Tuesday, September 14, 2010

Cheniere Wins Key Approval for LNG Export

Cheniere Energy, owner of what is said to be the largest LNG regasification facility in the world, last week received approval from the U.S. Department of Energy to export natural gas from its Sabine Pass facility in Cameron Parish, LA.  Cheniere has applied to the Federal Energy Regulatory Commission to build a liquefaction facility capable of exporting up to 2.6 Bcf of natural gas per day.  Assuming remaining permits are granted, the liquefaction facility would be built in phases and would be ready to begin exporting in 2015.  (another article)

Cheniere has already received approval to resell foreign sourced gas, essentially turning around incoming shipments.  That's not a great business, but it's better than sitting idle as domestic supplies swell.  This new approval is an important step towards exporting U.S. produced gas.  The current approval only allows for the export of gas to countries with which the U.S. has a free trade agreement, including Canada, Mexico, Chile and Singapore, which are the only countries with both free trade agreements with the U.S. and LNG import facilities.  It will take another round of more stringent approvals to freely export gas to any nation.  Cheniere is first seeking approval  to export to World Trade Organization members (hopefully in the next month) and then to non-WTO member (hopefully by year end).

The trick is now to find customers given the above constraints and the geography of the facility.  There is an abundance of source gas in the the region, from Louisiana, Arkansas, Texas and Oklahoma, so supply won't be a problem.  U.S. LNG won't be able to compete with Qatari LNG on a cost basis, but I'm sure there are a few good customers out there eager for natural gas imports.

This is a win-win for the domestic gas industry.  The Cheniere LNG import facilities sounded like a good idea before shale took natural gas in the U.S. from scarcity to abundance almost overnight.  Now with the potential for Sabine Pass to become the first LNG export facility in the Lower 48, the prospect of adding 2.6 Bcf of demand is very enticing.

1 comment:

Anonymous said...

Robert, the approval was from the DOE - not FERC. The FERC approval process is much longer and more complicated as it addresses the new facilities required to be constructed.

Also, the newspaper article contained an error as the ultimate export capacity is targeted for 2.0 Bcfd - not 2.6 Bcfd. The initial phase is 1.0 Bcfd.

Les B