Natural Gas Companies Inch Closer to LNG Export Approvals


"The Obama administration gave the thumbs up (a 20-year approval) to the Freeport LNG project in Texas."

LNG exports

Those natural gas companies awaiting approval to export liquefied natural gas (LNG) got a hopeful sign last week.

The push toward the United States becoming a prominent LNG exporter moved forward Friday. The U.S. Department of Energy (DOE) approved only the second facility to export LNG to countries without a free trade agreement with the United States.

The Obama administration gave the thumbs up (a 20-year approval) to the Freeport LNG project in Texas. It is owned 50/50 by ConocoPhillips (NYSE: COP) and Michael Smith, the founder, chairman and CEO of Basin Exploration (later sold to Stone Energy).

Freeport has already signed deals to export natural gas to Britain's BP PLC and two major Japanese utilities, Osaka Gas and Chubu Electric Power. Freeport has been given the go ahead to sell up to 511 billion cubic feet annually to overseas buyers. Exports should begin sometime in 2017.

The DOE said in its news release, "The development of U.S. natural gas resources is having a transformative impact on the U.S. energy landscape, helping to improve our energy security while spurring economic development and job creation around the country."

Not a surprising statement in the light of the Energy Information Administration's forecast that production of natural gas will reach a record 69.3 billion cubic feet a day this year.

Cheniere Energy's Sabine Pass facility in Louisiana was given the government okay about two years ago.

More Approvals to Come for Natural Gas Companies?

Of course, this approval does not mean the Obama administration is yet fully behind the push to make exporting LNG a major industry.

Investors should recall that there are still 25 projects awaiting approval and the pace of approvals by the Department of Energy is still up in the air.

Minoko Manabe, a senior credit officer for Moody's, told Bloomberg News, "We don't think [this approval] is going to open the floodgates" for the department's approval of other applications.

Manabe did tell Bloomberg though that she thinks she knows which company will be the next to get approval.

She thinks the Cove Point LNG export facility in Maryland proposed by Dominion Resources Inc. (NYSE: D) is next in line. Dominion recently signed deals with Japanese trading firm Sumitomo (it plans to sell the LNG to Japanese utilities) and Indian energy firm Gail to sell them LNG from the plant. Dominion's target date for overseas LNG sales is also 2017.

In addition, Sempra Energy's (NYSE: SRE) Cameron LNG facility in Louisiana will also win approval according to Manabe. The president of Sempra, Mark Snell, agreed.

He said in a statement that the approval is "an indication that other projects, including our own Cameron LNG, will receive this authorization soon."

Japanese companies, Mitsui, Mitsubishi and Nippon Yusen, along with France's GDF Suez have agreed to provide financing for most of the construction of the Cameron terminal in exchange for equity stakes equaling 49.8% of the project. Japanese utility Tokyo Electric Power already signed an agreement to purchase LNG from Cameron, as has GDF Suez—the largest European LNG importer.

The Future Is Bright for NatGas

As long as approvals keep coming from the DOE, it does not matter if the pace is rather slow.

Countries like Japan, the world's largest importer of LNG, are extremely anxious to buy LNG from the United States at much lower rates than the currently available in the Asian market.

According to Energy Department data, if most LNG terminals win approval, they will ship roughly 41% of this production of natural gas.

Money Morning Global Energy Strategist Dr. Kent Moors forecasts the United States accounting for a minimum of 9% of the global LNG trade within a decade.

Tony Daltorio
Money Morning

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