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Shale Gas Export Boom: Planned All Along?

The race is on, full-steam ahead for the United States shale gas industry [PDF] in its quest to pipe and export gas obtained via the hydraulic fracturing process to lucrative global markets.

On April 16, Cheniere Energy Inc. became the first corporation in the United States to receive approval by the Federal Energy Regulatory Commission (FERC) to export liquefied natural gas (LNG) to the global market from its Sabine Pass LNG terminal, located in Cameron Parish, Louisiana.

Sabine Pass was the first of several U.S.-based LNG terminals awaiting FERC LNG export licenses to receive the go-ahead.

Nearly all of these terminals were originally designed and permitted as LNG import terminals and all began construction or were bought in the early- to mid-2000s. Project developers now say they are seeking export licenses in response to changing market conditions, namely the shale gas boom.

Federal policy decisions made under the auspices of the Bush Administration, though, raise a disconcerting question: Was the shale gas export boom pre-orchestrated from jump street?

LNG Exports 101

Gas is typically shipped via pipeline when taken to market on contiguous land masses, but that is impossible, for obvious reasons, when seeking overseas markets.

LNG terminals super-chill gas at approximately ?260 °F to liquid form and load it under extreme pressure into specially designed tankers for shipment overseas. Once at its desired destination, the LNG must be re-gasified before it can be fed into pipelines for domestic markets and local distribution.

Beyond Sabine Pass, there are two other terminals currently awaiting a FERC stamp of approval — in Freeport, Texas, and Corpus Christi, Texas — with other proposed export terminals located in Oregon, Texas, Lousiana, and Maryland in earlier stages of the approval process.

The gas sojourning to these terminals will come mainly from gas fracked from shale basins around the country, ranging from the Niobrara Shale in the western U.S.; to the Haynesville, Eagle Ford, Barnett and Fayetteville Shale basins in the southern U.S., to the famous Marcellus Shale in the northeastern U.S. This, in of itself, has created an underlooked and loosely regulated shale gas pipeline boom.

Industry insiders say exports are necessary due to a market glut created by the shale gas revolution.

“The projected U.S. demand is not sufficient to absorb the supply from these fields,” Richard Gordon of Gordon Energy Solutions told The Wall Street Journals MarketWatch in December 2011.

But are these merely “free market forces” at work? Legislative history suggests that the answer is not so simple. Enter the Energy Policy Act of 2005.  [cont’d.]

Image Credit: Oleksandr Kalinichenko | ShutterStock

Energy Policy Act of 2005 and LNG Terminals

The Energy Policy Act of 2005 was a broad-sweeping, 400+ page omnibus bill made famous due to the “Halliburton Loophole.”

This loophole, written by and for Halliburton — the company of which then Vice President Dick Cheney was formerly the CEO — called for shale gas corporations to receive an exemption from the Safe Drinking Water Act (SDWA). The SDWA mandates disclosure of the chemicals in any extractive process like fracking; if the chemicals are a ecological safety hazard, they are prohibited under the law.

Yet quietly and with few eyes watching, the Energy Policy Act of 2005 also eroded state and local rights in regards to LNG terminal siting.

As described in a legal briefing written by Sutherland, Asbill & Brennan LLP, “[The Act] amends the [Natural Gas Act] to grant [FERC] express exclusive authority to approve or deny the siting, construction, expansion or operation of an LNG import terminal located onshore or in State waters.”

The law also set the FERC 2002 Hackenberry LNG decision in stone, eviscerating barriers deemed a nuisance for the industry, such as the payment of tariffs and other regulations.

“FERC’s new policy resulted from a public conference in October 2002, during which LNG industry representatives argued that open access requirements deterred investment in new LNG facilities,” explained the U.S. Energy Information Administration (EIA) in a briefing, “Industry representatives said that investors in LNG projects need to be assured access to import terminal capacity in order to advance capital-intensive liquefaction projects in other countries…FERC specifically stated that it hoped the new policy would encourage the construction of new LNG facilities by removing some of the economic and regulatory barriers to investment.

These changes applied to LNG import terminals, not export terminals, which as one analyst explains, “At the time, the United States was facing declining domestic natural gas production and policymakers believed we would need to depend on LNG imports to meet our domestic needs for the fuel.”

“Changing Market Conditions”

The shale gas industry claims “changing market conditions” — namely, a market glut — has created pressure to now transform some of these import terminals into export terminals. Further, given the hefty price tag of LNG terminals, developers say it makes economic sense to site export terminals at existing import terminals, where the infrastructure is already in place.

But did the gas industry really not see a boom in domestic gas drilling coming?

Many of the key provisions of the Energy Policy Act of 2005 — including the Halliburton Loophole and LNG import terminal siting rules — were negotiated in 2001, behind closed doors as part of Dick Cheneys Energy Task Force, which “met with approximately 300 groups and individuals, ranging from the American Petroleum Institute to Defenders of Wildlife,” according to a list later acquired by The Washington Post.

Most of the LNG import terminals now seeking export licenses were planned in the early 2000s, with construction beginning by the mid or late-2000s, including Cameron LNG in Louisiana, Corpus Christi LNG and Freeport LNG in Texas, and Jordan Cove LNG in Oregon (the one exception is Cove Point LNG in Maryland, which Dominion acquired in 2002). All of these terminals were originally permitted for importation, exactly at the time when the Cheney Task Force was laying the groundwork for a domestic shale gas gold rush.

The flips from import to export cut right to the heart of the matter: Was export the goal these developers from the onset?

It is both a legal question, as well as a political question.

From Import to Export: The Import Loophole?

LNG Export License Process vs. LNG Import-to-Export License Process

Under the Natural Gas Act of 1938 both exports and imports are deemed in the “public interest.” The Act “requires Federal approval by the [DOE] for the import and export of natural gas, including liquefied natural gas (LNG), and approval by FERC for the siting, construction, and operation of onshore LNG import and export facilities.”

In other words, differences of siting, construction and operation of LNG import versus export facilities aside, based on their respective functions and design differences, the legal processes by which to gain a permit are nearly identical.

Politically speaking, on the other hand, it would have been far harder to sell LNG export terminals to the American public than it is to sell import terminals for a variety of reasons.

First, fracking, one must recall, was initially pitched to the masses as necessary for “national security purposes,” and for a substance, to use energy tycoon T. Boone Pickens words, that was “clean, cheap, abundant and ours.”

On the contrary, exporting the gas will lower domestic supplies, raise energy prices and make the U.S. more reliant on the very “dreaded foreign oil” that people like Pickens claim the U.S. has to “get off.”

One could argue quite effectively that taking the bait-and-switch route meant a far easier “sell,” politically-speaking, to “win hearts and minds” of a Post-9/11 hyper-patriotic citizenry.

The Costs and Consequences of LNG Exports

In practice, what does this all mean?

Higher home heating prices, for one, due to lower gas supply, according to a January 2012 EIA report.

That translates into citizens living near shale gas basins bearing the burdens of fracking, of which there are many, including but not limited to the impacts of global warming, water contamination and destroyed livelihoods, and then not even receiving the so-called “benefits.”

Furthermore, scores of pipelines are being built to send shale gas from basins around the lower 48 to terminals around the continental shelf, which are potentially hazardous themselves, as exemplified by the Pacific Gas and Electric San Bruno pipeline explosion of 2010. Then there are the inherent dangers of LNG terminals on the communities surrounding them.

Yet communities are fighting back against the proposed export licenses and not all hope is lost.

On April 16, for example, after significant opposition from local populations, FERC vacated authorization of the proposed Jordan Cove LNG terminal, as well as the certificate to construct the pipeline. It concluded that export facilities serve a different purpose than import facilities, and therefore requires its own respective full analysis of environmental and economic impacts.

Will citizens follow in the footsteps of the Oregon activists and fight back before the consequences of this race are felt for all runners in it?

Time will tell.

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David Dayen

David Dayen