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The Obama administration on Monday once again delayed release of a report on expanding liquefied natural gas exports, likely pushing beyond the election a decision on the potentially contentious issue of sending U.S. gas abroad.

Commissioned by the Energy Department to examine the economic impact of LNG exports, the report by an unidentified third-party contractor is now expected to be completed by the end of the year.

Any decision on natural gas exports will likely be made by the victor in the November 6 presidential election – either President Barack Obama or his Republican challenger, Mitt Romney.

The department, which has said it will not make any decision on allowing further LNG exports until the analysis is completed, had previously pledged to release the report by late summer.

“The Department of Energy takes its statutory responsibility to make public interest determinations on natural gas export applications very seriously and is committed to taking the time necessary to get the decisions right,” the department said in a statement.

It was the second delay of the report, which was initially expected in March.

“This is a complicated economic analysis assessing a dynamic market,” a department official said regarding the postponed report. “We’ll release the report once it’s complete.”

Natural gas exports to all but a handful of countries with Free Trade Agreements with the United States require approval from the department.

After years of projections that the United States would increasingly need to rely on foreign sources for natural gas, advances in drilling techniques have led to a boom in shale gas production that has put the country in a position to export excess gas.

But manufacturers and some lawmakers have raised concerns that exports could increase energy costs at home and undercut U.S. industries.

“For members of Congress seeking reelection, LNG exports may be an issue with two wrong sides,” ClearView Energy Partners said in research note on Monday.

Support for exports could leave politicians open to accusations of raising natural gas prices, while opposition could lead to charges of failing to support oil and gas jobs, the research note said.

As a compromise, the Obama administration may be considering capping exports at 6 to 7.4 billion cubic feet initially, ClearView said.

The department has approved exports from just one project so far, Cheniere Energy’s Sabine Pass terminal.

After that approval, the Obama administration put LNG export applications from companies such as Dominion Resources and Sempra Energy on hold pending the outcome of the economic analysis.

“It certainly does not come as a surprise that the report has been delayed yet again,” said Bill Cooper, president of the Center for Liquefied Natural Gas (CLNG), an industry trade group. “However, CLNG is disappointed in the news.”

 

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Stop the presses: Qatar, which sits on two-thirds of the world’s biggest conventional gas field in its own territorial waters, has applied with ExxonMobil (XOM) to the US Department of Energy for a license to export liquefied natural gas (LNG) from Port Arthur, Texas.

In a document received by the department August 17, Golden Pass Products (GPP), a Houston-based joint venture between state-owned Qatar Petroleum and ExxonMobil, seeks long-term, multi-contract authorization to export US-produced LNG to any country with the capability to import the fuel that has or will sign a free trade agreement with the US requiring “national treatment” for trade in natural gas. [Editor's note: ExxonMobile is the second biggest publicly traded producer of oil following PetroChina (PTR)].

“This application represents the first part of GPP’s planned two-part request for authorization to export domestic natural gas in the form of LNG,” the company said in its filing. “GPP will file a separate application with the Department of Energy, Office of Fossil Energy, to export domestically produced LNG to any country with which the US does not have a free trade agreement requiring national treatment for trade in natural gas, and which has or in the future develops the capacity to import LNG via ocean-going carrier, and with which trade is not prohibited by US law or policy,” it added.

GPP also said it planned to apply to the US Federal Energy Regulatory Commission for authorization to build and operated gas liquefaction facilities on the site of the joint venture’s existing LNG import terminal in order to liquefy and deliver domestically produced natural gas to ocean-going vessels.

The company said it was seeking a 25-year contract to export up to 740 Bcf (15.6 million mt) of natural gas annually, with the contract to commence on the earlier of the date of the first export or 10 years from issuance.

“GPP requests this export authority for itself so that it can engage in natural gas purchases and LNG sales for export, and act as agent for third parties. In addition, GPP seeks authorization to provide services as a tolling facility for third parties,” it said.

Converting the US Gulf coast LNG import terminal to produce and export the fuel would cost about $10 billion, QP and ExxonMobil have estimated, making the application a serious vote of confidence in the robustness of the US shale gas revolution. The unexpected explosion in domestic US gas production is still gaining momentum, causing North American gas prices to collapse and drastically affecting Qatar’s earlier plans to export LNG, the most expensive form of natural gas, to the US and eastern Canada.

Qatar, with 77 million mt of annual LNG production capacity, is the world’s leading exporter of the fuel.

“GPP plans to export domestically produced natural gas delivered from the interstate pipeline grid and sourced from [the] very large and liquid US gas market,” the joint venture said. “LNG exports will provide an outlet for domestic gas production, thereby promoting the continued development of US energy resources.”

The company also said its proposed LNG production and export facilities would be integrated with the existing underutilized import terminal, allowing the facilities to adjust to changes in market conditions that might in future favor LNG imports.

“This flexibility comports with DOE policy favoring the trade of natural gas on a market-competitive basis,” it argued.

In the gas world, the combined pockets of Qatar Petroleum and ExxonMobil are about as deep as they get. Moreover, the two have a history of partnering in LNG ventures. They jointly own and operate some of Qatar’s biggest LNG plants.

Their joint application for a US gas export permit is the strongest indication yet that the US, after a decades long hiatus, is poised to resume its one-time role of supplying energy to the world beyond its borders.

 

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The United States should allow the market to dictate exports of liquefied natural gas and avoid laws that promote or limit shipments, according to a new report by The Brookings Institution.

The cost of producing, processing and shipping the natural gas, and the global market for LNG will limit the amount of U.S. gas that can be profitably exported, the study says. Each new export terminal will increase the price of natural gas a little, which will make it more difficult for each additional terminal to make money.

David Dismukes, associate director of the LSU Center for Energy Studies, agreed with the study’s conclusions.

“I think ultimately the market is going to provide its own discipline as to how much leaves the United States in terms of exports,” Dismukes said. “There’s a lot of gas in other places in the world, and a lot of it is very, very affordable.”

When natural gas prices pick up globally, there will be more incentives for those low-cost areas to increase their production, Dismukes said. The competition will limit U.S. exports and should alleviate some of the concerns about exports’ impact on prices, which for U.S. consumers are at a 10-year low.

The U.S. Department of Energy has gotten applications for nine export facilities, three of them in Louisiana. In addition, three Canadian export facilities have been proposed.

The proposed U.S. plants would be able to export 14.8 billion cubic feet of natural gas per day — nearly 40 percent of it from facilities in Louisiana.

The three in Louisiana and their daily capacities are Cheniere Energy’s Sabine Pass facility, 2.2 billion cubic feet; Cameron LNG in Hackberry, 1.7 billion cubic feet; and BG and Southern Union in Lake Charles, 2.0 billion cubic feet.

The report says some of those facilities probably won’t be built. Those that are will face increasing competition from foreign suppliers of shale gas, as well as an Australian LNG facility capable of exporting 12 billion cubic feet per day.

The petrochemical industry and utilities, major users of natural gas, have questioned the wisdom of a wide-open LNG export market. The petrochemical industry, a major part of Louisiana’s economy, has gained a major price advantage over foreign competitors as a result of low natural gas prices. But petrochemical firms worry the advantage wrought by gas production from shale formations will disappear if unlimited LNG exports are allowed.

Consumers would also suffer if utilities are forced to pass along higher fuel prices to customers.

Some critics have pushed for federal legislation to limit LNG exports.

The Brookings report says that’s a bad idea.

“Efforts to intervene in the market by policy makers are likely to result in subsidies to consumers at the expense of producers, and to lead to unintended consequences,” the report says. “They are also likely to weaken the position of the United States as a supporter of a global trading system characterized by the free flow of goods and capital.”

The study says LNG exports will likely have only a modest impact on domestic natural gas prices and a limited effect on the competitiveness of U.S. industry and job creation.

The terminals cost billions of dollars and it takes years to get state and federal approval for the facilities and to build them.

However, environmental activist Wilma Subra said there is another factor to consider in LNG exports.

Exports will also encourage continued drilling and production from shale formations, and that will have a “huge impact” on the environment and people’s health, Subra said.

“I think that’s the part that’s not being looked at and addressed,” Subra said.

The Brookings report says the three major environmental issues for shale gas production are water, emissions and other pollution, such as noise.

In hydraulic fracturing, water, sand and chemicals are forced underground under high pressure to crack rock formations and release the natural gas or oil from shale formations. The main environmental focus has been the risk of contaminating surface water and water tables, the enormous amount of water used in the process and disposing of wastewater from fracking.

Several studies on fracking and its environmental impact are under way, the report says, but so far there has been no conclusive evidence that fracking is linked to groundwater contamination.

Dismukes said there’s an easy solution for the industries concerned that LNG exports will hurt business.

“They can start contracting up these supplies themselves,” Dismukes said.

A lot of gas producers want the certainty of a guaranteed price, at the right price point, Dismukes said. Those producers are willing to negotiate longer-term deals.

The problem for industrial users, such as Dow or PPG or OxyChem, is that they can’t accurately predict where the market will be five years from now or what they’re going to be producing, Dismukes said. The uncertainty makes it riskier to commit to a longer-term contract for natural gas.

There’s less risk for utilities, with their captive customer bases, Dismukes said. It makes sense for power companies to commit to longer-term deals.

It also would make sense for one of the many petrochemical companies that recently announced plans to increase production capacity, an increase tied to low natural gas prices, to lock in some of that price advantage, Dismukes said.

 

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