Winners and losers in feds’ new gas export review plan

WASHINGTON — The Obama administration’s plan for shaking up the way it vets proposals to export natural gas had the curious effect of winning praise from both a fierce critic and a fan of those foreign sales.

The Energy Department was able to unite export foe Sen. Ed Markey, D-Mass., and advocate Sen. Mark Udall, D-Colo., by devising a new approach that appears to accelerate the review process overall, even though it extends the time benefits to just a few well-heeled players.

For most of the two dozen projects still waiting for liquefied natural gas export licenses from the Energy Department, the end result is more delay.

That’s welcome news to some manufacturers — and their allies on Capitol Hill — who have asked the Energy Department to at least temporarily stop processing export applications while studying the economic effects of sending more U.S. gas overseas.

As part of the changes announced Thursday, the Energy Department will embark on two broad studies of the economics and environmental footprint of natural gas exports.

“America shouldn’t export first and ask questions later. This new push for more analysis by the Energy Department is a welcome development,” Markey said in a written statement. “While these new studies and environmental reviews are ongoing, we should take this chance to hit the pause button on any new natural gas export approvals.”

Udall, who has pressed the administration to accelerate LNG exports, also praised the move, calling it an effort “to cut red tape and speed up the U.S. Department of Energy’s review of pending liquefied natural gas export terminals.”

‘Pause…without the negative headline’

The Energy Department intends to scrap a two-year-old approach for considering applications to export LNG to countries that don’t have free trade agreements with the United States. Instead of reviewing them in the order they were filed, as the agency largely does now, the Energy Department would first tackle those that have already cleared an expensive, time-consuming environmental assessment typically done by the Federal Energy Regulatory Commission.

“We see the change, in practice, as having the same effect as the pause in approvals . . . although perhaps without the direct negative headline,” said Benjamin Salisbury, an analyst for FBR Capital Markets & Co., in a research note to clients.

Related story: Stakes are high for LNG export plan

In the short term, the plan gives a boost to projects that have already filed with FERC (or even been cleared by the agency) — but were further down the Energy Department’s queue. For instance, FERC has already blessed Cheniere Energy’s plans to add liquefaction capacity to its Sabine Pass project now under construction in Louisiana — but the expansion was No. 13 in line for an export license at the Energy Department.

Not far away, the Golden Pass terminal that counts Exxon Mobil as a partner is set to gain from the change; that project has been perched at No. 9 in the Energy Department’s queue, even though it launched a pre-filing process with FERC.

Delays for some

The good news for those few appears to come with a dose of bad for more speculative projects that were hoping to get an Energy Department export license in hand before seeking customers and financing for the liquefaction terminals that cost many billions of dollars to build.

“The Department of Energy’s proposed modification does not holistically halt progress towards LNG exports, but there are some circumstances where fast-forwarding to a higher hurdle might make financing efforts more challenging,” said Kevin Book, an analyst with ClearView Energy in Washington, D.C.

Related story: Companies face hurdles to export natural gas

The projects most clearly disadvantaged by the new approach are those whose export applications were next in line for Energy Department scrutiny — but which had not gotten far at FERC — including Excelerate Liquefaction Solutions, which planned to build a terminal in Calhoun County, Texas.

FBR’s Salisbury predicts that by essentially waiting for FERC approval before acting on export applications, the Energy Department is effectively delaying the next decision until late this year, at the earliest.

Approved gas volumes

The proposed approach does have one definitive outcome: The total volume of exports covered under Department of Energy approvals would better reflect reality.

The current process, by contrast, has given fodder to export critics by producing licenses for projects that may never materialize. Although the Energy Department had at least conditionally authorized nearly 10 billion cubic feet per day of natural gas exports to non-FTA nations, for instance, perhaps fewer than 5 billion cubic feet  per day of those authorized exports would actually ever take place.

Salisbury said the total volume of authorized exports would be much more realistic as a result.

“By bypassing conditional approval, the Department of Energy avoids the political headache of approving projects unlikely to be built and preserves political capital for approving those capable of reaching the finish line,” Salisbury said.

Also on FuelFix:

Stakes are high for LNG export plan

The Obama administration’s plan for shaking up the way it vets proposals to export natural gas had the curious effect of winning praise from both a fierce critic and fan of those foreign sales.