Federal Fracking Initiatives Starting To Gel; PHMSA Reforms Uncertain; DOE Allowing More LNG Exports

July 2011, Vol. 66 No. 7

In May, Cheniere signed a Memorandum of Understanding (MOU) with the Lithuanian energy company Klaipedos Nafta to supply an LNG terminal that company is building. That was the latest in a string of MOUs Cheniere has signed.

Most sectors within the natural gas industry seem to be happy with this emerging possibility. But some gas producers are neutral, such as Shell, which could benefit from having additional markets for its gas, but could be hurt perhaps as a major holder of LNG import rights at U.S. LNG terminals.

Two other similar applications are in the DOE queue: Freeport Expansion L.P. and FLNG Liquefaction LLC (FLEX); and Lake Charles Exports LLC, a subsidiary of Southern Union Co.

Cheniere says exports won't start flowing until at least 2015. Not only does Sabine need FERC approval of an environmental impact study of the construction and operation of the liquefaction facility, Cheniere needs to get satisfactory construction contracts and enter into long-term customer contracts sufficient to underpin financing of the project.

The conditional authorization approves the export of up to the equivalent of 16 million metric tons per annum (or approximately 2.2 Bcf/day of natural gas) over a 20-year term. But the DOE said that if LNG exports do hurt domestic supplies it has the authority, following a hearing and for good cause, to take "necessary and appropriate action," presumably limiting or even prohibiting further exports.

The Sabine Pass application was opposed by a couple of major gas consumer groups because of their concern that exports would end up increasing domestic prices. The critics included the Industrial Energy Consumers of America (ICEA) and the American Public Gas Association (APGA), who argued that the DOE's approval of a 20-year export term could prove problematic if current estimates of U.S. domestic natural gas supplies prove erroneous. They noted there could be U.S. regulatory challenges to shale gas production and perhaps local landowner protests, in either case putting a kink in projected gas supplies.

The $2 billion FLEX liquefaction project, adjacent to Freeport's existing LNG import terminal in Freeport, TX, would export about 1.4 Bcf/d. Freeport has a partnership with Macquarie Energy, the North American energy marketing and trading arm of Macquarie Group to sell the LNG abroad.