LNG export strategy should be balanced, expert tells House panel

The US should adopt an LNG export strategy that provides certainty for producers but doesn’t significantly increase prices for industries and other consumers, an expert told the US House Oversight and Investigations Committee.

“For starters, I disagree with the two most extreme proposals of a volumetric cap, or a policy where the US automatically approves all applications,” said Charles K. Ebinger, foreign policy director of the Brookings Institution’s Energy Security Initiative. “Both are treacherous to implement and may increase, rather than decrease, uncertainty.”

A policy that does not increase export costs, but does reflect the cost of constructing a facility at the beginning of the application would provide the necessary balance, Ebinger suggested.

It would require an applicant to successfully complete the Federal Energy Regulatory Commission’s prefiling process and have a portion of its supply contracts signed before being eligible to be considered by the US Department of Energy for an application to export LNG to countries which do not have a free trade agreement with the US, Ebinger said.

“Both requirements are costly and will encourage only serious projects to move forward,” he noted.

Defining ‘public interest’

Ebinger said more clarity should be brought to the public interest determination DOE is asked to reach in such applications, which currently is too vague and creates investment uncertainty.

“One possibility is to allow the ‘public interest’ to be dependent on the aforementioned two stipulations,” he said. “In other words, if a company completes its prefiling process and contracts out a given percentage of its capacity, the exports are deemed to be in the public interest.”

Finally, US gas export policies should be audited every 5 years, Ebinger said. “Such an audit would identify what happened to domestic gas supply, demand, and prices, and international markets during each 5-year period,” he said.

The Industrial Energy Consumers of America (IECA) would like DOE to complete a study analyzing LNG export implications as well as develop appropriate public interest determination guidelines through a formal rulemaking process, IECA Pres. Paul N. Cicio testified.

“The outstanding authorization requests present what is essentially a new challenge,” Cicio said. “In the modern era, the US government has not faced the need to determine the public interest in connection with requests to authorize exports of large volumes of natural gas.

He said, “Congress should encourage DOE to continue its effort to improve the process for evaluating LNG export applications by providing an opportunity for all affected constituencies and the public at large to comment on how best to assess the public interest as it pertains to [LNG] exports.”

Export economics

Global markets will determine whether US LNG exports are economically viable, according to Tom Choi, who leads the Natural Gas Practice at Deloitte MarketPoint LLC. “Just because US markets are connected to import markets does not mean that US prices will rise to the level of importing countries,” he told the committee.

The cost of LNG liquefaction, shipping, and regasification provides a large price wedge between US and import markets, Choi said. “Or stated differently, the price of gas in foreign markets needs to be about twice the current US price in order for LNG exports to be economically viable,” he said.

“Exports will only occur if wide price spreads persist, implying that sectors of the US economy that compete in global markets will not likely see their gas price advantage significantly diminish as a result of LNG exports,” Choi testified. “If large price spreads between markets begin to narrow, the economic quantity of US LNG exported would likely be reduced.”

Christopher A. Smith, acting assistant secretary for fossil energy at DOE, said that as of Mar. 7, DOE has approved one long-term application to export LNG from the Lower 48 to a non-FTA country. Cheniere Energy Partners LLC’s Sabine Liquefaction LLC was cleared to export LNG equal to 2.2 bcfd from the proposed Cameron Parish, La., facility.

Nineteen more applications to export another 26.1 bcfd to non-FTA countries are pending, he added. “Now that all comments have been received regarding the LNG Export Study from the comment period that ended Feb. 25, the department will take into consideration the study, the comments, and the record of the proceedings the 19 non-FTA LNG export applications,” Smith said. “[It] will then make a public interest determination and act on pending applications on a case-by-case basis.”

Contact Nick Snow at nicks@pennwell.com.

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