The Energy Department is stepping out of the way on natural gas exports. So why isn't the industry happy?

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Politics,Energy Department,American Petroleum Institute,PennAve,FERC,Energy and Environment,Zack Colman,Oil,Natural Gas,Trade

The oil and natural gas industries want applicants who send natural gas to nations without a U.S. free trade agreement to get top billing by the Obama administration.

Ostensibly, the Energy Department is doing just that under a policy it finalized Friday, in which it is eliminating its "conditional" approvals. The old policy drew criticism from the industry because it said the agency moved too slowly. It was also criticized for keeping developers in bureaucratic limbo when their applications were filed later, even if their projects had a greater chance of coming to fruition.

But the oil and gas industry contends the move won't ease uncertainty, and could potentially stymie investment.

That's because final Energy Department approval would still hang over developers' heads, said Kyle Isakower, vice president for Regulatory and Economic Policy with the American Petroleum Institute. And for all the trouble the industry has had with the pace of conditional approvals, it has at least served as a signal to the market — specifically, potential buyers — that final approval was probable.

"Not knowing what the tail-end of that approval process is going to be adds additional uncertainty. And, as you know, investors hate uncertainty," Isakower said last week, before the agency finalized the rule change, at a media event at API's Washington D.C. headquarters. "Buyers will look for other suppliers if they need to. If the process takes too long, then you could lose them."

The Energy Department didn't buy that argument.

It noted that plenty of the more serious developers were already going ahead with the Federal Energy Regulatory Commission's permitting process — which takes 18 months and costs more than $100 million — even before securing conditional approvals. Seven export projects, amounting to 9.51 billion cubic feet per day — compared with the 10.52 bcfd that already have conditional approval — "have made considerable progress" on that front.

The Energy Department said the change it is implementing will help more serious developers jump ahead, eliminating the current process in which DOE evaluates applications on a first-come, first-served basis regardless of whether the projects are likely to get built.

"[B]y suspending its practice of issuing conditional decisions and ceasing to follow the order of precedence published on December 5, 2012, DOE would better be able to ensure prompt action on applications that are otherwise ready to proceed," the agency said in the notice published in the Federal Register.

Congress is considering legislation that would establish deadlines for the Energy Department to approve applications.

The DOE has purview over the exports to non-free trade nations because they must be deemed in the public interest — say, by not significantly raising domestic prices. The U.S. produces about 70 bcfd of natural gas, with some liberal Democrats and energy-intensive manufacturers warning that exports nearing 20 bcfd would invite price shocks.

But export advocates said a level of exports that high is unlikely, given other suppliers coming onto the scene. With competition coming online, they say further delay could squeeze the U.S. out of markets.

While the number of countries that have import facilities — currently 25 — could double by 2020, according to Ernst & Young, it's still a buyers' world.

Outside the U.S., 63 projects with a total of 50.5 bcfd are either on the docket or under construction — that's for a market that by 2025 would see at most a 36 bcfd increase in demand over 2011 levels, according to an API-commissioned study by ICF International.

"While the numbers of would-be exporters and volumes is large, many observers expect that only a few of the projects will ever go into service due to the limited size of the [liquefied natural gas] market and competition with non-U.S. LNG exporting countries," the study said.

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