The US Department of Energy could approve soon as many as four more applications to export LNG before stopping the approval process to review new data, analysts with FBR Capital Markets said in a report Thursday.
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This "pause" in approvals could lead to more pressure on the Obama administration to wrap up negotiations on two sweeping free trade agreements that would open much of the global market to US exporters without the stringent DOE review, analysts said.
"If [or] when the approval process slows, exporters could turn to two major free trade agreements currently being negotiated with Asia and Europe to expand the marketplace for LNG exports," FBR analysts wrote. "Although the FTA process is very slow and uncertain, we see it as an interesting contingency supporting the LNG export story."
DOE is required, by law, to quickly approve applications to export LNG to countries that have FTAs with the US, but can deny or modify applications to ship LNG to non-FTA countries.
DOE has approved three applications to ship LNG to non-FTA countries, including since May two totaling 5.6 Bcf/d, but 19 applications, totaling 23.6 Bcf/d, are still pending.
Analysts, lobbyists and academics have said the administration will likely approve all of these applications, but it's unclear when, a question that has added relevance given that analysts believe the global market can only support about 6 Bcf/d to 8 Bcf/d of US gas.
Analysts with FBR said that, because of this potential threshold, DOE will approve one to four more LNG export applications, totaling between 1 Bcf/d to 2.79 Bcf/d, before it will "taper" the process by, potentially, pausing approvals to analyze the cumulative impact of approved and proposed projects.
This impact was examined in a DOE-commissioned study that was criticized by some, including Senator Ron Wyden, Democrat-Oregon, and chairman of the Energy and Natural Resources Committee, for using outdated Energy Information Administration data. FBR analysts said the administration will likely use the EIA's next annual energy outlook, to be released late this year, to weigh future applications.
"The next outlook could serve as an opportunity to pause the approval process and evaluate the cumulative impact of approvals as well as changes in the market outlook," FBR said. "We emphasize that the underlying law is heavily biased in favor of approval based on the public interest standard, and application rejection is much less likely than more time for additional study."
But, FBR analysts also said, many of the questions over delays in the application approval process could vanish if negotiations over the Trans Pacific Partnership with Asia and the Trans-Atlantic Trade and Investment Partnership with Europe are successful.
The FTAs, which are still being negotiated and will ultimately need to be approved by Congress, would involve three of the four biggest LNG import markets in the world, including Japan, the UK and Spain. South Korea, the second largest LNG importer in 2012, already has an FTA with the US.
FTAs with these Asian and European countries would mean applications to export LNG there "would be quickly and automatically granted," the analysts said.
Still, the FTAs are still subject to lengthy negotiations and may not even be ratified before all 19 pending LNG export applications are approved by DOE.
FTAs "are complex all-encompassing negotiations that would likely take years to complete," the analysts wrote.