U.S. LNG Boom Fueling Port Projects
Following a recently released Dept. of Energy macroeconomic study that concluded exporting natural gas would have an overall positive economic benefit, U.S. contractors are supporting a rush of feasibility and engineering work for potential liquefied-natural-gas, or LNG, export terminals.
DOE could begin deciding within a month whether to let developers export LNG to countries without free-trade agreements (FTA) with the U.S. A favorable ruling would send exporters scurrying down the long road to approval from the Federal Energy Regulatory Commission (FERC), then securing multibillion-dollar contracts and financing to build the behemoth terminals.
"It's a very large and growing part of the project-execution business," says Gary Donovan, vice president of sales for North American energy and chemicals for Fluor Corp., which is developing LNG terminals in other countries. "It's a big opportunity in North America. It seems to be developing quite rapidly."
At the beginning of January, 23 developers had applied to export a total of 31.41 billion cu ft (bcf) per day of natural gas—almost half the total of U.S. natural-gas production—to non-FTA countries. While it is assumed that exporting LNG to FTA countries would be in the national interest, DOE must evaluate deals with non-FTA countries on a case-by-case basis.
Just a few years ago, no one would have expected the U.S. to have a surplus of natural gas: Developers were planning and building LNG import terminals. However, shale-gas development has provided a glut. Producers are pushing to export the cheap LNG to developing countries and places such as Japan, which is paying six to eight times the price of U.S. natural gas for its LNG. Japan, though, is a non-FTA country.
An $11-Billion Trickle
In 2010, DOE approved one non-FTA agreement for Cheniere Energy to export 2.2 bcf a day out of Sabine Pass on the Louisiana-Texas border. FERC permitted the facility, and Cheniere awarded Bechtel engineering, procurement and construction projects to build two phases of the $11-billion facility.
But after that first approval, DOE held off approving more terminals until it could further study the export of LNG. One study by the Energy Information Administration led to a second study by NERA Economic Consulting; that study was released on Dec. 5 by DOE.
The NERA study found the export of natural gas would have an overall economic benefit to the U.S. but at a cost to those not involved in the natural-gas industry, including consumers who would pay more for natural gas.
Exporting LNG has its fans, from the oil-and-gas industry to more than 100 members of the House of Representatives who are urging quick approval of the terminals to boost the economy.
But manufacturers fear price spikes, and lawmakers, including Energy and Natural Resources Chairman Ron Wyden (D-Ore.), remain skeptical of exporting the U.S.'s own natural resources. Wyden has scheduled his first hearing as chairman on the issue on Feb. 12.
Still others are concerned about the environmental impacts of exporting LNG. The Energy Information Administration reports that 63% of exported natural gas will come from new production, mostly from wells drilled using hydraulic fracturing. Even an additional 6 bcf a day will lead to a 5% increase in hydraulic fracturing, says Craig Segall of the Sierra Club.
After an initial commenting period on NERA's macroeconomic study as well as a comment period that ends on Feb. 25, DOE will consider the comments and the studies before deciding on whether to allow developers to export LNG. Once that approval is received, the developers have to undergo a costly and lengthy permitting process through the FERC before they can export LNG.
Greg Hopper, managing director of Black & Veatch's natural-gas consulting practice, says his company expects DOE will approve additional LNG terminals. "The price impacts of more than 6 bcfs a day are sustainable within the market. But there will be far fewer than what's been proposed," Hopper says.
Pulitzer Prize-winning author and energy analyst Daniel Yergin told a House energy subcommittee panel on Feb. 5 that of the export terminals proposed, fewer than six ultimately will be built.
Fearing a DOE-placed cap on the amount of exports allowed, Hopper says Black & Veatch clients are rushing to get their foot in the door before DOE completely shuts it.
Hopper says there are many feasibility studies in development on LNG facilities of all sizes in all coastal regions.
But Hopper and others agree that facilities along the Gulf Coast and those with existing infrastructure—Sabine Pass, for instance, originally was built as an LNG import terminal—will have an edge over other plans.
While some proposed expansions along the East and West coasts may gain the clearances necessary to move forward, there are more environmental and infrastructure issues at those locations. The Gulf Coast already is close to an ample supply of natural gas. Donovan says Fluor is actively tracking seven projects in the U.S. that have good prospects.
Black & Veatch is working with the state of Alaska to develop an LNG terminal there. That project has a large supply of stranded natural gas that could be easily shipped to Japan. The cost to build the pipeline from the fields to the terminal and to build the terminal in the rugged Alaskan conditions, though, would come at a premium cost.
Hopper and Fluor's Donovan also say there is a great deal of activity to develop export terminals in Canada, where proposed terminals are ahead of most of those proposed in the U.S.
Offshore Interests
Competition from Canada, Australia and other areas may be what ultimately limits LNG exports. If the U.S. does not build the export terminals quickly enough, other terminals in the world will be built and the U.S. could be shut out.
"That's the challenge for producers—to move forward to capture a portion of the market before it gets served by other development locations," Donovan says.
In another scenario, U.S. natural-gas prices could rise, making it uncompetitive with gas from other regions.
To get financing for LNG export terminals that cost $2 billion to $8 billion each, U.S. exporters would need a price advantage, or spread, of $3.40 per million metric British thermal units for 10 to 12 years, says the Brookings Institute.
That price is unsustainable, says Kenneth B. Medlock III of the James Baker Institute for Public Policy at Rice University. Medlock, in a study he did for Rice, concluded the market will dictate that the U.S. will export only 1.2 bcf a day—which is less than what already has been permitted at Sabine Pass.
Donovan, however, is optimistic. The good news from the NERA economic study "opened the door" for LNG exports by highlighting the net economic benefit of such exports.
Furthermore, Hopper says that, despite concerns, the market could tolerate both rising domestic prices and an increased supply. "We think there's room for both. There's room [for price hikes] in the resource base and the technology to discover" even more gas, Hopper says.
