By Alex Robertson
The debate in the U.S. surrounding the liquefied natural gas (LNG) export facility approval process has become one of the most controversial issues in the energy sector. Many natural gas companies are eager to ship LNG overseas, where gas is more expensive.1 Others worry that quickly approving LNG terminals will dramatically increase domestic gas prices, thereby hampering domestic economic growth.
So far only one company, Cheniere Energy (Ticker Symbol: LNG), has gained approval from both the Department of Energy (DOE) and the Federal Energy Regulatory Commission (FERC) to build a functioning LNG export facility.2 Cheniere’s first export facility, which will be located at the Sabine Pass between Texas and Louisiana, will likely begin operations in 2015.3 At least sixteen other companies have filed requests for LNG export approval; however, the government is currently grappling with the decision of how and when such approval should be granted.4
The DOE has made one affirmative statement about the approval process: requests will be reviewed in the order in which the companies filed their applications.5 However, the more important issue is timing. How quickly should the DOE grant approval to LNG export facilities? Should it stagger the process, or approve all pending LNG export applications at once?6 The answers to these questions carry deep implications for the U.S. energy industry.
Lawmakers from several states in the oil patch, namely Texas, Oklahoma, Louisiana, and Arkansas, have urged Energy Secretary Steven Chu to speed up the approval process.7 These representatives, comprised of both Democrats and Republicans, argue that approving LNG exports will grow the economy, provide domestic jobs, and stabilize natural gas prices.8 Additionally, Congressman James Lankford pushed for LNG export approval on diplomatic policy grounds at a House committee meeting in March, stating, “For decades energy has been used as a diplomatic tool against the U.S. Now with LNG, the U.S. has the potential to flip that and be in a position to use energy as a tool to the benefit of our nation’s strategic interests.”9
Congressman Lankford makes a strong point; the U.S. has the potential to become a major natural gas exporter, with even President Obama dubbing America the “Saudi Arabia of natural gas.”10 Just a few years ago, energy analysts predicted that the U.S. would become a major natural gas importer. This all changed with new developments in drilling technology, such as hydraulic fracturing and horizontal drilling, which have allowed the U.S. to greatly increase its natural gas reserves.11 Now, the U.S. could potentially become the world’s largest exporter of natural gas if and when LNG export facilities are approved.
However, opponents argue that quickly approving LNG exports without limits will cause domestic gas prices to skyrocket.12 These opponents favor a staggered approval process, where the government would spread out export facility approvals over a number of years in hopes of avoiding a potential natural gas price shock.13 As Dow Chemical CEO, Andrew Liveris, put it in a Senate committee meeting, unrestricted LNG exports “would mean higher gas and electricity prices. It will mean higher transportation and utility costs for consumers as well as industry.”14 Mr. Liveris and others fear that high natural gas prices will force U.S. manufacturers to cut costs and ship more jobs overseas, thereby negatively affecting the U.S. economy.15 There is also opposition from environmentalists, who have long opposed the increase in hydraulic fracturing that could occur if the government grants widespread approval of LNG export facilities.16
The current debate comes at a key time when other countries are being more proactive than the United States in approving LNG exports. Canada, for example, has already issued three LNG export licenses with a total export capacity of 4.66 billion cubic feet of gas, more than twice the 2.2 billion cubic feet that the U.S. has permitted.17 Australia also has become a major player in the LNG export sector, last year becoming the largest supplier to Japan, the world’s largest natural gas buyer.18 In fact, earlier this month Exxon and BHP Billiton announced a joint venture to build the world’s largest offshore LNG processing and exporting facility off Australia’s northwestern coast.19 The plan is currently pending approval with the Australian government, but projects such as this show that major industry players are not shy about establishing a firm presence in other countries as the U.S. takes its time in approving LNG export facilities.20
Debate will continue between now and the time the DOE releases its study on LNG exports late this summer.21 Once the DOE releases its study, the Obama Administration will then move forward in its analysis of the situation.22 The DOE has said that there is no timeline for granting approval to the currently pending LNG export applications, leaving companies unsure when, and perhaps if, they will be allowed to export LNG.23 One thing is certain: the government’s decision will have an enormous impact on the U.S. energy industry. No matter where you stand in the debate, it will be interesting to see how it shapes out in the coming months.
A native of the oil patch, Alex grew up in Norman, Oklahoma and went on to attend the University of Missouri where he graduated summa cum laude with degrees in finance and real estate. Prior to law school, Alex interned at the U.S. Capitol in Washington D.C. for Congressman Dan Boren, a member of the House Committee on Natural Resources.
- Timothy Gardner, US DOE delays analysis, decisions on LNG exports, Reuters (Mar. 25, 2012, 3:50 PM), http://www.reuters.com/article/2012/03/23/usa-lng-exports-idAFL1E8EN8WU20120323.
- Ayesha Rascoe, New U.S. LNG export approvals face long wait – Cheniere Energy, (Nov. 13, 2012, 6:41 PM), http://www.reuters.com/article/2012/11/13/lng-exports-approvals-idUSL1E8MD7NA20121113.
- Lawmakers Request Administration to Speed Up Approval Process for LNG Export Facilities, Energy Solutions Forum (Aug. 8, 2012), http://energysolutionsforum.com/lawmakers-request-administration-to-speed-up-approval-process-for-lng-export-facilities/.
- Lawmakers Request Administration to Speed Up Approval Process for LNG Export Facilities, supra note 3; Steven Miles & Thomas Eastment, US debate on LNG exports centered at Energy Department, Oil & Gas Journal (Apr. 1, 2013), http://www.ogj.com/articles/print/volume-111/issue-4/special-report-lng-update/us-debate-on-lng-exports-centered.html.
- Brian Scheid, LNG approval process has lots of consequences, more questions, Platts (Apr. 2, 2013, 4:53 PM), http://blogs.platts.com/2013/04/02/lng-approvals/.
- Lawmakers Request Administration to Speed Up Approval Process for LNG Export Facilities, supra note 3.
- Lawmakers Request Administration to Speed Up Approval Process for LNG Export Facilities, supra note 3; Gardner, supra note 1.
- Jared Anderson, Experts Call on DOE to Speed up LNG Export Approvals, AOL Energy (Mar. 21, 2013), http://energy.aol.com/2013/03/21/experts-call-on-doe-to-speed-up-lng-export-approvals/.
- Mike Obel, Potential Surge Of US LNG Exports From Shale Natural Gas Boom Splits Corporate America; One Side Gets Allied With Environmentalists, International Business Times (Mar. 1, 2013, 9:31 PM), http://www.ibtimes.com/potential-surge-us-lng-exports-shale-natural-gas-boom-splits-corporate-america-one-side-gets-allied; Jason Koebler, Obama: U.S. ‘Saudi Arabia of Natural Gas’, U.S. News & World Report (Jan. 26, 2012), http://www.usnews.com/news/articles/2012/01/26/obama-us-saudi-arabia-of-natural-gas.
- Scheid, supra note 5.
- Brian Scheid, Manufacturers to push DOE for staggered LNG approvals, decision transparency, Platts (Mar. 19, 2013, 6:31 PM), http://www.platts.com/RSSFeedDetailedNews/RSSFeed/NaturalGas/6271855
- Obel, supra note 10.
- Justin Williams, Canada Taps LNG Export Market. While U.S. Waits, Canada Makes Moves, Energy & Capital (Apr. 4, 2013), http://www.energyandcapital.com/articles/canada-taps-lng-export-market/3251.
- Australia Becomes Largest LNG Exporter to Japan, LNG World News (Mar. 8, 2013), http://www.lngworldnews.com/australia-becomes-largest-lng-exporter-to-japan/.
- Rebekah Kebede, Exxon, BHP plan world’s largest floating LNG plant off Australia, Reuters (Apr. 2, 2013, 7:07 AM), http://www.reuters.com/article/2013/04/02/us-exxon-bhp-lng-idUSBRE9310C920130402.
- Gardner, supra note 1.