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Consideration of licenses to export natural gas from the U.S. will have to wait until the completion this summer of a study that has been delayed for several months, according to the Energy Department.

Since Cheniere Energy Inc. (LNG) received an Energy Department permit to ship gas from Louisiana last year, the agency suspended other applications and commissioned a study of the impact of exports on domestic energy consumption, production, and prices.

The first part of the study was published in January, while the second, initially scheduled to be ready in the first quarter of this year, has not been completed.

“The second part of the study, which will assess the broader economic effects of increased natural gas exports, is ongoing,” William Gibbons, an Energy Department spokesman, said in an e-mail yesterday. “We expect to be able to release the comprehensive study results late this summer.”

The assessments were initiated after complaints from several U.S. lawmakers, including Senator Ron Wyden, an Oregon Democrat, who said sales overseas might increase prices at home.

U.S. energy companies are concerned about the costs related to the delays, said Bill Cooper, president of the Washington- based Center for Liquefied Natural Gas, which advocates for natural-gas shipments. Even after the study is published, it’s not clear how quickly permits can be issued, he said.

“We don’t have any time frame on that at all,” Cooper, said in an interview. “It’s just totally up in the air.”

Investors Waiting

Investors including Sempra Energy (SRE) in partnership with Mitsubishi Corp. (8058) and Mitsui & Co. Ltd. (8031), Freeport LNG with Macquarie Group Ltd. (MQG), and Dominion Resources Inc. (D), have applied for approvals from the Energy Department.

The permits are required to sell to countries that aren’t free-trade partners with the U.S., a group that includes Japan and Spain.

Trade in gas that has been liquefied for transport surged 50 percent last year as Japan sought to replace lost nuclear power output and demand from the rest of Asia increased, according to the Paris-based International Group of Liquefied Natural Gas Importers. The nation imported 79.1 million tons of LNG last year, 12 percent more than a year earlier, according to the importers group.

Japan’s 54 reactors were shut pending safety checks after last year’s meltdown at Tokyo Electric Power Co. (9501)’s Fukushima Dai-Ichi plant in the northeast of the country. A government panel said on May 12 that the world’s third-largest economy may experience power shortages and blackouts this summer.

Japanese paid $16 per thousand cubic feet, 32 percent more than a year ago, to attract supplies in the first quarter, according to Sanford C. Bernstein & Co.

Those prices are attractive to producers in the U.S. where natural gas on the New York Mercantile Exchange was $2.503 per million British thermal units in the first quarter, an equivalent of $2.57 per thousand cubic feet. U.S. natural gas prices declined 79 percent over the past four years, following the increase in production from shale formations.

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New technology is a game changer for Louisiana’s energy future, but foreign rivalries and domestic legal issues are still stacking against the energy industry, according to Louisiana Oil and Gas Association President Don Briggs.

Addressing the association’s local members Tuesday, Briggs spoke of the challenges facing the industry.

“We are today truly in a new era for our industry,” Briggs said. “Technology is changing everything, and we’re going to be part of it in a big way, especially in northwest Louisiana.”

Those technologies have allowed drilling firms to reach unprecedented levels of production, which has driven a boom in investments across Louisiana, Briggs said. The Louisiana chemical industry has been a major benefactor, he said.

But even with natural gas prices falling rapidly, Briggs said concerns about the future of drilling on the Haynesville Shale will eventually fade. Only 42 percent of rigs in the United States are drilling primarily for natural gas, Briggs said, down from 82 percent in 2008.

“Natural gas prices are going in the tank. We had a good run, but that’s the nature of the beast,” Briggs said. “Even though the rigs are moving out, and they need to be, eventually that glut will be swallowed.”

But the challenge of natural gas prices is based on successful production and partly a mild winter. Briggs said the largest problems facing the industry are both foreign and domestic.

Increasing tension between the United States, Israel and Iran have raised the specter of skyrocketing oil prices, already trading around $100 per barrel. Briggs said military or political action could limit oil flow through the Strait of Hormuz, through which 35 percent of the world’s sea-born oil flows and which Iran has threatened to shut down.

“If that happens, we’ll see the price of oil go absolutely through the roof,” Briggs said.

But U.S. Environmental Protection Agency push-back against hydraulic fracturing — the process of breaking apart shale sediment with water, sand and chemicals to release natural gas — was the area Briggs said concerned him most.

The EPA has raised concern that fracking could contaminate groundwater and harm people and the environment. Briggs said those concerns are “scare tactics,” that 85 percent of wells today are fracked and there has never been proof it is harmful.

“I’m not sure we’re winning that battle,” Briggs said. “This administration doesn’t like the domestic oil and gas industry.”

Briggs also raised concerns about the effects of “legacy lawsuits” — claims against firms for environmental damage caused in years past — on the oil and gas industry.

“It’s a huge problem, and our industry has been on the back side of it,” Briggs said.

Briggs said 56 percent of the top 50 oil and gas producers have legacy suits filed against them. Good companies, he said, are being sued for environmental damage as much as 70 years old caused sometimes by drilling techniques legal at the time.

A founder of LOGA, Briggs also serves on governor-appointed committees such as the Ground Water Management Advisory Task Force, Governor’s Environmental Task Force and the Oilfield Site Restoration Committee.

“Don is always the guy leading the charge against bad legislation and challenges to our industry,” LOGA’s Chairman of the Board Raymond Lasseigne said.

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Cheap, plentiful natural gas is a “game changer” that will bring untold jobs and wealth to Americans, the top official with an organization representing oil and gas interests in the state said Thursday.

Don Briggs, president of the Louisiana Oil and Gas Association, was in Alexandria as part of a series of “State of the Industry” appearances. Much of his presentation focused on shale plays in Louisiana, in particular the vast deposits of natural gas they contain.

“It’s the bridge fuel of the future,” Briggs said. “We’re in a changing world. The neat thing is Louisiana is at the heart of it.”

Vast resources have already been discovered in the northwest part of Louisiana in the Haynesville Shale. As big as that discovery has been, Briggs believes barely a tenth of the wells that will eventually be drilled in the formation have come online thus far.

Companies are starting exploration into the Tuscaloosa Marine Shale, part of which runs through Central

Louisiana.

“You’ve got some good companies involved in it,” Briggs said of the Tuscaloosa Shale. “How far and how much bigger this thing can get, we don’t know. They have to do a lot of testing.”

The oil and gas found in such shale formations can be key to America’s energy future, Briggs said. Natural gas, in particular, has almost limitless potential as a power generator, feedstock for industrial plants, transportation fuel and commodity to be exported.

“I can’t tell you how critical it is to have natural gas for all our different businesses and industry,” Briggs said. “The jobs this kind of asset can bring are enormous.”

There are, however, challenges to taking advantage of that potential, including:

»Price.

Despite the potential of and demand for natural gas, the number of gas wells in the U.S. has shrunk recently as gas prices have remained low.

Natural gas prices went up more than 7 percent Thursday due to reports that supplies had shrunk more than analysts expected. Futures rose 17 cents to $2.55 per 1,000 cubic feet, but that’s still too low, Briggs said.

“We need that to be at least $4-$4.25 for wells to be economical,” he said.

»Regulations.

Natural gas in shale formations is accessed by hydraulic fracturing, or “fracking” — a process of horizontal drilling where shales are fractured to get to the gas they contain.

Fears in the industry are the Environmental Protection Agency will overregulate or outlaw fracking.

“Here’s my concern, we watched what happened in the Gulf of Mexico with one company doing something they shouldn’t have done,” Briggs said.

»Louisiana’s legal climate.

Briggs showed a study ranking the state 49th out of 50 among the worst states for lawsuits.

“We’re the worst of the worst,” he said. “And that does have an impact when people look where to invest their money.”

Despite those potential negatives, Briggs sees the country’s energy future and Louisiana’s role in it as overwhelmingly positive. By 2020, he said, the U.S. will pass Russia and Saudi Arabia as the world’s leading oil and gas producer.

“We are an energy state,” he said. “We are so important.”

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BG Group announced recently that it has reached agreement with Sabine Pass Liquefaction, LLC (Sabine Liquefaction), a subsidiary of Cheniere Energy Partners, L.P., to purchase an additional 2 million tonnes of liquefied natural gas (LNG) over a 20-year period from the Sabine Pass terminal in Louisiana, USA.

In October 2011, BG Group announced it had signed a fully-termed sale and purchase agreement (SPA) with Sabine Liquefaction for the purchase of 3.5 mtpa of LNG over a 20-year period. The additional volumes associated with today’s announcement have been incorporated into the SPA.

BG Group Chief Executive Sir Frank Chapman said: “The purchase of additional volumes from the Sabine Pass facility builds on the ground-breaking agreement we entered into last year, in which BG Group secured LNG export volumes from the US Gulf Coast.

“The agreement adds further volume to our diversified global LNG supply portfolio and is underpinned by the recent material increases in US gas reserves as well as a favourable long-term outlook for global LNG demand.”

Construction of the liquefaction facilities at Sabine Pass is scheduled to begin in 2012, with an initial phase of two LNG trains. Construction of the second phase, an additional two trains, is expected to commence in 2013, with exports from the initial phase to start as early as 2015 and for the second phase from as early as 2017.

At the same time, BG Group is pursuing an expansion of the Lake Charles LNG terminal, in Louisiana, USA, to provide natural gas liquefaction services. The US Department of Energy (DoE) has authorised the terminal to export up to 730 Bcf of natural gas per year (approximately 15 mtpa) to countries that have a free trade agreement in place with the USA.

The DOE is reviewing an application to export natural gas from the Lake Charles LNG terminal to countries that do not have a free trade agreement with the USA.
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Korea Gas Corp. (036460) agreed to buy liquefied natural gas from Cheniere Energy Partners LP (CQP), the second such deal by an Asian company in two months, seeking to take advantage of the cheapest U.S. supplies in a decade.

The world’s largest LNG importer agreed to buy 3.5 million metric tons annually from the proposed Sabine Pass terminal in Louisiana for two decades starting 2017, Houston-based Cheniere said yesterday. The price will be linked to monthly levels at Henry Hub, a U.S. benchmark, plus a fixed component.

Asia accounts for more than 60 percent of global LNG demand and buyers are turning to North America, where record production from shale deposits has driven down U.S. prices. GAIL India Ltd. (GAIL) last month became the first Asian buyer of U.S. LNG at Henry Hub prices, weakening a 40-year-old oil-link currently used to price long-term supplies in Asia.

“More and more Asian buyers will look to buy LNG from the U.S., that will be their first choice because it’s cheaper,” said Osamu Fujisawa, an independent energy economist in Tokyo. “As more companies get U.S. LNG, Asia’s link to oil will start weakening over the years.”

Bank of America Corp. has said LNG shipments to Asia from the U.S. may slow the development of new projects in Australia, a traditional supplier of LNG to the region. Ventures in Australia and Qatar sell LNG to Asian buyers at prices linked to the so-called Japan Crude Cocktail.

Korea Gas declined 1 percent to 44,400 won at the close of trade in Seoul. Cheniere Energy Partners rose 0.6 percent to $21.43 at the close in New York. Cheniere Energy Inc. (LNG), the owner of 90.6 percent of Cheniere Energy Partners, fell 1 cent to $12.70.

South Korea, India

The contracts signed by the state-controlled companies from South Korea and India are subject to Cheniere getting approvals and financing to expand the proposed liquefaction facility at its Sabine Pass terminal, according to the Houston-based partnership.

Increased U.S. gas production from shale formations has helped drive prices to a 10-year low and led owners of LNG terminals to explore exports. U.S. gas production grew by a record 4.5 billion cubic feet a day in 2011, the Energy Department said in a Jan. 10 report, while demand growth lagged behind at 920 million. About 482 trillion cubic feet can be produced from U.S. shale basins, according to the department.

Gas in New York trading has declined 11 percent this month after falling 32 percent last year, a fourth straight annual decline. Prices were 2.3 percent lower at $2.65 per million Btu at 1:38 p.m. Singapore time.

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