported from the U.S.

FERC should “consider the extent to which implementation of the proposed project could increase the demand for domestic natural gas extraction, as well as potential environmental impacts associated with the potential increased production of natural gas,” the EPA said in response to the commission’s draft review of the project.

An Exercise in Keystone XL Logic

Of course, we’ve already seen an application of this type of reasoning in another recent policy decision.

In providing what amounted to support for the construction of the Keystone XL pipeline, the environmental impact assessment (EIA) released by the U.S. Department of State (DOS) concluded that the pipeline project would not directly lead to increased heavy oil and oil sands production in Canada.

In other words, the “indirect” impact on production argument has already been employed.

In the case of a contentious cross-border crude oil pipeline, DOS concluded there was not a direct causative relationship between moving oil south and increasing production north of the border. The production will take place anyway, the EIA concluded.

However, some proponents who want to place limits on U.S. (and maybe even North American) drilling regard the EPA finding in the Sempra case as more promising.

Here, the argument goes, each further allowance of LNG exports comprises a direct incentive for additional natural gas drilling.

After all, the environmentalists maintain, the exports are not coming from supplies of gas that would have been used domestically. That supply is already covered. Rather, LNG comprises new additional volume that would have remained in the ground otherwise.

Industry experts point to the lack of tangible data on the subject, which may actually provide unintentional support to the point the EPA is making. True, the agency is not calling for a restriction of drilling per se. And even if the LNG does result from a net increase in drilling, the environmental impact still must be determined.

But in the case of such exports, the opposition may have a new policy angle to support their cause… at least in the demand for additional considerations.

It is not an issue that there are genuine environmental concerns here. On the other hand, LNG processors and the natural gas operators supplying them are strongly of the opinion that the gas exported will not have an adverse environmental impact.

The Hurdles to Economic Growth

Of course, with the likely LNG volume expected to come online as early as a year from now, projected exports would allow for substantially increased American gas production since there are currently no American exports in the international market.

Now, it looks like the U.S. will be moving at least nine million tons annually before we reach 2020.

Assuming the terminal facilities are up and operating, that would mean the ability to lift 48 billion cubic feet of natural gas for each million tons of LNG transited without impacting the price of gas at home – which in itself is another political concern.

However, the amount of economically extractable natural gas available makes the higher price argument an untenable position as well. At current technology and market conditions, we can now increase overall American gas production by 25% per year into the foreseeable future. In short, there is plenty of natural gas to go around.

Exporting a portion of this largess will merely add jobs, introduce business opportunities for a large range of support and service companies, and provide significant injections of revenue into local and regional markets, while enhancing local tax bases.

Still, with EPA’s latest findings, there’s now another set of looming hurdles to negotiate.

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  1. j ledlow
    April 1st, 2014 at 12:48 | #1

    In other words, the Obama Administration has not received the “total” pound of flesh that it exacts from any corporation that needs a Federal Agency approval. Sempra paid the Dept. of Energy “$X” amount under the table and said “enough is enough”. The administration said, “okay” and now they are sending in the pit-bull EPA to get the total amount they were extracting to begin with. That is how Chicago politics is played.

  2. Citizen
    April 1st, 2014 at 12:59 | #2

    Face it. The EPA is now a domestic terrorist organization directed by the President. Part of their core mission is to weaken the US economically, and force jobs overseas.

  3. John Huynh
    April 1st, 2014 at 13:16 | #3

    When you write an article like this, it helps the readers to be a little more precise when using Initials. In this article, both Cheniere (LNG) and Liquid Natural Gas (LNG) were quoted and LNG was used thoughout the article.

  4. April 1st, 2014 at 14:27 | #4

    Could this be “the flexibility” Obama told Putin he would have after the election?

  5. Carl Townsend
    April 1st, 2014 at 15:22 | #5

    Dear Sir: – Your article talks about environmentalists – BUT APPEARS to mean EXTREMIST environmentalist. I have a MS is it, & over 20 yrs w/EPA. Your article ignores that there are many current wells that go thru producing NG zones that are not even hooked up to extract NG because of the very LO PRICE of the product. Some, in the Gulf, are 200 feet thick. Much of the exported NG will come from these wells, not NEW ones. Please do your RESEARCH before publishing data & inferring conclusions. Also, Natural Gas is the most nominal of all pollutants. I helped write the new well regs – & if followed, will protect from 99% of all potential leaks.

  6. April 1st, 2014 at 16:17 | #6

    This administration hass used these road-blocks wholesale. The
    Keystone XL pipelane route ha been approved for the state of Nebraska by the state Legislature but they still will not OK the project.
    Approval would mean thousands of jobs and milliions of dollars to our economy but they could care less. How do you deal with bandits like these?

  7. April 1st, 2014 at 18:28 | #7

    I wish that I could say: Shocking – but it just shows further corruption of our Governmental process!

  8. April 1st, 2014 at 19:34 | #8

    Those unspeakable bastards! How much more CRAP do we have to take from this administration, huh? The EPA is THE most abominable agency that has ever existed!

  9. Dmaymid
    April 2nd, 2014 at 04:22 | #9

    The USA appears to have a massive amount of LNG to use but after seeing the Free For All that developed in the UKs sector of the North Sea. At that time no one knows how much gas was burnt by the uncontrolled flaring that lasted for years by all the OIl Companies regardless of where in the world they were based. Natural resources do not last for ever so your government should act responsibly to control the amount that is exported in order to make sure that a few decades down the line you are not back in the position that you are leaving at the moment.

  10. John Boyle
    April 4th, 2014 at 07:52 | #10

    Follow the money. Warren Buffet’s railroad is now hauling most of the crude out of ND and all of the coal out of the Powder River/Gillette WY area. The Keystone pipeline will be approved when it’s politically expedient…and the donors have been repaid. And the environmentalists get all the blame.

  11. Cunning
    April 4th, 2014 at 22:22 | #11

    This is not hard to figure out. Obama is being paid billions by the Arabs to do anything he can to stop exports of oil and gas that would cut the Arabs income especially OPEC to almost nothing, plus their wells are now on the 1/4 tank mark, of course Obamas billions in bribes will never show up on his Income tax, they are well hidden with the lost billions of iraq and Afganistan in UE banks aloing with karsies millions. finding EPA zelots to do his dirty work and deley is a no brainer.

  12. ShayK
    April 11th, 2014 at 03:36 | #12

    The seriously concerning issues with KXL is the shoddy work done during the building of the pipeline, the disregard for safety and lack of care in preventing contaminating leaks that are the result. There were over 150 safety violations for shoddy work found in a section of the southern pipeline.
    The “oil” is being shipped overseas. It is not for America. Canada’s territories and ports refused to allow the pipeline because they don’t want their land and lives contaminated. They KNOW the reality. Why can’t we see the reality. Its n our face right now: West Virginia, duke energy, and on and on. Because the right continues to privatize profits and prevent the EPA from protecting the people.
    Why are you concerned with a few thousand jobs when the obstruction in DC has cost us around 1.5 million jobs the past 2 years alone?

  13. Dr. Mike
    July 24th, 2014 at 12:39 | #13

    The land man sells the flag and energy independence to PA and WV folks. Exports though look like where some real money can be made. I guess this includes offshore markets where US jobs were out-sourced for low wages and not low energy cost reasons. Heck…let’s provide them energy now to manufacture.

    PA now has half of its state forest system leased for drilling along with a legacy of 5000 miles of acid mine drainage. Act 13 tried to take away local zoning and it has more waivers in it than Obama care concerning buffer distances and well spacings.

    Sure some can make a lot of money with this export push, but folks like me (actual PA residents and tax payers vs migrants from TX, LA) get stuck with the bill and mess. We are now paying to remediate the AMD legacy. Down the line, we face junked unmortgagable land and orphaned wells after the sell off-depletion games are done. A mined and drilled out industrialized State Forest system will also present opportunity and other costs.

    Given the current costs of prior booms here, it would seem prudent to think this through a bit. Exactly how much and fast do ya’ll want to come up south and finish trashing PA? Relax. A lot of money was made for some with C3 last winter and the cash is flowing.

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