July 2014, Vol. 241, No. 7

Government

DOE Plans To Eliminate Conditional LNG Export Applications

The Department of Energy is changing its approach in reviewing liquefied natural gas (LNG) export applications. This has been a controversial issue for several years as U.S. gas reserves have exploded, metaphorically, in the face of shale fracking.

Producers want to export LNG to countries that lack a free trade agreement with the U.S. without waiting for DOE approval. The DOE has been slow to approve those applications, in part because of concerns about the impact of greater exports on domestic natural gas prices, a concern the manufacturing industry has highlighted.

The DOE-proposed change, which won’t be finalized for months, if it is at all, doesn’t go that far. In fact, it is simply procedural. Instead of allowing potential LNG exporters to come to the DOE for “conditional” approval to export to non-FTA countries, the DOE would require the exporters to first get environmental approval for construction of export terminals from the Federal Energy Regulatory Commission (FERC). Then the exporter could apply to the DOE for export approval. Exporters now often come to the DOE first, before approaching the FERC, to get conditional approval because that ostensibly helps them get financing for their projects.

The DOE has lately been flooded by export applications; 31 companies have asked the Energy Department for export permits. Fifteen are for exports to non-FTA countries. Many of those projects will never be built because they will not pass muster with FERC. So the DOE wants to focus its attention on projects that are likely to be built – that is projects that have already received FERC approval. So the DOE will no longer issue conditional approvals.

“We think this is the right approach and we applaud DOE’s effort to bring more clarity and certainty to the regulatory process,” says Diane Haggard, spokeswoman for Cheniere Energy. Cheniere is the company behind Sabine Pass Liquefaction, LLC. “This process will ensure that commercially mature projects receive a timely review of their export applications. Real projects will get DOE licenses. Contingent licenses were very helpful early on in the process, but we are glad to see the DOE making changes as the market evolves.”

Sabine Pass already has FERC and DOE approval to export to non-FTA nations from trains 1-4 in Cameron Parish, Louisiana and is seeking additional approval for exports to FTA and non-FTA from Trains 5 and 6, whose construction has not been approved by FERC, nor has Sabine received conditional approval for T5/6 exports from the DOE. Cheniere has also initiated a project to develop liquefaction facilities near Corpus Christi, TX. FERC has not approved construction there yet, but Cheniere has been signing LNG export deals from that location in anticipation of construction in the future.

Cheniere is the only company that has passed FERC and DOE muster to export to non-FTA countries, although it has additional applications in the queue. ConocoPhillips Alaska Natural Gas Corp. has received numerous DOE approvals over the years to export to non-FTA countries from long-established facilities in Kenai, AK and in much smaller amounts than Cheniere is planning on. Other companies wanting to export to non-FTA countries include Texas LNG, Gasfin Development and Trunkline LNG.

The time the DOE will presumably save by not ruminating over “conditional” applications can be spent on approving export projects to non-FTA countries already blessed by FERC and in taking a closer look at the implications of greater LNG exports. There is an unofficial cap on those exports. An LNG study the DOE released in 2012 looked at the economic implications of U.S. LNG exports between and 12 Bcf/d.

To date, the Department has issued final authorization for export to non-FTA countries at a rate of 2.2 Bcf/d. In conjunction with eliminating conditional applications, the DOE plans to do a second study. Using more recent data the DOE plans to update that earlier study and determine how exports of 12-20 Bcf/d could affect the public interest.

NEB Decides On Abandonment Funding Set-Aside And Collection Mechanism

Canada’s National Energy Board (NEB) has made a decision on NEB-regulated pipeline companies’ set-aside and collection mechanism applications that will require operators to pay into a fund that will pay for pipeline abandonment.

By Jan. 1, 2015, NEB-regulated pipeline companies must have a set-aside mechanism in place to begin accumulating funds to pay for pipeline abandonment. Most pipeline companies must establish a trust or provide a letter of credit issued by a Schedule 1 bank or a surety bond supplied by a surety company regulated under the Trust and Loan Companies Act. The NEB will require nearly all pipeline companies to provide their trust agreement, surety bond or letter of credit for approval.

The NEB will regularly review companies’ estimates of abandonment costs, the coverage provided by their set-aside mechanisms, and the assumptions about how those funds will grow. To allow for greater transparency and to facilitate consultation, the NEB expects pipeline companies to consider specific tools to communicate information about abandonment funding. Additionally, the amount of abandonment funds being set aside must be included in annual reports filed with the NEB.

In 2009, the NEB directed all pipeline companies to begin setting aside abandonment funds. That decision set out guiding principles and considerations, and a list of attributes for any mechanism that would be used to set aside funds for pipeline abandonment. It also established a five-year Action Plan for companies to follow. The Board’s decision on set-aside and collection mechanisms for pipeline abandonment cost funding is the tenth and final step of the Action Plan.

EIA Trims Back Estimate Of Monterey Shale Oil Recovery

In a serious blow to West Coast oil development, federal officials authorities report have cut by 96% the estimated amount of oil in that could be recovered from California’s Monterey Shale deposits. The Energy Information Administration says that only 600 million barrels of oil can be extracted with existing technology. Earlier it was thought that 13.7 billion barrels were potentially recoverable.

Projections were that an oil boom would bring more than 2 million new jobs to California and add $24 billion annually in tax revenues. The Monterey Shale formation contains about two-thirds of the nation’s shale oil reserves. The EIA said the earlier estimate of recoverable oil in 2011 by an independent firm had expected that the deposits could be recovered easily as those found in shale formations elsewhere. The geology of the Monterey Shale, a 1,750-mile formation, indicates that the oil is found at deeper strata.

“From the information we’ve been able to gather, we’ve not seen evidence that oil extraction in this area is very productive using techniques like fracking,” said John Staub, a petroleum exploration and production analyst who directed the EIA research.