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DOE approves second LNG export license Conditional approval given for export to non-FTA countries from Freeport LNG Terminal; term 20 years; rate up to 1.4 bcf per day Kristen Nelson Petroleum News
The U.S. Department of Energy Office of Fossil Energy has conditionally approved liquefied natural gas export from the Freeport LNG Terminal on Quintana Island, Texas, to countries that do not have a Free Trade Agreement with the United States.
DOE had approved LNG export from the facility to FTA countries in February 2011.
The approval, for an export rate of up to 1.4 billion cubic feet per day for 20 years, is conditional subject to environmental review and final regulatory approval.
The department has numerous applications in queue and said it would evaluate applications case by case based on the public interest.
The applicant, Freeport LNG Expansion L.P. and FLNG Liquefaction LLC, referred to in the department’s order as FLEX, requested a 25-year term, commencing when export operations begin.
DOE said because the NERA Economic Consulting study — one of two commissioned by DOE on LNG export — “contains projections over a 20-year period beginning from the date of first export, we believe that caution recommends limiting this conditional authorization to no longer than a 20-year term beginning from the date of first export.”
DOE is also requiring as a condition of the authorization that FLEX begin LNG exports using its Liquefaction Project facilities within seven years of the May 17 date of issuance of the order. The department said that condition “is to ensure that other entities that may seek similar authorizations are not frustrated in their efforts to obtain those authorizations by authorization holders that are not engaged in actual export operations.”
In May 2011 DOE issued its first long-term authorization to export domestically produced LNG to non-FTA countries to Sabine Pass Liquefaction LLC. That authorization was for 2.2 bcf per day. The initial order was conditional; DOE granted final authority for Sabine in August 2011.
Numerous applications DOE said when it began considering the FLEX application in 2011 it was expecting more applications and in that same timeframe received an application from Lake Charles Exports LLC. The combined Sabine, FLEX and Lake Charles applications totaled up to 5.6 bcf per day.
The department now has 20 applications for long-term export of LNG to non-FTA countries pending, totaling some 26 bcf per day, and will continue to process applications on a case-by-case basis.
Because of the potential cumulative impact of pending and anticipated LNG export applications, DOE in 2011 engaged the U.S. Energy Information Administration and NERA Economic Consulting to conduct a two-part study of the economic impacts of LNG exports.
The EIA study was published in January 2012; the NERA study in December 2012.
DOE said that based on a review of the complete record it has concluded that opponents of the FLEX export application “have not demonstrated that the requested authorization would be inconsistent with the public interest.”
DOE said it finds that exports proposed by FLEX “are likely to yield net economic benefits to the United States” and that granting the export authorization “is unlikely to affect adversely the availability of natural gas supplies to domestic consumers or result in natural gas price increases or increased price volatility such as would negate the net economic benefits to the United States.”
Sufficient natural gas DOE said FLEX “introduced substantial evidence projecting a future supply of domestic natural gas sufficient to support both the proposed export authorization and domestic natural gas” and no commenters or intervenors “submitted contrary studies.”
While the FLEX evidence “indicated a modest increase in the domestic market price for natural gas through 2035,” the application “also demonstrated significant local and regional economic benefits in terms of employment and income.”
APGA, the American Public Gas Association, protested FLEX’s application, contending “that export of substantial quantities of natural gas, such as that proposed by FLEX, may have significant adverse implications for domestic natural gas consumers, domestic energy supply, and natural security.”
DOE said the APGA protest — the only one it received in response to its notice of application — “was not supported by any significant analysis and, to the extent the arguments raised in APGA’s protest constituted substantial evidence, that material did not identify meaningful errors or omissions in the studies submitted by FLEX.”
Benefits from export DOE said the LNG export study it commissioned “provides substantial additional support for conditionally granting” the FLEX application, with the study concluding the U.S. “will experience net economic benefits from issuance of authorizations to export domestically produced LNG.”
DOE also said its decision was not based on an uncritical acceptance of the LNG export study, but said that in general it “continues to subscribe to the principle set forth in our 1984 Policy Guidelines that, under most circumstances, the market is the most efficient means of allocating natural gas supplies.”
The department concluded that “the best available evidence supports the conclusion that FLEX’s proposed exports will benefit the U.S. economy overall and are consistent with the public interest.”
DOE said it “will assess the cumulative impacts of each succeeding request for export authorization on the public interest with due regard to the effect on domestic natural gas supply and demand fundamentals.”
Proceeding cautiously In saying that it would proceed cautiously, DOE noted that the LNG export study, “like any study based on assumptions and economic projections, is inherently limited in its predictive accuracy.”
It also said applications to export significant quantities of domestically produced LNG “are a new phenomena with uncertain impacts” and noted that “the market for natural gas has experienced rapid reversals in the past and is again changing rapidly due to economic, technological, and regulatory developments. The market of the future very likely will not resemble the market of today.”
Because of those factors, DOE said it intends “to monitor developments that could tend to undermine the public interest in grants of successive applications for exports of domestically produced LNG and, as previously stated, to attach terms and conditions to the authorization in this proceeding and to succeeding LNG export authorizations as are necessary for protection of the public interest.”
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