More Good News for These Potential LNG Exporters

A streamlined regulatory process could mean big money for these energy companies.

Jul 3, 2014 at 11:04AM

There's pressure to improve the approval process for liquefied natural gas, or LNG, exports. The Department of Energy, or DOE, recently proposed an overhaul to its process while the U.S. House of Representatives passed a bill to cut approval times. All this could help companies like Cheniere Energy (NYSEMKT:LNG) and Kinder Morgan Inc (NYSE:KMI), which have applications backed up in the DOE's queue.

On June 25, the U.S. House of Representatives passed HR 6, known as the Domestic Prosperity and Global Freedom Act. The House voted 266-150 in favor of the bill, which imposes a 30-day deadline on the DOE to issue a final decision on certain LNG export applications once an environmental review is complete. The legislation deals primarily with applications for export to World Trade Organization countries, such as those in Europe, which may not have free trade agreements, or FTAs, with the U.S.

A shifting approval process
Some applications for export to non-FTA countries have been waiting for two years. The current approval process involves a review by the DOE to determine if the project is in the public interest, along with an environmental review, usually by the Federal Energy Regulatory Commission, or FERC.

The passage of HR 6 is only the latest attempt to fix the approval process for LNG exports. The DOE proposed its own set of changes in May. According to a Reuters report, the proposed change would benefit companies with strong financial backing for LNG projects. That's because under the proposal, the DOE would no longer grant conditional approvals, but would wait until the FERC completes its environmental review. Because the DOE application fee is only $20,000 while the FERC process can cost $100 million, this would have the effect of moving only the most serious applicants to the front of the queue.

QueueCompanyProjectRequest (BCF/Y)Value ($million)
2 Cheniere Corpus Christi 767.0 3545
5 Kinder Morgan / El Paso Gulf LNG 1022.0 4723
6 Kinder Morgan / El Paso Elba / SLNG 182.5 843
7 Kinder Morgan / El Paso Gulf LNG 547.5 2530
13 Cheniere Sabine Pass 101.0 467
14 Cheniere Sabine Pass 88.3 408
18 Cheniere Sabine Pass 314.0 1451

Data from the Department of Energy. Dollar values assume $4.50 per million BTU and 1,027 BTU per cf of natural gas.

The DOE's queue currently has 24 applications for LNG export to non-FTA countries. Some are smaller nonpublic corporations, but others like Cheniere and Kinder Morgan clearly have the financial resources to complete the FERC review process. The above table shows seven applications from these two companies, along with each application's current place in the DOE queue.

Big money on the line
The proposed DOE changes could move these projects forward in the queue, and HR 6 could reduce approval times for all projects on the DOE's list.

Cheniere is currently second in line with an application for exports from its planned Corpus Christi liquefaction facility in Texas. It also has three other applications further down in the queue for its Sabine Pass facility, already under construction in Louisiana. Together, these applications would allow the liquefaction and export of 1,270 billion cubic feet per year, or BCF/Y, of natural gas. At recent U.S. prices, that's $5.9 billion, but prices in Europe and Asia are generally twice that.


Courtesy Kinder Morgan

The fifth, sixth, and seventh spots in the queue are applications from projects partially owned by El Paso Pipeline Partners (NYSE:EPB), one of Kinder Morgan's master limited partnerships. The Gulf LNG project will add liquefaction and export capabilities to the existing terminal located in Jackson County, Mississippi. The Elba project will do the same for the company's Southern LNG terminal on Elba Island in Georgia. Together, these applications represent a total of 1,752 BCF/Y, or about $8 billion per year at recent Henry Hub prices. Again, this would be closer to $16 billion per year at current prices in Europe or Asia, where the company would most likely sell the gas.

Should Fools rush in?
This is big money, and it could start flowing sooner than expected. Watch to see if HR 6 becomes law or if the DOE moves these projects up in the queue as a result of its own proposed changes. Predicting what government officials will do is not a game for the faint of heart though, so risk-averse investors should base buying decisions primarily on known factors. Just keep in mind the potential for more market excitement as these LNG projects come closer to fruition. 

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Scott Percival has no position in any stocks mentioned. The Motley Fool recommends El Paso Pipeline Partners and Kinder Morgan. The Motley Fool owns shares of Kinder Morgan. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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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