WASHINGTON — The Obama administration says its new plan for vetting proposals to sell liquefied natural gas overseas is aimed at streamlining the review process, but energy companies and aspiring exporters say the government’s approach could have the opposite effect.
“The proposed changes . . . will actually exacerbate delays in the current review process for LNG export authorizations” and “create regulatory uncertainty,” said Erik Milito, upstream director for the American Petroleum Institute, in written comments filed with the Energy Department.
The Energy Department’s proposed approach, announced in May, would prioritize reviews for more commercially advanced projects, instead of considering natural gas export applications on a first-come, first-served order largely based on when they were filed. Under the proposal, the department would wait to evaluate export applications until the projects first have cleared separate environmental reviews, usually while being vetted by the Federal Energy Regulatory Commission.
And the Energy Department would stop handing out “conditional” export approvals, forgoing a practice that so far has given six projects — and potential investors in them — some assurance they will secure the licenses necessary to sell the fossil fuel to countries that are not free-trade partners with the United States.
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The Energy Department said that ending the conditional decisions and focusing reviews on projects that are ready for final action would “avoid the possibility of delayed action on applications that are otherwise ready to proceed.”
But industry representatives said those conditional approvals are an important signal to potential investors and customers that a project is ripe.
“By ending the practice of issuing conditional orders for most applications, the department is arbitrarily eliminating an important signaling mechanism to markets — both for U.S. project financing and for natural gas commodities globally — and to our strategic allies,” API said.
Bill Cooper, head of the Center for Liquefied Natural Gas, said the conditional decisions help applicants effectively negotiate with customers.
“A timely decision — even a conditional decision — sends a clear message to the customers that applicants are on track for ultimate operations of the facilities proposed,” Cooper told the Energy Department. “Conversely, continued delays in issuing decisions cause uncertainty, costing the applicants significant sums of money because of the lost time, either in securing customers or setting definitive construction schedules.”
The environmental review process at the Federal Energy Regulatory Commission generally takes about 18 months and typically costs more than $100 million.
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“It would be wasteful to dedicate such resources to projects that may not even receive final Department of Energy authorization,” said Exxon Mobil Corp., which is a partner in the proposed Golden Pass LNG project in southeast Texas. “A requirement for each project to invest significant time and capital with no certainty for a timely decision on the rights to export LNG would be a troubling foundation for future investments.”
Exxon Mobil praised the Energy Department for recognizing “that a project advancing through the rigorous FERC process is more likely to proceed.” But the company said regulators were overlooking “the need for a timely decision” on the expensive, multibillion-dollar LNG export projects.
Golden Pass Products also filed comments insisting that the Energy Department’s proposed changes “neither speed up the approval process nor materially improve the quality of decisions.” U.S. LNG projects will be “at an even greater competitive disadvantage…unless a firm decision timeline commitment is added.”
Exxon’s Golden Pass’s export application is still pending at the Energy Department. It is not one of the six projects that already hold export permits and have benefited from the current, conditional licensing process.
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It is perhaps not surprising, then, that Cameron LNG — one of the six projects that already has secured a conditional export license — has a different take.
Noting that the environmental review process “requires a substantial financial undertaking,” Cameron LNG said it agreed with regulators that “applicants that have undertaken such expenses to successfully complete (it) have a higher probability of completing the projects proposed.”
Cameron LNG said the proposed changes would allow the Department of Energy to use its resources more efficiently and devote them “to providing timely action on applications furthest along in the regulatory review process.” The change also means that the Energy Department will be able “to evaluate the most current economic and other data” by issuing export authorizations closer in time to their actual construction, Cameron LNG said.
The Hackberry, La. project, which involves Sempra LNG, GDF Suez and other companies, recently nabbed final approval from FERC and is waiting for the Energy Department to replace its conditional export license with a final order.
Dominion Corp. — whose Lusby, Md., Cove Point LNG project is next in line for review at FERC — stressed that it should not be held up by any new procedures or the Energy Department’s planned studies of the environmental and economic issues surrounding natural gas exports. “Our liquefaction project is a prime example of the type of ready-to-proceed project that DOE should expedite,” Dominion said.
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Houston-based Kinder Morgan Inc., which owns two LNG import terminals and tens of thousands of miles of natural gas pipelines, commended the government’s attempt to accelerate decisions on LNG projects. But Kinder Morgan said the Energy Department should issue verdicts on export licenses no longer than a month after environmental reviews are completed.
Some big industrial users urged the Energy Department to be cautious in approving natural gas exports that are likely to push up domestic prices for the fossil fuel.
The Industrial Energy Consumers of America told the department to refrain from considering more natural gas applications until it finishes the new economic study, which would replace a 2012 analysis. The Energy Department has said it plans no such timeout while the studies are underway.
“Great caution is warranted because LNG exports shift significant risk onto all consumers and to the domestic economy,” the group said. “For manufacturing, availability and affordability of natural gas is crucial to competitiveness and jobs.”
The American Public Gas Association, which represents publicly owned natural gas distribution systems, said the proposed changes and new studies are “consistent with building the best record not only as to environmental issues but also as to consumer-impact issues affecting the public interest determination.”