It was announced Friday afternoon, when no one was supposed to
pay attention: after years of controversy, heated rhetoric, intense
lobbying, and stiff opposition from some unlikely bedfellows, with
multinational industrial and chemical companies weighing down one side
of the bed, and environmentalists tossing and turning on the other, the
Obama Administration decided in favor of the US oil and gas industry.
With geopolitical ramifications.
The Department of Energy “
conditionally authorized”
Freeport LNG Expansion LP and FLNG Liquefaction LCC (Freeport) to
export domestically produced liquefied natural gas to countries with
which the US does
not have Free Trade Agreements (
PDF, 132 pages). Already allowed are exports to the
20 countries with FTAs
– most of them in the Americas, but also Australia, Korea, Singapore,
Israel, Jordan, Bahrain, Oman, and Morocco. But exports to the remaining
180 or so countries have to jump through some hoops.
So Freeport’s LNG Terminal on Quintana Island, Texas, is now
authorized to export 1.4 billion cubic feet per day (Bcf/d) of LNG for
20 years to those non-FTA countries. Freeport joins Cheniere Energy
Inc.’s Sabine Pass terminal in Cameron Parish, Louisiana, with an export
capacity of 2.2 Bcf/d. Freeport’s and Cheniere’s combined capacity
would amount to 5.2% of US production (estimated at 69.3 Bcf/d in 2013).
Other companies are cooling their heels in line at the DOE, which
would, as it said, “process the applications currently pending on a
case-by-case basis.” At snail’s pace. The administrations sole
concession to environmentalists.
“DOE has had the remaining applications on its desk for months and
should ensure that these applications are approved without any further
delay,”
groused Erik Milito, of the American Petroleum Institute, a trade association representing over 500 oil and gas companies.
Hurdles remain. DOE approval is just another step. The plants will
have to get a permit from the Federal Energy Regulatory Commission
(FERC) and must pass an environmental review, which could be a
nail-biter. And none of the plants are up and running yet.
Then there is an unknown: how will world markets react to this
additional supply that competes with at least 63 LNG export terminals
currently planned or under construction worldwide? US production can
rise to meet that new demand, as the gas glut in recent years has
demonstrated in its bloody manner. But for production to rise
significantly, the price – which is still below the cost of production
for most “dry” gas wells – must rise as well.
Industrial and chemical companies that use natural gas for energy or
as feedstock are deeply worried. Would they end up having to pay
European prices? Or catastrophically, Japanese prices? The gas industry
and its pundits have feverishly
assured
them that LNG exports would have “only minimal impacts” on gas prices
in the US. Yet, the moment DOE announced its decision Friday afternoon,
natural gas spiked about 3%, before retracing some of it.
The largest potential customers for LNG are Europe and Japan –
staunch allies of the US. Europe is furiously trying to break the
stranglehold that Russia’s Gazprom has on its gas supplies. Norway has
morphed into a large producer, but it isn’t nearly enough. With prices
two to three times higher than in the US, cheaper US gas hitting these
markets would wreak havoc in Russia and its political clout in Europe.
It would be a game changer in the EU economy, which is bogged down in
high energy prices. And it would bring the European allies closer to the
US.
But it might not happen, at least not initially: because there is
Japan, the world’s largest most desperate importer of LNG since the
shutdown of its 50 surviving nuclear reactors following the Fukushima
meltdowns. The country is doing some serious soul-searching about
nuclear power, and whether or not to bring reactors back on line.
Meanwhile, its utilities are getting ripped off by distant natural gas
suppliers that charge
over four times the current price in the US.
Freeport already inked contracts with BP for half of its capacity and with the Japanese utilities
Osaka Gas and
Chubu Electric
for the other half. So at least half, but probably much more of its
shipments would be destined for Japan, still the most lucrative market
in the world. Those contracts are already being leveraged by the
Japanese government in its negotiations with Gazprom on a number of
deals, including Japanese participation in an undersea pipeline from
Russia’s Far East – which is far only from Moscow – to its neighbor,
Hokkaido, the largest island of Japan.
But environmental groups in the US, already fuming at their erstwhile
messiah, are getting madder with every fossil-fuel deal the
Administration approves. The controversial Keystone Pipeline, which
Native American opponents have equated to “
environmental genocide,”
is waiting in the wings. The Administration simply doesn’t want to get
run over by the momentum of the oil and gas industry, and the thousands
of high-wage jobs it has created. And it wants to lick its geopolitical
chops.
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American investor and financial commentator Jim Rogers (ChinaFotoPress/Getty Images)
