Bloomberg News

Years Needed for LNG Exports to Blunt Russia Energy Sales

March 07, 2014

The Sempra Energy Building in San Diego

Russia’s military escalation in Ukraine is spurring calls in Congress for quick U.S. approval of plans to export liquefied natural gas from plants owned by companies including Cheniere Energy Inc., Dominion Resources Inc. and Sempra Energy. Photographer: Sam Hodgson/Bloomberg

U.S. efforts to speed natural gas exports as a way to loosen Russia’s grip on European energy supplies may be thwarted by lengthy reviews and developer reluctance to proceed with multibillion-dollar projects.

Russia’s military escalation in Ukraine is spurring calls in Congress for quick U.S. approval of plans to export liquefied natural gas from plants owned by companies including Cheniere Energy Inc. (LNG:US), Dominion Resources (D:US) Inc. and Sempra Energy. (SRE:US) Russia provides 30 percent of Europe’s gas needs using pipelines that cross Ukraine.

“I view this as an incredible opportunity for the United States to highlight its position as an energy superpower,” Representative Cory Gardner, a Colorado Republican, said yesterday in a phone interview after introducing legislation to streamline the federal review of pending export projects.

While the shale-gas boom has made the U.S. the world’s largest natural gas producer, efforts to ship the fuel are bogged down by rules, financing needs and construction demands. Winning U.S. approval can take three years or longer, and not all companies planning a project are committed to completing the work.

Only one facility, Cheniere’s $10 billion Sabine Pass terminal in Cameron Parish, Louisiana, has the required approvals from the Energy Department and U.S. Federal Energy Regulatory Commission. Shipments are scheduled to start in late 2015, according to the company.

More Work

Russia’s OAO Gazprom (GAZP) today threatened to disrupt Ukraine’s natural gas supply if it doesn’t pay $1.89 billion owed to the company for recent shipments, according to a statement from Gazprom Chief Executive Officer Alexey Miller. Russia last cut off Ukraine’s gas supplies in 2009 over a similar dispute.

European Union Trade Commissioner Karel De Gucht said in an interview today that a Russian cut in supplies wouldn’t be a major issue for the EU, in part because the 28-nation trading bloc has six weeks of strategic reserves.

U.S. producers want the Obama administration to expedite the export process, though the terminals remain unbuilt.

“We only have one approved license actually, and the molecules still aren’t going to flow for a while,” Energy Secretary Ernest Moniz told reporters March 5 at a conference in Houston. After the Cheniere license, the most optimistic view for the next set of LNG shipments to leave the U.S. isn’t until 2017 or 2018, according to Moniz.

“So, there’s still quite a ways to go,” he said.

Canada, Mexico

The U.S. is exporting some natural gas to Canada and Mexico, almost all by pipeline. Sending the product to Europe would require infrastructure that doesn’t exist: plants to super-freeze the gas into a liquid suitable for transport on special tankers. The only U.S. plant for LNG, operated by ConocoPhillips (COP:US) in Alaska, has been shut since 2012.

Lawmakers are exploring ways to help Ukraine and the European Union -- which depend on gas supplies from the east -- after Russia occupied Ukraine’s Crimean peninsula and escalated months of political unrest. The House yesterday passed a bill to provide $1 billion in loan guarantees sought by President Barack Obama’s administration to aid the former Soviet republic. The Senate hasn’t yet acted.

U.S. financial aid to may ultimately end up in Russia anyway if Ukraine needs to pay its eastern neighbor for natural gas, said Amit Khandelwal, a professor at Columbia University’s Graduate School of Business in New York.

‘Money’s Fungible’

“Money’s fungible,” he said in a phone interview. If the U.S. were to stipulate that aid couldn’t be used to pay gas debts to Russia, Ukraine could free up money from another source, Khandelwal said. “It’s just moving money around.”

Ukraine would need to receive natural gas from another source in order to prevent having to pay Russia for its gas supplies, he said.

Advances in drilling techniques, including hydraulic fracturing, or fracking, have boosted U.S. production of the fuel by 35 percent from a decade-low 18 trillion cubic feet in 2005, according to the U.S. Energy Information Administration. Since the Energy Department approved Cheniere’s application in May 2011, natural gas production has increased 8 percent.

The glut has reduced U.S. energy prices, prompted a manufacturing boom and prompted some lawmakers to urge keeping supplies steady at home to support domestic jobs. Exporting to nations willing to pay more might cause U.S. prices to climb.

Export Foe

“We should not give away the domestic economic and national security rewards of our natural gas boom, and then just hope that the market reduces the risk of international conflicts,” Senator Edward Markey, a Massachusetts Democrat, said yesterday in a statement. He offered a bill to require further Energy Department scrutiny of natural gas exports to determine if shipping abroad is in the national interest.

The path to approval for gas-export projects is complex. Exporters need an Energy Department permit to ship the fuel to countries that don’t have a free-trade agreement with the U.S. - - such as Japan and those in the EU. The FERC conducts a separate environmental and safety review. State regulators also weigh in.

The FERC and Energy Department reviews can take one year and as long a two before a decision is made.

The agencies review projects as expeditiously as possible, on a case-by-case basis, spokesmen for the agencies have said.

Applications Approved

The Energy Department has approved six applications for export projects that would process 9.07 billion cubic feet of liquefied natural gas a day. It’s weighing 24 applications for projects to handle more than 31 billion cubic feet. The U.S. produces an average of 69 billion cubic feet of gas a day.

Representative Fred Upton, who heads the Energy and Commerce Committee, endorsed Gardner’s bill, which would approve all pending LNG-export projects that had received a notice in the Federal Register as of yesterday. Projects would still need to clear a federal environmental and safety review.

“Passing this legislation sends the clear signal that America intends to take full advantage of our energy resources,” Upton, a Michigan Republican, said in a statement.

Lawmakers want to expedite the approvals so U.S. allies, such as nations in Europe that get about 30 percent of their natural gas from Russia, will have more options.

Gas Consumption

Ukraine in 2012 consumed about 1.9 trillion cubic feet of natural gas, or a daily average of about 5.1 billion, according to the U.S. Energy Information Administration. The European Union consumed about 16.8 trillion cubic feet, an average of about 50 billion a day.

“The situation in Ukraine illustrates why we need to keep pushing aggressively for these projects,” Mike Saccone, a spokesman for Senator Mark Udall, a Colorado Democrat, said by phone. Udall, Gardner and Representative Mike Turner, an Ohio Republican, introduced bills to expand the list of nations that would benefit from a streamlined review for export applications.

Dominion expects its Cove Point facility in Maryland, about 60 miles (97 kilometers) southeast of Washington, to complete the FERC review early this year. The project has contracts to deliver fuel to Japan and India, according to data from Poten & Partners Inc., a New York-based ship broker.

Sempra is anticipating approval for its Cameron LNG export terminal in Hackberry, Louisiana, by July 1. The facility has contracts for deliveries to Japan and Taiwan.

Export Terminals

Cove Point, which may cost as much as $3.8 billion to construct, would start shipping LNG in late 2017. Cameron, a $9 billion to $10 billion project, also would start shipments that year. The plant won’t be in full operation until 2018.

Closely held Freeport LNG Development of Houston in the past year won Energy Department approval to build then expand an export terminal at Quintana Island, Texas. The company, with contracts in Japan and South Korea, expects FERC approval in the second half of this year, according to its website.

While Energy Transfer Equity LP (ETE:US) and London-based BG Group Plc (BG/) have Energy Department approval for an export facility at Lake Charles, Louisiana, the companies haven’t committed to building the project and haven’t yet filed a formal application with the FERC.

“Using this crisis as an excuse to rapidly and massively expand exports of America’s natural gas won’t help Ukraine now,” Markey said. “What massively exporting America’s natural gas will do is undercut American manufacturers trying to create jobs.”

To contact the reporter on this story: Brian Wingfield in Washington at bwingfield3@bloomberg.net

To contact the editors responsible for this story: Jon Morgan at jmorgan97@bloomberg.net Steve Geimann


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Companies Mentioned

  • LNG
    (Cheniere Energy Inc)
    • $76.0 USD
    • 1.50
    • 1.97%
  • D
    (Dominion Resources Inc/VA)
    • $70.21 USD
    • 0.27
    • 0.38%
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