NEW YORK – The United States said Friday it will allow exports of domestically produced liquefied natural gas to Japan and other countries to which it is not bound by free-trade agreements, authorizing a plan to deliver shale and other gases from Texas.
Japan has been asking the United States to lift a ban on LNG exports to meet its energy needs after most of its nuclear reactors were suspended because of the 2011 Fukushima nuclear disaster as well as rising prices of energy imports.
The U.S. Energy Department authorized two companies under Texas-based Freeport LNG Development L.P. to export LNG to countries that are not U.S. free-trade partners, affecting a project involving the Freeport group and major utilities Chubu Electric Power Co. and Osaka Gas Co.
The announcement will pave the way for the producer of low-cost LNG to export it to Japan as early as 2017, according to a project plan.
Other Japanese corporations, including major trading houses Mitsubishi Corp. and Mitsui & Co., are also involved in shale gas development projects in the United States.
The department said in a statement that the Freeport terminal in Texas is authorized to export up to a prescribed daily limit for a period of 20 years. A total of 4.4 million tons a year of LNG will be shipped to Chubu Electric and Osaka Gas.
It was the second permit given by the Energy Department for LNG exports to a country lacking an FTA with the U.S. The department said it weighed economic, energy security and environmental considerations as well as nearly 200,000 public comments.
The issue of whether to export natural gas has been controversial. Producers of natural gas and supporters of free trade have urged the Obama administration to approve LNG export facilities. But environmentalists fear it will provide incentives for a new wave of drilling in places such as Pennsylvania.
U.S. manufacturers, especially those from the petrochemical industry, which uses natural gas as a raw material as well as an energy source, also oppose substantial exports. They say the surge in gas supplies and the modest prices for natural gas give the U.S. a competitive advantage that will revive industry and create more value than would be gained from exports.
Dow Chemical, one of the leading voices opposing widespread exports, also owns a share of the Freeport terminal through a subsidiary. On Friday, it issued a statement calling the Freeport permit “a prudent step in pursuit of a measured and balanced approach” to LNG exports while adding that it “will adopt a wait and see approach regarding further approvals.”
In an interview, Peter Molinaro, Dow Chemical’s vice president of federal and state government affairs, said the firm was worried that a combination of retirements of old coal-fired power plants and new industrial plants (including one of its own) between 2016 and 2020 could push natural gas prices sharply higher.
“We are the voice of the consumer, and we plan to continue to be,” Molinaro said.
Natural gas prices recently hit a 20-month high after an unusually cold March. The benchmark Henry Hub spot price averaged $4.17 a thousand cubic feet in April, the highest monthly average since July 2011, according to the Energy Information Administration.
The EIA forecasts that natural gas production would increase from 69.2 billion cu. ft. a day in 2012 to 70.1 billion in 2014. According to a new Barclays report, if all of the other 14 terminals seeking Energy Department export permits were approved, their total capacity would amount to 28.7 billion cu. ft. a day.
Senate Energy and Natural Resources Committee Chairman Ron Wyden, an Oregon Democrat, said that the Energy Department “will be making export decisions on a case-by-case basis” in a way that is “consistent with my belief that a measured approach on exports will provide the greatest advantage for the U.S economy.” Wyden said the department should “assess the market impacts of each export decision after it is announced, to ensure American consumers are not harmed by large-scale exports.”
“This decision is a victory for those who believe free trade is good for the American economy,” said the committee’s ranking Republican member, Sen. Lisa Murkowski of Alaska.