LNG Export Project Inks Deals

Brian Hicks

Written By Brian Hicks

Posted April 3, 2013

U.S. LNG export efforts are underway.

American company Dominion Resources Inc. (NYSE: D) submitted an application to federal officials for the construction of a $3.4 billion liquefied natural gas terminal in southern Maryland, according to The Washington Post.

Dominion would benefit from exports to Asia, where LNG is an expensive, sought-after commodity. LNG exports to Asia are becoming an attractive option as opposed to selling as domestically, where gas is in higher abundance and sells for lower prices.

It should come as no surprise, then, that companies in India and Japan are already lining up to get a piece of what Dominion has to offer. GAIL (India) Ltd., the largest gas utility provider in India, booked a total of 2.3 million tonnes of LNG for the next 20 years.

According to The Times of India, construction of the gas terminal is not set to begin until 2014, but there is an expected completion date of 2017. Dominion has marketed 4.6 million tonnes of LNG, and GAIL has already booked half of it.

natural gas boatThe agreement also allows the company to bring its own U.S. gas resources to the new facility, where it will be processed into LNG.

And the Japanese have a similar deal with Dominion.

Trading powerhouse Sumitomo agreed to buy 2.3 million tonnes per year from the export terminal, as reported by Platts. This is an extension of a 2012 deal with Dominion’s already existing Cove Point import terminal.

Another Japanese utility company by the name of Tokyo Gas (OTC: TKGSY) is involved in the new agreement. Sumitomo will supply 1.4 million tonnes of LNG per year to Tokyo Gas and 800,000 tonnes to Kansai Electric (OTC: KAEPF).

Dominion plans to supply the LNG to its customers by loading it onto docked ships in the Chesapeake Bay in southern Maryland, according to Oil & Gas Journal.

LNG Export Approval

This may all sound wonderful, but Dominion still needs to get approval from the U.S. Federal Energy Regulatory Energy Commission. With all the business coming in Dominion’s direction, company reps may be chomping at the bit, hoping the approval process runs smoothly.

Dominion also needs to get separate approval from the Department of Energy to export LNG to Japan and India specifically, since those nations do not have free trade agreements with the United States, as reported by Reuters. However, since Japan and India are on friendly terms with the U.S., there will likely be little problem in allowing the deal to continue.

But there is some domestic squabbling afoot, and this may have an impact on the DOE’s decision in approving the application, even affecting future exporting facilities.

There is concern that exporting LNG will deprive America of a natural resource, while driving up fuel prices at home.

LNG is one of the most precious resources to export, especially to places like Asia, where various nations in the continent are undergoing a rise in economic growth and energy demand. 

But American critics contend that such a vital resource should remain within the states.

However, there is no indication that Dominion’s aspiration for a new exporting facility will be denied. The DOE already approved an export facility in Louisiana from Cheniere Energy (NYSE: LNG), according to Reuters, and the Dominion application is third in line for government approval.

Economic Boost

America’s role in energy exports will spark more debate as drilling activity increases, but new export facilities are unlikely to be rejected – especially since these plants provide jobs to local areas and slowly increase America’s reputation as an energy producing nation.

From PR Newswire:

“A study has shown that up to 4,000 jobs would be produced in the state of Maryland during the construction phase [of the Dominion project]. Benefits to the natural gas and other industries would support another 14,600 jobs once the facility enters service. The project would produce an estimated $9.8 billion in royalty payments to mineral owners over 25 years. And, about $1 billion annually of additional federal, state and local government revenues would be generated directly and indirectly.”

The Dominion project gained support from U.S. Representative and Minority Whip Steny Hoyer of Maryland, who praised the facility for its potential in job creation. With political support and projected revenue to the federal government, the project stands a good chance of gaining approval.

And it may generate more interest and activity in Marcellus Shale.

Construction of the new export facility in Maryland is also notable, given how close Maryland is to the Marcellus Shale, which has undergone a recent boom in drilling due to a restoration of refineries on the East Coast along with new drilling methods and technology.

The Marcellus Shale could have the largest oil and gas reserves in the country. And although the region has gone through some turbulent periods due to state regulations, international market competition, and sluggish state economies, many experts believe there are a plethora of reserves waiting for any oil company with enough determination to keep drilling.

Asia could have wider access to Marcellus Shale, which could produce more than enough fuel to feed developing economies abroad if more export facilities are approved in the East Coast.


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