January 2013, Vol. 240 No. 1


DOE LNG Report Opens Door To Liquefaction Approvals

The Department of Energy published a report from NERA Economic Consulting which concludes unlimited exports of U.S. LNG will help the U.S. economy, and the greater the exports, the greater the public good.

The DOE automatically approves LNG exports to countries with a Free Trade Agreement but must find that exports to countries without FTAs are in the public interest. The DOE commissioned the report to help it decide whether to approval additional non-FTA exports.

The only non-FTA export application already approved is from Sabine Pass LNG, a subsidiary of Cheniere Energy, Inc. Fifteen other applications have been filed, including Freeport LNG, Lake Charles Exports, and Dominion Cove Point LNG. Dan Donovan, spokesman for Dominion Cove LNG, says, “We were pleased with the NERA study, but not surprised. There were several independent studies that showed the benefits of LNG exports and we expected the NERA study to be consistent.”

LNG exports are a controversial issue as U.S. manufacturers dependent on natural gas – some building or adding to facilities here because of cheap shale gas – -fear exports will increase gas costs. Andrew Liveris, Dow Chemical’s chairman and CEO, calls the report “outdated, inaccurate and incomplete economic data.” He adds, “The report fails to give due consideration to the importance of manufacturing to the U.S. economy.” He cites over $90 billion in spending and millions of new jobs predicated on abundant and affordable natural gas, none of which were captured in the report.

At least one leading House Democrat also complains that not just manufacturers, but consumers, could be hurt by approval of non-FTA LNG exports. “I am also concerned that the negative impacts on American workers and manufacturing could be vastly underestimated in this analysis because it is based on old data that may understate industrial demand by 30%,” says Rep. Edward Markey (D-MA), top Democrat on the House Natural Resources Committee.

The report from NERA Economic Consulting published Dec. 5 says: “U.S. natural gas prices increase when the U.S. exports LNG. But the global market limits how high U.S. natural gas prices can rise under pressure of LNG exports because importers will not purchase U.S. exports if U.S. wellhead price rises above the cost of competing supplies.”

Andrew Ware, Director of Corporate Affairs and Communications for Cheniere Energy, Inc., says DOE’s policy on non-FTA exports is the “topic du jour” but that the DOE’s importance pales next to the Federal Energy Regulatory Commission’s (FERC) when it comes to liquefaction facility approvals. “People are missing the forest for the trees,” he explains. FERC approved construction of Sabine’s four “trains” in April 2012. Sabine spent $100 million obtaining FERC approval. The company spent $200,000 on its application to the DOE, which was approved last summer, after first being approved “conditionally” in 2011.

Donovan says the DOE will take up the 15 applications for non-FTA approval based on the date filed. Dominion Cove should be third on the list. Order of consideration will also be based on whether a liquefaction application has entered the FERC approval process.”We are in the midst of FERC’s prefiling process,” explains Donovan. “So we expect to get quick consideration, once the DOE comment process is over.”
The three non-FTA applications in the DOE’s hands at the time it approved Sabine conditionally accounted for total exports of the equivalent of 5.6 Bcf/d. After conditionally approving Sabine Pass in 2011, the DOE received interest from companies wanting to file additional applications to export LNG to non-FTA nations. The volume under consideration for export from these companies was equivalent to another 6 Bcf/d.

GOP Alleges Shale “Bias” At Federal Health Research Agency

Top Republicans on a critical House committee say an Obama administration health official is anti-shale and should not be involved in preparing any federal health studies looking at shale’s health effects. The targeted official is Christopher Portier, director of the Agency for Toxic Substances and Disease Registry (ATSDR), part of the Department of Health and Human Services (HHS).

The top-ranking GOP members of the House Energy & Commerce Committee wrote to HHS Secretary Kathleen Sebelius asking that Portier be disqualified from involvement in any research studies on shale done for the Interagency Working Group to Support Safe and Responsible Development of Unconventional Domestic Natural Gas Resources. President Obama created that interagency group last April. It is headed by Heather Zichal, deputy assistant to the president for Energy and Climate Change.

The letter writers said they are greatly concerned the “scientific objectivity of the HHS is being subverted.” Their concern is based on an understanding that the ATSDR will be undertaking broad studies of the potential health impacts of shale gas development. The letter says Portier’s public record calls into question whether “a study under his leadership can be objectively and validly conducted.” The Republicans point to statements Portier has made, including one in September 2011, saying shale development “has been a disaster in some communities.”

The chairmen of the full committee and its subcommittees were obviously frustrated because they had requested a briefing with the Centers for Disease Control and Prevention (CDC) in September. The CDC is the ATSDR’s parent agency within the HHS. The Energy Committee members never received a response. That “raises significant concern that the agency does not intend to include Congress, the states and the public in a process that is of critical importance.”

Tait Sye, deputy assistant secretary for Public Affairs for Public Health at the HHS, says his department is “reviewing the letter and plans to respond directly to the committee.” He could not shed light on what studies the ATSDR may be working on for the Interagency Working Group.

CFTC Exempts Some Gas Transmission Contracts From Dodd-Frank
The Commodity Futures Trading Commission (CFTC) finally cleared up some confusion and said it wouldn’t regulate some natural gas contracts as swaps. The Interstate Natural Gas Association of America (INGAA) had been pressing for that clarification.
The Dodd-Frank law includes numerous new requirements for companies trading derivatives, also referred to as swaps, which can include options. The CFTC had previously ruled, with some murky language, certain physical commercial agreements would be considered commodity options, and thus not eligible for exclusion from the swap definition. That would have meant contracts between pipelines and gas owners, for example a utility, for storage or transportation capacity were “options.” If that held up gas transmission companies would have had to be concerned with new compliance obligations, buy additional computer software, hire additional people and train them accordingly. Joan Dreskin, general counsel at INGAA, says, “Those costs would be potentially passed on to ratepayers and consumers, and are really unnecessary.”

INGAA protested, citing an objectionable paragraph in the CFTC final rule, known as the ‘however’ paragraph,” which seemed to suggest that every facility usage contract that entails separate payments for fixed costs (e.g., a demand charge or reservation fee) and variable costs (e.g., storage fees, usage fees or rents) is an option subject to regulation under the Dodd-Frank Wall Street Reform and Consumer Protection Act. But the industry argued that such a two-part fee structure is the standard fee structure for a wide variety of usage contracts, including interstate transportation of natural gas, which is regulated by FERC.

The CFTC has published a ruling by its general counsel which says what the agency “really meant.” It essentially says the “however paragraph” was not intended to apply to agreements, contracts or transactions in which the buyer pays for a commodity in two parts, paying the seller’s fixed/known costs upfront and the seller’s variable costs associated with that commodity later once those costs are established.

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