(EnergyAsia, November 29 2012, Thursday) — The following is an edited version of an article written by Susan L. Sakmar, Visiting Assistant Professor, and Andrews Kurth Energy Law Scholar, University of Houston Law Centre. It was first published by CWC News.
The vast shale gas reserves that have been unlocked in the US have been a “game changer” with shale gas expected to constitute almost 50% of US natural gas production by 2035.
What is less clear is whether the abundance of shale gas will result in the US becoming a major LNG exporter with a growing number of companies seeking approval from the US Department of Energy (DOE) to export LNG to countries around the world.
US law generally requires automatic approval of natural gas exports to most countries that have a free trade agreement (FTA) with the US, including Australia, Bahrain, Canada, Chile, Colombia, Dominican Republic, El Salvador, Guatemala, Honduras, Jordan, Mexico, Morocco, Nicaragua, Oman, Peru, Republic of Korea, Singapore and Panama which has not yet taken effect. Notably, the US currently does not have an FTA with Japan – the world’s largest LNG importer.
For non-FTA countries, the DOE reviews proposed exports on a case-by-case basis to ensure they are consistent with the “public interest” in light of a number of factors including the domestic need for the natural gas proposed to be exported, whether there is a threat to the domestic security of supply, and other factors deemed to be relevant to a public interest determination.
While the US DOE claims “it takes its statutory responsibility to make public interest determinations on natural gas export applications very seriously and is committed to taking the time necessary to get the decisions right,” a number of lawmakers have been putting pressure on the Obama administration to speed up the approval process for the pending LNG export applications.
In an August 2012 letter to Energy Secretary Steven Chu, a group of US lawmakers pointed out that the DOE “does not seem to have a set timeline for decisions or a sense of urgency,” which has left a growing number of companies and projects waiting in limbo, with Cheniere’s Sabine Pass Liquefaction project being the only project granted an export license for non-FTA countries.
Prior to the US Presidential election on November 6, the prospect of the US becoming a major natural gas exporter became a political hot button that no one wanted to push in an election year. Some US policy makers have expressed concern that LNG exports will increase domestic prices for natural gas, which would harm consumers as well as industrial users of natural gas such as the steel, plastics and fertiliser industries.
While most business leaders seem reluctant to argue that a free trade nation like the US should restrict exports, some have urged that America should exploit her competitive advantage with lower natural gas prices to create jobs by using its cheap natural gas to convert to products for export, as opposed to exporting the natural resource itself. Still others have claimed that with far fewer emissions than any other fossil fuel, America should use more natural gas at home, particularly in transportation and heating.
In addition to political and industry opposition, there is also risk that environmental opposition to shale gas development will spill over into opposition to US LNG exports. The Sierra Club has argued that LNG exports could increase the domestic price of natural gas and inflict negative environmental impacts in the production stage.
Some reports have acknowledged that since the case for US LNG exports depends on the continued development of shale gas, the public’s concerns over the environmental impacts of shale gas development must be resolved.
The bottom line
With the re-election of President Obama, many are wondering whether the long wait for export approval will soon be over. The DOE has retained an independent third-party contractor to conduct a review of the economic impacts of proposed LNG exports with the report expected by end-2012.
However, the DOE has also indicated that once complete, the report will be subject to public comment before it continues with the process required by statute to make public interest determinations on the pending applications. How long the public comment period will be open is anyone’s guess.
This topic and many more will be discussed in more detail at CWC’s World LNG Summit in Barcelona on November 27-30, and at CWC’s World Shale Oil & Gas: Latin America Summit in Buenos Aires on November 28-30.