Bloomberg/Houston

Natural gas suppliers from Sempra Energy to Exxon Mobil Corp are fighting for the first US export permits after a study said selling some of the fuel to Asia will benefit the economy more than consuming it domestically.
They could win approval for projects to ship about 6bn cu ft a day of liquefied natural gas by 2025, according to estimates by consultants including Tudor Pickering Holt & Co. That amount of LNG would supply about half the current US residential market and is worth $93mn a day at Japan’s current import price, a global benchmark.
The government-sponsored study released on December 5 gave a green light to exports, saying they shouldn’t delay North America’s possible energy independence in coming decades based on shale discoveries. Companies from Exxon to Dominion Resources are rushing to get export permits in time to take advantage of the lower production price in the US compared with other markets.
“The reality is that LNG projects are quite difficult to deliver,” Elizabeth Spomer, a senior vice president of business development for Reading, England-based gas producer BG Group, said in a statement. “This is due to a host of factors - from regulatory obstacles to the challenges associated with financing and construction.”
The 6bn cu ft a day estimate represents about a fifth of the projects that companies are proposing, measured by LNG capacity, as regulatory hurdles and competition limit building.
The opportunity relies largely on expectations that foreign buyers will continue to pay more for the fuel in years to come.
Japan paid an average of $16.92 per million British thermal units for LNG through October, when prices fell to a 16-month low of $15.52, and a record $18.07 in July, Japanese Finance Ministry data show.
In contrast, US gas futures traded in New York hit a 10-year low in April of less than $2 per mmBtu. The price, which rebounded as the year progressed, is set to end 2012 below $4.
Cheniere Energy’s Sabine Pass project is the only winner so far of full US approval for an LNG export terminal outside of Alaska. The facility is planned for Cameron Parish, Louisiana. The Houston-based company is working to have initial production by 2015, kicking off LNG exports from the Gulf.
Decisions on the remaining export applications, which bring the combined proposals to a capacity of more than 29bn cu ft a day, are still months away. Reviews must be completed, and financing and construction will require years more before exports flow.
That could give competing LNG projects planned from Australia to Mozambique time to sign up buyers first.
The study, conducted by NERA Economic Consulting, found that the US would see net economic benefits from exporting LNG, with the gains rising as exports increase. Exports may boost domestic prices by more than $1 per thousand cubic feet in coming years, NERA said. The benefits will more than offset the effect of higher prices for US consumers that may be triggered by reduced domestic supply.
The US Energy Department has set priorities for its permit reviews, listing projects in the order they will be assessed. Projects at the top have a competitive edge, as they have a better chance of getting under way before the global LNG market becomes saturated with competing projects, analysts from UBS said in a December 18 report.
Freeport LNG’s initial phase of a Texas project is first in line for review among proposals to export LNG to non-free trade countries, according to the department’s website, followed by Energy Transfer Equity’s Lake Charles proposal in Louisiana and Dominion’s Cove Point project in Maryland. The Golden Pass project in Texas, backed Qatar Petroleum and Exxon, is last in line at No 15.
Being first on the list is “a huge plus for us,” said John Tobola, general counsel at Houston-based Freeport LNG. Freeport may begin exports in 2017, with an initial application for 1.4bn cu ft a day of capacity.
Projects planned as expansions of existing import facilities may have the smoothest paths to getting the necessary permits. Adding on was the approach at Cheniere’s approved Sabine Pass export plan in Louisiana. It’s also the model being pursued by such would-be US LNG exporters as Freeport, Exxon, Sempra, Energy Transfer and Dominion. Still, the test of any project is whether it can lock up enough customers to buy LNG and get financing from banks or partners for the capital needed to construct multibillion-dollar plants. In August, Cheniere’s Sabine Pass project gave a notice to proceed on construction of two liquefaction units, with a project cost of about $5.6bn.
Projects in states such as Oregon could face greater environmental challenges than terminals proposed for the Gulf Coast, where energy infrastructure already exists and residents are more familiar with the oil and gas industry.
LNG exports would offer added revenue to businesses in the US, NERA said in the report. The average annual increase in revenue from LNG exports ranges from less than $3bn to more than $30bn, depending on the scenario used for project approvals, according to the study.
Even so, the government probably will move slowly and carefully, said Kevin Book, a managing director at ClearView Energy Partners in Washington.