Freeport LNG has been granted U.S. government approval to begin exporting its liquefied natural gas (LNG) to countries outside of the free trade agreement (FTA).
Last Friday’s announcement is only the second time such a permit has been awarded, but it shows a growing commitment to sending natural gas to countries beyond U.S. borders.
The export terminal must still pass environmental and regulatory review, but granted no major hiccups occur, it will have free range to export domestic LNG to any country with which trade is permissible.
Under authorization, Freeport has the right to export up to 1.4 billion cubic feet of natural gas per day for the next 20 years to any non-FTA countries.
Freeport LNG, located on Quintana Island, Texas, is owned in equal parts by ConocoPhillips (NYSE: COP) and by acting Chief Executive Officer Michael S. Smith.
Before last Friday, Freeport could only export LNG to FTA countries – approval of which was granted in February 2011.
To reach its decision, the DOE “considered the economic, energy security, and environmental impacts – as well as public comments for and against the application and nearly 200,000 public comments related to the associated analysis of the cumulative impacts of increased LNG exports,” determining that exports from Freeport were “not inconsistent with the public interest,” it said.
Japan and Beyond
The Freeport terminal was originally intended only for imports to the North American market when it was constructed in 2005. But soon after that, the shale gas boom exploded, and there was no turning back.
By 2008, Freeport was a fully commercialized operation, and today, the supply and demand have both skyrocketed.
Japan is one such country that will greatly benefit from this latest agreement.
Cheap natural gas prices in the U.S., spurred on by the exploitation of its shale gas and an overabundance in production, has Japan champing at the bit.
Freeport now has launched a $10 billion natural gas liquefaction expansion project that will add roughly 1.9 billion cubic feet to its capacity and is slated for operation by 2017.
And the way things stand right now, Japan can’t get its hands on enough. The use of natural gas for Japanese power generation rose 15 percent from 2011 to 2012, and that number is only going up.
And with U.S. natural gas prices so low, it’s vital for Japan to find U.S. connections – Japanese companies pay at least three times the cost of U.S. natural gas presently.
Osaka Gas (TYO: 9532) and Chubu Electric Power (TYO: 9502) have already inked liquefaction tolling deals with Freeport, signing on to acquire 2.2 million tons per year each.
In February of 2013, Freeport agreed to a similar liquefaction tolling agreement with BP (NYSE: BP), who would likely send that supply to Asian and European LNG importers.
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LNG Exports for the U.S.
The expansion project will be engineered by Chicago Bridge and Iron Company N.V. (NYSE: CBI) and designed by Zachary Industrial, Inc.
Operations like Freeport that offer the necessary construction to see natural gas exports succeed will deliver significant job growth; they will stimulate the current U.S. economy and strengthen the balance of trade. And they will put a sizable dent in the stimulus – all that while ensuring domestic energy needs are met and establishing a stronger national security.
Still, some will go on saying that exporting U.S. domestic natural gas will cripple the advantages that the U.S. currently holds over much of the world on cheap energy. But the reward could very well outweigh the risk.
It’s at least worth a try.
Right alongside Freeport is Cheniere Energy Inc.’s (NYSE: LNG) Sabine Pass – the only other project that has been granted this DOE approval. Cheniere’s terminal will export even more LNG than Freeport – 2.2 billion cubic feet.
A number of other companies are still hoping for the same outcome, but the government’s approval process is a slow one.
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