Just last week, the U.S. Department of Energy authorized the Freeport LNG project to export more LNG from its facility in Quintana Island, Texas, signaling further government support for LNG exports. Let's take a closer look at Freeport and other projects that have received DOE approval and what their cumulative impact might be on domestic natural gas prices.
Freeport authorized to export more gas
The Freeport LNG project, whose general partner, Freeport LNG-GP, is 50% owned by ConocoPhillips (NYSE:COP), can now export as much as 1.8 billion cubic feet of gas per day over a period of 20 years, subject to final regulatory approval. The DOE had previously authorized the project to export 1.4 billion cubic feet per day back in May.
Freeport expects its LNG export facility, which consists of three LNG trains, to go online by next year. Last year, the company secured liquefaction tolling agreements with Osaka Gas and Chubu Electric Power to liquefy roughly 4.4 million metric tons of natural gas in 2017 from the project's first train. And this year, it inked similar 20-year agreements with Toshiba and SK E&S LNG for up to 2.2 million tons of LNG per year each, and with BP (NYSE:BP) for 4.4 million tons per year.
Other approved LNG projects
Freeport LNG is one of four projects that have so far received DOE approval to export gas to countries that do not have a free-trade agreement with the U.S. The others include Cheniere Energy's (NYSE: LNG) Sabine Pass terminal in Louisiana, which was the first to receive approval back in 2011; the Lake Charles LNG export project in Louisiana, a venture operated by BG Group and Energy Transfer Equity (NYSE:ET) that plans to transport up to 2 billion cubic feet of gas; and Dominion's (NYSE:D) Cove Point LNG terminal in Maryland, which was conditionally approved to export up to 770 million cubic feet of gas per day in September.
Combined, these projects represent roughly 6.8 billion cubic feet of U.S. natural gas exports to non-free-trade nations.
To export or not to export
These approvals have sparked a contentious debate about the economic benefits of U.S. LNG exports. Some groups argue that the cumulative impact of these and additional exports will be a sharp increase in the price of domestic natural gas, which would hurt both consumers and energy-intensive businesses. Others contend that exports will have a negligible impact on domestic gas prices, while improving the U.S. trade deficit and adding thousands of jobs.
While both sides put forth good arguments, I tend to agree with the latter group -- a reasonable policy of LNG exports would probably have only a minimal impact on domestic gas prices, while providing a welcome boost to economic growth. The main reason I side with this camp is the massive supply of natural gas the U.S. possesses.
According to Energy Information Administration data, the U.S. possessed an estimated 348.8 trillion cubic feet of proved reserves of wet natural gas, which includes both natural gas and natural gas plant liquids, as of 2011, an increase of 31.2 trillion cubic feet from the agency's previous estimate. Furthermore, despite currently depressed gas prices and infrastructure constraints inhibiting production growth, U.S. gas output continues to surge, led primarily by Pennsylvania's Marcellus shale and Ohio's Utica shale.
The bottom line
Though several groups continue to campaign against additional LNG export projects, I believe that the sheer quantity of the U.S. natural gas supply should significantly limit upward pressure on prices from additional LNG exports up to a certain point. At the same time, more LNG export approvals should support thousands of jobs across the country and could add tens of billions of dollars in revenue for gas-producing states such as Texas and Pennsylvania within two decades.