Baker McKenzie Duo Decry LNG Delays

Natalie Regoli and Brian Polley of the Houston office of Baker & McKenzie penned a story for the Unconventional Oil & Gas Report that contains some interesting observations about how the U.S. regulatory scheme is hurting the competitive position of U.S. LNG projects. Regoli and Polley write that:

U.S. brownfield [LNG] projects require less capital investment than greenfield projects due to existing infrastructure, and therefore these projects are expected to be the first online. Lower investment costs and depressed gas prices at the benchmark Henry Hub enable U.S. exporters to sell LNG for the lowest prices on the global market. The wildcard for these projects is the DOE, in particular, its lack of transparency regarding the criteria used to evaluate exports to non-FTA countries.

Another cause for concern is the DOE’s post-approval revocation authority, which most concerns Asian investors with ample balance sheets and large appetites for energy. The DOE reserves the power to reconsider approvals of non-FTA exports after those approvals have been granted, which worries investors, owners, and potential offtakers. Compare this to, for example, the regime created by Congress to review the national security implications of foreign investment in the U.S. under the Committee on Foreign Investments in the U.S. (CFIUS), where a clearance of a transaction is a safe harbor, and CFIUS cannot reconsider such decisions unless it finds that the parties misled or withheld critical facts from the committee. This post-approval revocation authority in the LNG export context creates great uncertainty and slows final investment decisions.

The slow pace of the DOE’s approval process alone is enough to hamper the competitiveness of U.S. [LNG] projects, especially if the export project is in the middle or end of the queue. A bottleneck at the Federal Energy Regulatory Commission amplifies the problem, with the second filer, Freeport LNG, only expected to receive final project approval in the third quarter of 2014.

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