Energy Ink

Enthusiasm for U.S. LNG exports runs deep

A 3.5 mtpa deal bodes well for reducing U.S. trade deficit

October 29, 2011

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An enthusiastic tweet from Encana Corp. caught my attention yesterday. It read:

Big news on #LNG for Cheniere and @BGGroup ow.ly/7c5f8

This is not surprising. Any deal that has the effect of taking gas away from North American markets sits nicely with officials at the Calgary-based natural gas and liquids producer. Company chief executive Randy Eresman made no show of hiding his enthusiasm during a conference call to announce third-quarter results Oct. 20, noting that Encana would support “as many LNG export facilities as can be constructed in North America.”

It turns out that interest runs deep, and that natural gas producers aren’t alone in backing U.S. exports. Encana’s show of support via Twitter put me in the mind to look back at the approval given to Cheniere Energy for its 16-million-tonne-per-year Sabine Pass LNG project by the U.S. Federal Energy Regulatory Commission (FERC).

The deal announced this week will see Cheniere sell 3.5 mtpa to Britain’s BG Group for no less than 20 years, Reuters reports. To the chagrin of groups like the American Public Gas Association, which believes LNG exports spell trouble for domestic gas users, energy supplies and national security, FERC seems generally supportive of liquefaction schemes. Here’s the agency paraphrasing Encana, which filed a letter with U.S. regulators in support of Cheniere’s export application.

Encana maintains that allowing Sabine Pass to open the door to new markets will have a salutary effect on domestic natural gas development efforts. As a natural gas producer, Encana states that it is interested in exploring the potential LNG export market as one of many market options for its North American production.

Sabine Pass has broad implications, broader even than the massive Kitimat LNG venture in which Encana owns a 30 per cent stake. The backdrop to the Cheniere-BG deal is a swollen U.S. trade deficit. Consider that when Cheniere submitted its export application to the Department of Energy in August 2010, the 2009 deficit stood at a whopping US$380.7 billion, according to the U.S. Department of Commerce and the Bureau of Economic Analysis. Cheniere points out in its export application that more than half the total – some US$204 billion – stems from a negative trade balance in petroleum products. (The monthly trade deficit for August 2011 was US$45.6 billion, pretty much on par with the month before).

That the Obama administration is actively looking to chip away at that figure – via its National Export Initiative – is one reason, over and above the flood of shale gas unlocked by new drilling techniques, to expect more LNG export schemes will materialize south of the border. Big news indeed.

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