DOE finds Jordan Cove LNG exports won’t drive up U.S. gas, electric prices

The Department of Energy (DOE) Office of Fossil Energy has approved an application by the Jordan Cove Energy Project L.P. to export liquefied natural gas (LNG) from Port of Coos Bay in Oregon.

DOE’s Deputy Assistant Secretary Christopher Smith issued a ruling in favor of the much-debated Jordan Cove LNG project on March 24. In issuing the ruling, DOE found that allowing the project to export LNG to nations where the United States lacks a free trade agreement should not drive up natural gas prices for domestic power plants.

Jordan Cove is affiliated with Veresen (TSX: VSN). Veresen Inc. is a Calgary, Alberta-based energy infrastructure company with three main lines of business: Pipelines, natural gas and power generation.

Jordan Cove requests authorization to export up to the equivalent of approximately 292 billion cubic feet of natural gas per year (Bcf/yr).

Under the DOE order, Jordan Cove is permitted to export natural gas to meet Jordan Cove’s initial LNG capacity production of 6 million tonnes per annum (mtpa), with commercial LNG production targeted for early 2019, Veresen said in a statement. The DOE authorization is for a term of 20 years, commencing on the date of first export.

“Hence we agree with those commenters, such as the Bipartisan Policy Center, that maintain that LNG exports from the United States will have difficulty competing with LNG exports from other countries unless domestic U.S. natural gas can be produced much cheaper,” the DOE said in its ruling.

“They point out that the international supply of natural gas is growing, and the mobility of that supply is increasing as other countries develop their own LNG export capabilities. Further, there is no evidence before us that demonstrates that the prices of natural gas or LNG in the international market are more volatile than the prices in the U.S. domestic market.” DOE held.

The DOE document also suggests that the Jordan Cove Terminal could provide access to LNG for the isolated markets in Hawaii (where consumers pay high prices for electricity generated using primarily fuel oil and coal) and the Cook Inlet region of Alaska (where there is dwindling deliverability of natural gas). Jordan Cove states that utilities in both locales have indicated that they are looking to “piggy-back” their small demand quantities on shipments by customers with large enough baseload demand to support the construction of an LNG terminal.

Citing a Navigant study, Jordan Cove said that there was a 28% increase in U.S. total gas production since 2005 with the largest reason being advances in shale gas production.

Especially in its initial years, Jordan Cove intends to draw significantly on Canadian as opposed to U.S. natural gas supplies for its export volumes.

Jordan Cove maintains that gas reserves and gas production are likely to continue to rise and that North America is in the early phases of discovery of natural gas resources. Based on the Navigant study, Jordan Cove said it expects this trend towards a larger resource base will continue in the near term in both the United States and Canada and that gas production will continue to grow steadily throughout the Navigant study’s forecast period to 2045.

Jordan Cove said North American gas resources are adequate to satisfy domestic demand “as well as the added demand of the LNG exports proposed by Jordan Cove, even when other LNG exports are also assumed.”

There will still be plenty of natural gas even in the event of “a high rate of coal to gas substitution driven by assumed laws and regulations aimed at lowering greenhouse gas (GHG) impacts,” according to the DOE document.

Meanwhile, an Energy Information Administration (EIA) study said domestic consumers will see an increase in their natural gas and electricity expenditures, although the price rise should not be dramatic.

EIA projected that average electricity prices would increase between 0.14 and 0.29 cents per kilowatt-hour (kWh) (between 2% and 3%) when gas exports are added. The greatest projected increase would likely occur in 2019 under the “high export/rapid growth export scenario, with an increase of 0.85 cents per kWh” or 9%.

Jordan Cove is also proposing to build the 380-MW South Dunes combined-cycle power plant to generate electricity and process steam for gas conditioning prior to delivery to the Jordan Cove LNG facility.

DOE weighs comments from supporters, foes of Jordan Cove

DOE received a few dozen comments in support of the LNG terminal application. Protests and motions to intervene were filed by parties that include the Sierra Club, Citizens Against LNG, Landowners United and KS Wild.

Foes made various arguments, saying the terminal would be built in an earthquake and tsunami zone, thereby placing nearby residents in danger of an LNG leak. One U.S. opponent claims any economic benefit would ultimately support Canada and not the United States.

The American Public Gas Association (APGA) contends that price increases associated with exports of LNG will jeopardize the viability of natural gas as a “bridge fuel” in the transition away from carbon-intensive and otherwise environmentally problematic coal-fired electricity generation.

APGA also contends that increased domestic natural gas prices will hinder U.S. efforts to foster natural gas as a transportation fuel.

“To the extent commenters are concerned about the risk of large upward price spikes sustained over longer periods, such as those that occurred in 2005 and 2008, we do not agree that LNG exports will necessarily exacerbate this risk,” DOE said.

The case is FE DOCKET NO. 12-32-LNG.

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.