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DOE considers government control over LNG destinations

DATE:2014-03-07 | comments: | posted by:liuailin

US Energy Secretary Ernest Moniz answering questions after his keynote address at CERAWeek. (PA)

United States Energy Secretary Ernest Moniz would “welcome consultation” with Congress on including provisions within the Department of Energy’s (DOE’s) LNG export approval process that could allow the government to control the destination of cargoes in extraordinary circumstances – such as the crisis in Ukraine.

The geopolitical impact of LNG exports is already one of the factors the DOE considers when assessing licence applications, “[but] the current process, as authorised, does not have us determining where the cargoes go,” Moniz told delegates at the CERAWeek conference in Houston.

However, if in the future the US intends to use LNG exports as a strategic tool for aiding its allies, this would need to be reassessed. The escalating crisis in Ukraine has demonstrated “[that] we have to think through, and perhaps with the Congress, talk about how we want to address that set of issues”, said Moniz.

US Senator Lisa Murkowski, who has long been pushing for the US to allow more exports, told journalists that Washington needs to be “aware of what we have and how important a tool, diplomatically, an energy asset can be” (see Ukraine crisis could reshape US energy policy – CERA, 4 March 2014).


Export power

Russia, still the largest gas supplier to Europe, has used gas exports to wield influence over its neighbours. Two days after Russian troops allegedly took control of Crimea, for example, Moscow put further pressure on Ukraine’s government by announcing Kiev will no longer be eligible for lower gas prices (see Russia calls off Ukraine gas deal, 3 March 2014).

Even if cargoes were not directed towards a specific destination, pushing more American LNG onto the international market would create more options for US allies, argued Murkowski, a Republican from Alaska. This could, in the future, “take out some of the panic anxiety out over where they’re going to get their gas from”, she said of Ukraine.

However, with first shale-sourced LNG cargoes not expected until 2015 and the majority of projects not coming onstream until after 2018, the US cannot help Ukraine in the short term.

“[Even then] there’s not much chance US LNG is going to play a big role in Europe, given the availability of lower-cost supply nearby in the Middle East. Any US gas in the European market is likely to be of marginal help, perhaps in the event of an outage elsewhere,” Jim Krane, energy studies fellow at Rice University’s Baker Institute in Houston, told Interfax.


Accelerated approval

An acceleration of American LNG and, potentially, crude oil exports could be one of the country’s most valuable deterrents to Russian military aggression, according to Richard Haass, a senior US diplomat. However, at the moment there is little clarity on how quickly the DOE will grant further export permits.

“Our group in fossil energy works fastidiously through each application… the amount of time between applications varies somewhat,” Moniz said.

But the energy secretary also assured there was no immediate intention to pause the approval process, despite the volume of cumulative authorised exports having surpassed the 170 million cubic metre per day (MMcm/d) level outlined in a DOE study three years ago. Moniz said the department will continue to constantly reassess the cumulative effects of each export licence on domestic gas prices and the US economy. “We obviously re-evaluate [export levels], that’s part of the job that we have to do in making the national interest determination. It may be that, at some point, we will have to refresh studies, for example, [to assess the impact of exports] in terms of the economic benefit [to the US], but that’s all part of the continuous evaluation,” he told journalists.

The DOE has commissioned two studies looking at estimated LNG exports of 170-340 MMcm/d. Since the 2011 study, 340 MMcm/d has been assumed to be the potential cut-off point for capping exports.

Given that LNG export proposals now amount to more than 820 MMcm/d, Moniz was asked if he would consider raising the 340 MMcm/d limit. “We have no 12 billion cubic foot level to raise or not raise, that was [a number that was] analysed in the economic studies but we never issued some kind of precise number [to cap exports],” he said.

However, even if the government were to provide non-FTA approval for all these projects, there is no guarantee all of that LNG would come onstream.

“Today it’s no secret we have 35 bcf/d [991 MMcm/d] in the queue and it’s also no secret – right or wrong – [that] I’ve never seen any economic analysis that expects the market would support that level of exports because of the huge capital [costs and] competing sources [of LNG],” he said.

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