What's Holding Back U.S. LNG Export Projects?

Despite broad government support for U.S. natural gas exports, the vagaries of the approval process are impeding their progress.

Apr 18, 2014 at 1:06PM

With the U.S. currently awash in natural gas, the nation's government is accelerating the pace of approvals for projects that seek to export domestic natural gas in the form of liquefied natural gas.

However, despite broad support for LNG exports by the Obama administration, only one export project has been given the final go-ahead to begin construction. Meanwhile, six projects have received conditional approval but are still waiting on a final decision, while more than two dozen projects have permit applications that are still pending. What's the hold up?


A view of one of two LNG terminals under construction at Cheniere Energy's Sabine Pass facility. Photo Credit: Flickr/Roy Luck

How the LNG export approval process works
Under current U.S. law, energy companies looking to export domestic natural gas to countries that don't have a free trade agreement with the U.S. need approval from two regulatory bodies -- the U.S. Department of Energy, which determines whether the project is in the public interest, and the Federal Energy Regulatory Commission, which ensures that the project meets a list of environmental and safety guidelines.

Once the DOE reviews the project and gives it its stamp of approval, the responsibility shifts to FERC, which is tasked with assessing its environmental impact and then giving a final go-ahead for construction to begin. So far, the DOE has done its part and has granted conditional approval to seven projects. Yet only one project -- Cheniere Energy's (NYSEMKT:LNG) Sabine Pass facility in Louisiana -- has been given the final stamp of approval to begin construction.

What's the hold-up?
The reason? As the Financial Times recently noted, the blame lies mainly with FERC. For instance, Cameron LNG in Louisiana and Freeport LNG in Texas, both of which expected to receive final approval last year, were held up by FERC because the agency didn't issue their first draft environmental impact statements until this year. Because of the delay, it could now be several months before they receive a final decision.

Similarly, Dominion's (NYSE:D) Cove Point LNG project in Maryland doesn't expect to receive its environmental impact statement until May, after which it could take several months before a final decision is made. One of the main reasons FERC has been so slow to act is because of the many other governmental agencies and moving parts involved in the approval process.

For instance, FERC has to integrate the work of other agencies such as the Pipeline and Hazardous Materials Safety Administration, which is tasked with determining the potential impact of an LNG spill, among other things, into its assessment. Relying on other parties to put in their two cents before making a final decision has greatly hindered the speed of the approval process.

Take Sempra Energy's (NYSE:SRE) proposed Cameron LNG export project in Louisiana, for example. Though FERC plans to release its environmental review for Cameron LNG by the end of this month, the process could be delayed because FERC now has to weigh concerns raised by the Environmental Protection Agency in forming its decision.

The environmental agency has urged FERC to reconsider the impact of the project on demand for domestic natural gas, including the potential environmental effects of the increased drilling needed to support gas exports from Cameron LNG. According to a FERC spokesperson, the agency will consider the EPA's input in shaping its final environmental impact statement for the project.

Will US LNG exports be good for America?
While only time will tell how many additional LNG export projects are approved to begin construction, studies offer a mixed view of their potential economic gains. According to some estimates, LNG exports could potentially support as many as 60,000 jobs along the natural gas supply chain and boost US GDP by as much as $4 billion per year.

On the other hand, exports would also raise domestic gas prices, hurting consumers and energy-intensive industries. According to a study by the U.S. Energy Information Administration, LNG exports could raise U.S. consumers' gas bills by as much as 9% over the period 2015-2035. They could also reduce GDP by as much as $500 million per year because of lower output in energy-intensive businesses.

These are some of the main cost-benefit criteria U.S. lawmakers are weighing as they decide whether or not to approve additional projects. With so much still up for debate, perhaps it is best to move slowly and cautiously.

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Arjun Sreekumar has no position in any stocks mentioned. The Motley Fool recommends Dominion Resources. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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