Freeport LNG Export Terminal Wins Approval from U.S. Department of Energy, Next Stop is FERC

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Exports of liquefied natural gas (LNG) took another step forward last week after the U.S. Department of Energy (DoE) (Washington, D.C.) approved Freeport LNG's application to export LNG to nations that do not have a free trade agreement with the U.S. Freeport LNG Development LP (Houston, Texas) still requires approval from the Federal Energy Regulatory Commission (FERC) (Washington, D.C.), but that approval is expected later this year, possibly in the third quarter.

If licensed by FERC, as many observers expect, Freeport LNG would become the second U.S. LNG export terminal. Freeport LNG's terminal was authorized by DoE to export up to 1.4 billion cubic feet of natural gas a day (Bcf/d) for a period of 20 years. Last summer, Cheniere Energy (NYSE:LNG) (Houston, Texas) received the go-ahead from FERC to export natural gas in liquid form. Cheniere's authorization was for up to 2.2 Bcf/d for 20 years.

"The LNG export race now has two competitors, and more than a dozen other would-be competitors who are awaiting federal approval," Jesus Davis, vice president of research for the Oil & Gas Production, Transmission and Terminals Industries, said in an interview. "DoE's decision was good news for Freeport LNG specifically, but also for the other potential exporters. We need to move these applications forward, if we don't want to lose potential market share of the LNG market to other nations." For more on global LNG supply and demand trends, see April 24, 2013, article - U.S. LNG Export Contracts Account for 20% of Total Planned Capacity.

In its authorization order, DoE said that "opponents of the (Freeport LNG) application have not demonstrated that the requested authorization would be inconsistent with the public interest. ... We find that the exports proposed in this application are likely to yield net economic benefits to the United States. We further find that granting the requested 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."

The energy agency further noted: "The development of U.S. natural gas resources is having a transformative impact on the U.S. energy landscape, helping to improve our energy security while spurring economic development and job creation around the country. This increase in domestic natural gas production is expected to continue, with the Energy Information Administration forecasting a record production rate of 69.3 Bcf/d in 2013."

"Receipt of DOE non-FTA approval completes a key development milestone for the initial phase of the Freeport LNG liquefaction project," Michael S. Smith, chief executive of Freeport LNG, said in a statement. "We applaud the DOE on its thorough and balanced analysis of the public benefits of LNG exports to the United States. The overwhelming evidence in favor of LNG exports generated during the DOE's two-and-a-half year review, definitively confirms that the DOE should act swiftly to approve additional pending LNG export applications."

Located on Quintana Island, near Freeport, Texas, the first phase of the Freeport LNG export facility envisions two liquefaction trains, with the potential to add up to two more based on market demand. The first two trains, each with liquefaction capacity of about 4.4 tons per year, are fully contracted to Osaka Gas Company, Chubu Electric Power Company and BP Energy Company, a unit of BP plc (NYSE:BP) (London, England). Those contracts are all for 20 years.

Freeport is seeking financing to construct the first two LNG trains, which carry a total investment value (TIV) of about $4 billion. Investment decisions are expected later this year. Construction of the first and second trains is scheduled to kick off during the fourth quarter of 2013, the company said. The first train is expected to be in service by late 2017, and the second will be operational six to nine months after that. Front-end engineering and design (FEED) work for the liquefaction project will be performed by CB&I (NYSE:CBI) (The Woodlands, Texas) and Zachry Holdings Incorporated (San Antonio, Texas).

On Capitol Hill, exporting LNG has divided Republicans and Democrats: Republicans tend to support LNG exports, while Democrats raise concerns over hydraulic fracturing and the potential of exports to increase domestic natural gas prices. The divided Congress has caused DoE and FERC to move carefully and create a lengthy record when considering export applications.

Last Friday, after DoE approved Freeport LNG's application, Sen. John Barrasso (R-Wyoming), welcomed the move but said the agency needed to move faster to ensure U.S. firms captured their share of a growing global LNG market. "Liquefied natural gas exports will create jobs, reduce our trade deficit, and help grow our economy," Barrasso said in a prepared statement. "While today's decision is welcome, it is woefully inadequate. DoE needs to approve the other pending export applications."

Barrasso and a House counterpart, Rep. Mike Turner (R-Ohio), have introduced separate bills to expedite LNG exports. Turner chairs the House Subcommittee on Energy and Power. At a recent hearing of that subcommittee, he said: "As energy security continues to play an important role in global relationships and dialogue, increased U.S. natural gas production stands to benefit our strategic allies abroad. Many foreign leaders and officials have expressed to me the need to diversify energy resources away from one source or from unstable regions."

Construction of LNG export terminals in the Gulf Coast region is expected to lead to a sharp increase in local demand for skilled craft labor. For more information on that issue, see February 6, 2013, article - Gulf Coast Mega-Projects to Increase Demand for Skilled Craft Labor. Industrial Info has a range of tools to track the shifting skilled craft labor market, including a Five-Year Labor Supply & Demand Outlook, the Manpower Market Analyzer and the Gulf Coast Region Labor Market Analysis. More information on these tools can be obtained by contacting Tony Salemme, the vice president for Industrial Info's Craft Labor Group, at tsalemme@industrialinfo.com or by calling (209) 547-9878.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.