Expedited regulatory approval of proposed US liquefied natural gas export terminals would not lead to their immediate construction nor to near-term deliveries of US gas into Europe, panelists at a Senate hearing said Tuesday.
Several US lawmakers want the Obama administration to quickly approve more LNG export applications in response to the crisis in Ukraine, with at least a half dozen House or Senate bills aimed at fast-tracking approvals for shipping LNG to American allies being considered.
But Edward Chow, a senior fellow at the Center for Strategic and International Studies' energy and national security program, told the Senate panel that quickening the pace of US LNG export approvals could be "irrelevant" in the near term.
Nearly all US LNG project developers are targeting Asian markets, which offer a more attractive price differential than European markets.
Although that price differential narrowed after US gas prices surged above $6/MMBtu this winter, Asian buyers still pay an average roughly $18/MMBtu and spot prices climbed above $20/MMBtu earlier this year.
On Monday, the Platts Japan/Korea Marker for May settled at $15.90/MMBtu while NYMEX May gas futures settled at $4.272/MMBtu. At the same time, Southwest Europe Marker settled at $13.22/MMBtu, while the Northwest Europe Market settled at $12.72/MMBtu.
Still, panelists at the Senate hearing said approving the two dozen pending applications to export US LNG could send a signal that could change the dynamics of long-term gas contracts worldwide and may influence Russian gas prices and its hold over European markets.
By quickening the pace of these applications, US LNG export proponents argue the Obama administration would signal that it does not plan to place limits on US gas being shipped into foreign markets.
"Those signals have an immediate impact even if the end game is longer," said David Goldwyn, president of consulting group Goldwyn Global Strategies.
COMPETITION WITH RUSSIA
The promise of US LNG exports could further hamper long-stalled pipeline negotiations between Russia and China if the Chinese believe US-sourced gas would be more competitively priced, Goldwyn said. At a minimum, US LNG prospects could force Russia to offer more competitively priced natural gas, he said.
David Montgomery, an economist and senior vice president at NERA Economic Consulting, said that within five years, US competition could drive Russia's gas export revenues down by as much as 30% and by as much as 60% over the longer term.
"Since energy energy exports are the mainstay of the still inefficient and lagging Russian economy, this is a penalty with teeth," Montgomery said. "LNG exports will not alone be sufficient to discipline Russian aggression, but it is a step in the right direction."
Adam Sieminski, administrator of the US Energy Information Administration, told senators the construction of Cheniere Energy's Sabine Pass facility in Louisiana, the only US LNG export project with approvals from both the Department of Energy and the Federal Energy Regulatory Commission, may already be altering the dynamics of gas contracts.
"The possibility that the US would enter into global markets with LNG exports at the conclusion of the LNG facility at Sabine Pass, I think, has already had some impact on the psychology of long term contracts," Sieminski said. "There have been companies who have indicated that they felt that they have had more successful opportunities to negotiate with large gas suppliers for better contract terms than they would have had had the facility in Louisiana not already been under construction."
The EIA forecasts US net exports of LNG of 3.5 Tcf by 2040, but could reach levels nearly twice as much if oil prices remain high, Sieminski said (See story, 1453 GMT). By 2040, roughly 800 Bcf of LNG will be exported from Alaska and 2.7 Tcf of LNG will be shipped from terminals being developed along the US Atlantic and Gulf coasts, he said.
But if oil prices are high, the US could send out twice as much LNG into the global market, according to an EIA analysis which is still being developed and will be included in the EIA's Annual Energy Outlook 2014 report, which is scheduled for release in April, Sieminski said.
Sieminski cautioned that US LNG export forecasts depended on a number of factors, including price convergence in global gas markets, competition from oil and the pace of production growth outside the US.
Following the hearing, Sieminski said the EIA's analysis did not look at which markets will receive US LNG exports, nor did it factor in potential development of LNG export facilities on the US West Coast.
OREGON EXPORT PROJECT
On Monday, DOE gave conditional approval to the Jordan Cove Energy Project to export as much as 800,000 Mcf/d of LNG from its planned facility in Coos Bay, Oregon, to countries which do not have free trade agreements with the US. By law, DOE must quickly approve applications to export LNG to countries with FTAs with the US, such as Korea, but can modify or block applications to ship to non-FTA countries, such as Japan and much of Europe.
With 24 applications in DOE's approval queue, Alaska Senator Lisa Murkowski, the committee's top Republican, said the agency need to hasten its approval pace.
"If, in fact, we were to accelerate the permitting process through DOE ... that doesn't get gas to Ukraine or anywhere at least for a couple years," Murkowski said. "It is about the signal that is sent, about our leadership role from a geopolitical perspective that is as instrumental as anything."
Senator Mary Landrieu, a Louisiana Democrat and the committee's new chairman, said even though export facilities would not be built immediately, have project's in the queue approved would help projects get financing and put the US in a position as an energy "superpower" which could weaken Russia's influence in European markets.
"The last thing [President Vladimir] Putin and his cronies want is competition from the US," Landrieu said.
Ukraine has been developing an LNG import facility on the Black Sea, but the project has been delayed by financing troubles and regional resistance.
