The meeting between President Barack Obama and Russian President Vladamir Putin at the Group of 8 conference in Northern Ireland on Monday had the whole world at attention. In the end, putting their differences aside, the two nations agreed to focus on a more businesslike phase of their relationship and sealed it with a handshake.
How this will affect the U.S. approach to natural gas exports remains uncertain. Russia continues to export its natural gas and seize dominance of the European market, while the U.S. remains reluctant to export its own domestic natural gas – a move that is taking a toll on the economy and national security.
And U.S. energy companies that remain in limbo are increasingly agitated. The constant rule changes and delays upheld by the U.S. Department of Energy (DOE) as they wait for approval on their export permit applications has some companies considering their last resort: lawsuit.
They see no other alternative to speed up the process. It will be interesting to see what kind of strategies a House of Representatives panel can come up with as it meets this week, with a focus on the current problems that face liquefied natural gas (LNG) exports.
The U.S. has an opportunity to aid its allies, strengthen foreign policy, and create a multitude of jobs on the domestic front – all with American natural gas.
Still, the Obama administration refrains from allowing it to happen.
The U.S. has seen production of its shale gas explode in recent years and is now considered a leading natural gas-producing nation with great potential for exports. Obama has warily walked the line of America’s energy boom and, using great caution, has promised to protect the economy from the possible spike in gas prices that could occur if exports were allowed.
Presently, only countries with free-trade agreements with the U.S. can receive LNG exports from the States. But large LNG consumers like Japan and India, who are outside of U.S. free-trade, are eager to sign deals with U.S. suppliers.
There are 16 projects that sit in the hands of the DOE awaiting export approval.
In May, the DOE approved natural gas exports to all countries from the Freeport LNG terminal on Quintana Island, Texas, ending a nearly two year pause in its review. This follows the U.S.’s first foray into LNG exports with Cheniere’s (NYSE: LNG) Sabine Pass terminal in 2011.
And ever since then, natural gas exports have been a topic of heated contention. The DOE says more decisions are coming, but it’s been saying that for a long time now. It gives no time frame nor indication of how many decisions will be made. It’s a guessing game, and it has many companies at the end of their ropes.
A Fighting Chance
The Natural Gas Act of 1938 has a lot to do with it. This required federal permission to export natural gas, but it gave no timetable for the decision process. But LNG companies stand a fighting chance to do something about this in court with the separate Administrative Procedures Act, which requires government agencies to act on matters within a reasonable time frame.
It’s the only real challenge natural gas companies can make – to force a rule that the DOE issuance of export permits is unlawful in time constraints.
It’s not much, but then again, time is the main issue as the entire oil and gas industry twiddles its thumbs and waits for the go-ahead on natural gas exports.
The administration set up its waiting list of LNG exporters in December of 2012 based on date of application and when project backers filed for licenses from the U.S. Federal Energy Regulatory Commission (FERC).
Applications cost right around $20,000, but it’s the FERC licensing that is of upmost importance. This can cost as much as $100 million, but it is an action that is required to begin construction on any gas export project.
And that’s understandable. You have to pay to play, but this becomes a problem for the companies since they were never told they would be ranked and put on a waiting list based on the timing of their applications.
For those at the bottom of the list, like Golden Pass, a proposed Exxon Mobil Corp. (NYSE: XOM) joint venture with Qatar Petroleum for roughly $10 billion, the project loses precious time and boat-loads of money. If the company knew it would take, let’s say, five years to get an export permit, the project probably wouldn’t even exist. Importers aren’t just going to wait for things to happen. They need their gas, and they need it now.
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It won’t be easy to make a case against the DOE’s permit process, but with billions of dollars tied to these projects, some companies will likely give it a try.
The argument would rest on an applicant’s right to a final decision in a justified matter of time. The companies would have to prove that up until now, the delay to obtain proper licensing has been unreasonable.
As a defense, the DOE could argue it needed ample time to study the impacts of LNG exports and receive public feedback.
But the review process has been ongoing for more than two years in some cases, so when do you say enough is enough?
No matter the outcome and who goes to court, the oil and gas industry is going to thrive; natural gas production is going to soar, and LNG will leave U.S. shores and make its way around the world. It may take entirely too long, but the demand will be there when it happens. And the companies that do decide to act in the matter of court proceedings won’t suffer from doing so.
And when it does finally happen, alliances and greater bonds will be forged, and right here at home, a surplus of new jobs will be created for the U.S. economy.
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