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Latest approval for exporting US LNG a disappointment: Freeport CEO

Highlights

The US Department of Energy's latest conditional approval allowing Freeport LNG to ship more liquefied natural gas from its proposed Texas terminal falls 1 Bcf/d short of the Houston-based company's export plans, creating excess capacity and potentially complicating future expansion, the company's CEO said Monday.

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"We're quite disappointed in the order itself," Freeport CEO Michael Smith said in an interview.

On Friday, DOE gave conditional approval for Freeport LNG to export an additional 400,000 Mcf/d from its planned Quintana Island facility to countries that do not have free trade agreements with the US.


The order, just the fifth of its kind DOE has granted, was the second Freeport had received. In May, the agency gave Freeport conditional approval to export up to 1.4 Bcf/d of LNG to non-FTA countries.

But the order Friday was 1 Bcf/d short of the export level Freeport wanted, a reduction that DOE did not explain and seems to have no rationale for, Smith said.

"They're basically making the rules up as they go along," Smith said. "We're spending $4 billion per train, if you can get an extra five or ten or 15% out of the train you should be able to sell it after making that kind of capital commitment."

Freeport plans to export LNG from three trains, with Federal Energy Regulatory Commission approval expected in early spring and its first cargoes shipped by early 2018. It is also considering a fourth train, Smith said. It plans to ship LNG from the first train to Japan's Osaka Gas and Chubu Electric Power, LNG from the second train to BP Energy and gas from the third train to Toshiba and SK E&S, a South Korean utility.

Smith said the extra capacity not approved for export under the DOE's orders will likely be shipped to SK E&S since DOE cannot put restrictions on LNG exports to countries such as South Korea, which have a free trade agreement with the US.

"If I did not have a free trade company as one of my five customers, [DOE's export restrictions] would be retarding the amount of gas I could be selling to foreign countries," Smith said.

By law, DOE has to quickly approve an application to ship LNG to FTA countries, but can restrict or modify applications to ship to non-FTA countries, such as Japan or China.

Following Friday's Freeport announcement, there are at least 20 non-FTA export applications in line waiting for DOE approval, but Smith said that likely only one more, Sempra LNG's application to ship 1.7 Bcf/d from its Cameron LNG facility in Louisiana, will likely be approved before the DOE imposes a moratorium on new approvals. DOE will likely wait to study new, year-end data before its next approval.

The delay will likely have little impact, Smith said.

"The bottom line is that the new data is going to be better than the old data the way the reserves are growing, so I think that's not a valid point for slowing things up," he said.

--Brian Scheid, brian.scheid@platts.com
--Edited by Keiron Greenhalgh, keiron.greenhalgh@platts.com