Years needed for LNG exports to blunt Russian energy sales

U.S. efforts to speed natural gas (NYMEX:NG.C) exports as a way to loosen Russia’s grip on European energy supplies may be thwarted by lengthy reviews and developer reluctance to proceed with multibillion-dollar projects.

Russia’s military escalation in Ukraine is spurring calls in Congress for quick U.S. approval of plans to export liquefied natural gas from plants owned by companies including Cheniere Energy Inc., Dominion Resources Inc. and Sempra Energy. Russia provides 30 percent of Europe’s gas needs using pipelines that cross Ukraine.

“I view this as an incredible opportunity for the United States to highlight its position as an energy superpower,” Representative Cory Gardner, a Colorado Republican, said yesterday in a phone interview after introducing legislation to streamline the federal review of pending export projects.

While the shale-gas boom has made the U.S. the world’s largest natural gas producer, efforts to ship the fuel are bogged down by rules, financing needs and construction demands. Winning U.S. approval can take three years or longer, and not all companies planning a project are committed to completing the work.

Only one facility, Cheniere’s $10 billion Sabine Pass terminal in Cameron Parish, Louisiana, has the required approvals from the Energy Department and U.S. Federal Energy Regulatory Commission. Shipments are scheduled to start in late 2015, according to the company.

More Work

Russia’s OAO Gazprom today threatened to disrupt Ukraine’s natural gas supply if it doesn’t pay $1.89 billion owed to the company for recent shipments, according to a statement from Gazprom Chief Executive Officer Alexey Miller. Russia last cut off Ukraine’s gas supplies in 2009 over a similar dispute.

“We only have one approved license actually, and the molecules still aren’t going to flow for a while,” Energy Secretary Ernest Moniz told reporters March 5 at a conference in Houston. After the Cheniere license, the most optimistic view for the next set of LNG shipments to leave the U.S. isn’t until 2017 or 2018, according to Moniz.

“So, there’s still quite a ways to go,” he said.

Canada, Mexico

The U.S. is exporting some natural gas to Canada and Mexico, almost all by pipeline. Sending the product to Europe would require infrastructure that doesn’t exist: plants to super-freeze the gas into a liquid suitable for transport on special tankers. The only U.S. plant for LNG, operated by ConocoPhillips in Alaska, has been shut since 2012.

Lawmakers are exploring ways to help Ukraine and the European Union -- which depend on gas supplies from the east -- after Russia occupied Ukraine’s Crimean peninsula and escalated months of political unrest. The House yesterday passed a bill to provide $1 billion in loan guarantees sought by President Barack Obama’s administration to aid the former Soviet republic. The Senate hasn’t yet acted.

U.S. financial aid to may ultimately end up in Russia anyway if Ukraine needs to pay its eastern neighbor for natural gas, said Amit Khandelwal, a professor at Columbia University’s Graduate School of Business in New York.

“Money’s fungible,” he said in a phone interview. If the U.S. were to stipulate that aid couldn’t be used to pay gas debts to Russia, Ukraine could free up money from another source, Khandelwal said. “It’s just moving money around.”

Ukraine would need to receive natural gas from another source in order to prevent having to pay Russia for its gas supplies, he said.

Production Boom

Advances in drilling techniques, including hydraulic fracturing, or fracking, have boosted U.S. production of the fuel by 35 percent from a decade-low 18 trillion cubic feet in 2005, according to the U.S. Energy Information Administration. Since the Energy Department approved Cheniere’s application in May 2011, natural gas production has increased 8 percent.

The glut has reduced U.S. energy prices, prompted a manufacturing boom and prompted some lawmakers to urge keeping supplies steady at home to support domestic jobs. Exporting to nations willing to pay more might cause U.S. prices to climb.

“We should not give away the domestic economic and national security rewards of our natural gas boom, and then just hope that the market reduces the risk of international conflicts,” Senator Edward Markey, a Massachusetts Democrat, said yesterday in a statement. He offered a bill to require further Energy Department scrutiny of natural gas exports to determine if shipping abroad is in the national interest.

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