Friday, August 22, 2014

LNG Export Projects Advance - A Comfort to Shale Operators

The U.S. Energy Information Administration (EIA) reported this week that another LNG export project has been conditionally approved by the Federal Regulatory Commission (FERC) and the U.S. Department of Energy (DOE).

Cameron LNG project joins the list
The new approval goes to the sponsors of the Cameron LNG export project out of Louisiana. The addition of the Cameron Louisiana project brings the total approved projects to three, adding to the Sabine Pass LNG (Louisiana) and the Freeport LNG (Texas) projects already announced.

LNG export approval status - DOE and FERC
The approval process for LNG export requires the DOE to approve LNG export and the FERC to approve the onshore and near onshore facilities, the latter involving a rigorous environmental impact study. Both the DOE and FERC maintain a list of projects and approval status.

The DOE has a longer list of approved LNG export projects listed here.
The FERC has a list of projects a various states, potential, proposed, and approved.
DOE LNG export applications from various companies can be found here.

Exports should ensure sustained drilling activity and new exploration
The winter of 2013/2014 was a harsh one, and to the delight of operators, many of which are razor thin on realizing profits on their shale investments. Without the recent cold winter that drew heavily on natural gas storage and kept natural gas prices at a price floor, we would not be seeing as much drilling as we are seeing now.

For all of the good wells that are profitable, there are those that are not, especially in the newer shale plays and the shale plays where brave operators venture out into less-proved areas. Unsatisfactory results in many of the northern and western areas of the Utica Shale in in Ohio is a case in point. BP abandoned efforts in the northern portion of the Utica after poor production results. And Devon, while still in the play, took a chance in the early days on some wells in the east and had a similar outcome.

In order to venture out into the untested areas and make more marginal wells profitable, natural gas prices will need to be at some level that supports investment. In fact, many areas, though having some amount of natural gas or liquids are not being developed based on the current price of natural gas. And even for those operators that want to experiment with new drilling, completion or production methods in non-core areas, the lower commodity prices increase the risk and dampen investment.

So while consumers and chemical companies cheer the lower prices, the price is sensitive to a number of things, including how cold it will be this coming winter. Opportunities to export LNG will help to sustain drilling activity and investment with operators banking on receiving higher prices overseas and the pressure that exports will have locally to sustain some reasonable pricing. LNG export also helps to create a pricing environment not so dependent on the U.S. weather and natural gas consumption patterns, offering much needed stability that investors need.