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Waiting game stalls LNG plans US, Canada face grilling from environmentalists on LNG’s impact on climate change; US proponents seek clarity on export permits Gary Park For Petroleum News
The United States and Canada are both waiting for verdicts that are crucial to their chances of joining the global LNG trade. And, the longer they wait the more obstacles they face, domestically and internationally.
U.S. proponents need clarity from their government over export permits and both need firm off-take contracts, while environmentalists and lawmakers are entering the debate in both countries, raising questions about whether LNG is more harmful to the climate change equation than most have been led to believe.
They are raising the unknown consequences to the environment of well-fracturing to release the gas supplies that make LNG exports possible, the use of electricity to convert gas to LNG, which requires taxpayers to subsidize the provision of hydro power in British Columbia, and the long-term dangers of draining gas reserves.
In the U.S. 19 applications for export approvals are pending before the Department of Energy, DOE — two have been approved — which has provided no timetable for decisions, while a far more costly and time-consuming approval process has LNG plans bogged down before the Federal Energy Regulatory Commission, FERC.
The backlog is setting off a tussle among LNG firms to be moved up to the front of the line — a prospect analysts rate as unlikely barring a legislative change by Congress.
nse liquefaction process could raise carbon emissions, while a potential increase in domestic natural gas prices resulting from LNG exports could see a rise in coal use. US, Canada issues different But that scramble is being accompanied with a warning from Dow Chemical that says approval by the Obama administration of the next two applications to export LNG will cross the 7 billion cubic feet per day line it believes would see domestic gas prices soar as much as $2 per million British thermal units which could see investors abandon major manufacturing projects.
Kevin Kolevar, Dow’s vice president of government affairs and public policy, said that pushing LNG exports beyond that limit would “start to reintroduce volatility into U.S. natural gas prices,” threatening petrochemical plants his own firm is planning for the Gulf Coast.
However, he did concede that even if the DOE approves exports, the gas market would be unlikely to react until supply contracts are in place and until projects get a green light from FERC.
The nature of the debate in Canada differs in detail, but the end result for LNG proponents is the same. Delays, of whatever sort, are harmful and could be lethal.
In Canada, the delay in locking up long-term buyers is giving activists representing the environmental movement and First Nations a chance to organize their opposition, ensuring only one thing — the end costs of projects will rise and could push them beyond economic thresholds.
Question on window In a 17-page report she released on global trade, U.S. Sen. Lisa Murkowski, R-Alaska, said in early August that “the window for the United States to join the global gas trade will not be open indefinitely. In fact, it is narrowing and there is a real possibility that the nation will miss out on a historic opportunity.”
She warned that, given the LNG projects planned in Qatar, Australia and Canada, “the world simply may not need LNG from the U.S. to meet new demand in the future. Consumers will have other options.”
Bill Cooper, president of the Center for Liquefied Natural Gas, said the DOE rules and the rationale in the conditional orders are understood. “What we don’t understand is the timing,” he said.
DOE is required by law to quickly approve LNG exports to countries that have free-trade agreements with the U.S., but it can limit or block exports to non-FTA countries, including Japan, which is the world’s largest LNG market.
However, David Goldwyn, president of the consulting group Goldwyn Global Strategies, noted that conditional approvals for non-FTA licenses require neither sales contracts in hand nor “any level of maturity” in the FERC process.
“So it’s hard to imagine on what basis the DOE would deny a conditional approval,” he said.
But the bar for final approval would be much higher since applications have to obtain clearance from FERC and have “credible” contracts in place, Goldwyn said.
He also said the FERC process can last up to two years, involving environmental impact statements and assessments, public hearings and approvals of new technologies, which could cost hundreds of millions of dollars.
Given these complications, he cautioned that “two approvals do not make a trend.”
Environmental review tough in Canada Although export permits are easier to obtain in Canada — three have been granted so far — the environmental review process looms larger than ever before, with environmentalists and First Nations motivated by their success in stalling Enbridge’s Northern Gateway oil sands crude pipeline across British Columbia to the point where the Enbridge will have to rely heavily on whatever final decision is made by the Canadian government once it receives the National Energy Board’s recommendations later this year.
Even if Northern Gateway clears the regulatory and political barriers, there is still the prospect of drawn-out legal action effectively undercutting the project by driving away the Asian shippers who have signed on with Enbridge.
As those events unfold LNG is being dragged into the debating arena in British Columbia, led by Andrew Weaver, a climate scientist at the University of Victoria and the first Green Party candidate elected to the provincial legislature.
He said Premier Christy Clark’s plans to sell cheap and plentiful British Columbia natural gas at inflated prices in Asia is a dream that will end up costing taxpayers through subsidies to the gas companies.
“It makes no economic sense to go out on this path,” he said. “The argument that there’s going to be a market for LNG some 10 years from now that will reflect the $12 or so differential in price between Asia and British Columbia is a pipe dream.”
Although First Nations in British Columbia have been more supportive of LNG projects than pipelines to carry oil sands crude to the tanker terminals on the Pacific Coast that backing is far from unconditional.
“We oppose speculators,” said Ellis Ross, chief counselor of the Haisla Nation, which has a 50 percent stake in the BC LNG Export Cooperative, which could be Canada’s first LNG export venture.
“We oppose any proponent who tried to go around us. If you try to hide behind an environmental assessment or a process, we will oppose that.”
Clock is running While Canadian LNG proponents grapple with their profit-thresholds and their efforts to secure long-term buyers and the United States government procrastinates over export permits, the clock is running down on hopes of opening routes to Asia for North America’s gas riches.
The latest obstacle in the U.S. — one that is resonating in Canada — comes from supporters of climate change action in the House and Senate who are now seeking a study of the climate effects of LNG exports, matched by similar stirrings of discontent among Canadian environmentalists.
In a 16-page report, the six Democrats who chair the Bicameral Task Force on Climate Change insist the Department of Energy should “understand the climate impacts of LNG exports before these facilities are constructed in order to ensure that there is a net climate benefit from such exports.”
The group urged the DOE to conduct a “thorough analysis” that would delve into the effects of LNG exports on domestic and overseas greenhouse gas emissions.
It listed more than 20 steps the DOE should take to implement President Barack Obama’s recently unveiled climate action plan, including finalizing energy-efficiency standards on appliances; boosting funding for low-carbon energy technologies; reforming building codes and utility rate structures; and supporting efforts to build lines for solar and wind-power transmission.
The task force argued that although LNG exports would reduce GHG emissions by lowering coal use, “there are significant uncertainties about whether this potential will be realized.”
The lawmakers said the energy-intense liquefaction process could raise carbon emissions, while a potential increase in domestic natural gas prices resulting from LNG exports could see a rise in coal use.
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