The first big step for any company that wants to consider LNG exporting out of the United States is to get permission from the U.S. Department of Energy (DOE). They have to make a case for their export terminal being reasonable and desirable, that they can build it safely, and that they’ll be shipping it responsibly to countries we trust.
The DOE recently approved the application from Downeast LNG, Inc to build an import/export station (but note it’s mostly for export).
First Downeast gives us the basics:
Pursuant to Section 3 of the Natural Gas Act (“NGA”)…Downeast LNG, Inc. (“DELNG”) hereby requests that DOE, Office of Fossil Energy (“DOE/FE”), grant long-term, multi-contract authorization for DELNG to engage in exports of domestically-produced liquefied natural gas (“LNG”) in an amount up to 173 million British thermal units (“MMBtu”) per year, which is equivalent to approximately 168 billion standard cubic feet (“Bcf”) of natural gas per year, for a 20 year period.
So their facility is going to liquify and ship up to 168 billion cubic feet per year of natural gas, or 460 million cubic feet a day. Recall that PennEast is setup to produce up to 1 billion cubic feet a day.
Downeast then tells us how they’re going to get the gas to their facility:
DELNG proposes to source natural gas to be used as feedstock for LNG production at the DELNG Project from U.S. and Canadian gas fields via the interstate pipeline system. The DELNG Project will interconnect with the Maritimes and Northeast Pipeline (“M&NP”), which in turn interconnects with Portland Natural Gas Transmission System (“PNGTS”), Algonquin Gas Transmission System (“AGT”), and the Tennessee Gas Pipeline (“TGP”). Each of these three pipelines provides a distinct route to access eastern gas fields that the DELNG Project could use to source gas. Given regional demand, Kinder Morgan (the owner of TGP), Spectra (the owner of the AGT and partial owner of M&NP), and TransCanada (the owner of PNGTS), have each separately proposed capacity expansions for their existing system, or greenfield builds that would supply the region.
So this facility will be getting gas from interstate pipelines including The Algonquin Gas Transmission (AGT) system owned by….Spectra Energies.
You may recognize Spectra Energies as being a part-owner of the PennEast pipeline. PennEast will have interconnections to the AGT.
But would they really connect to a pipeline like PennEast, who’s source is Marcellus Shale gas? Here’s what they have to say on that:
The DELNG Project is encouraged by the increase in domestic natural gas production in the U.S., in particular, the rapid and sustained growth of gas fields in northeastern Pennsylvania. The production of natural gas in the producing regions in Pennsylvania and West Virginia now exceeds 14 Bcf per day (“Bcf/d”), based on estimates in the U.S. Energy Information Administration (“EIA”) May 2014 Drilling Productivity Report (“DPR”). Despite the rapid growth of U.S. natural gas production, some question whether it can be sustained unless new markets are found, given the low wellhead gas prices and a constrained gas pipeline delivery system. The EIA noted in a recent Short-Term Energy Outlook that:
[r]apid natural gas production growth in the Marcellus formation is contributing to falling natural gas forward prices in the Northeast, which often fall even with or below Henry Hub prices outside of peak winter demand months. Consequently, some drilling activity may move away from the Marcellus back to Gulf Coast plays such as the Haynesville and Barnett, where prices are closer to the Henry Hub spot price
So the answer there is “yes”. Downeast is being built specifically to receive gas from the Marcellus region.
Further down into the document Downeast gives us a real corker of a justification for their export facility:
4- Supply-Demand Balance Demonstrates the Lack of National and Regional Need
Recent trends in the U.S. natural gas market, in particular in the U.S. Northeast, make evident that the request for authorization to export domestic natural gas as LNG from the DELNG Project is consistent with the public interest.
U.S. natural gas production has been growing at more than twice the rate of domestic demand growth since 2005. The U.S. gas market has been unable to absorb the rapid increase, particularly in constrained gas production basins, leading to lower well-head prices, and forcing the shut-in of actively-producing wells, creating spare production capacity, non-productive resources, and a redeployment of production resources to unconstrained gas-producing regions and to oil fields.
So Downeast comes right out and says what everybody knows but didn’t want to put in writing – there is no national or regional demand for Marcellus shale gas. For the purposes of PennEast let me focus on the regional side. They make it plain – the NorthEast doesn’t need the gas from the PennEast pipeline. We’ve got tons of spare production capacity that has no where to go. It’s so bad they’ve actually been shutting down wells. The collapse of prices in the oil market have had an additional knock-on effect of causing even more well closures as natural gas follows oil’s suit and hits historic lows.
But wait, there’s more! Downeast quantifies the difference for us:
Based on these scenarios, discussed above, domestic demand growth for natural gas will average between 0.7% and 0.9% annually with total estimated demand of between 28.45 Tcf and 30.55 Tcf by 2040. However, over this same time period, domestic natural gas production is projected to grow between 1.5% and 1.7% annually, or approximately twice the rate of growth in domestic natural gas demand. Domestic natural gas production will exceed domestic demand by over 25% for both the Reference Case and High Economic Growth Case, or between 7.6 Tcf and 7.9 Tcf (20.9 Bcf/d to 21.7 Bcf/d) by 2040.
So shale gas producers are actually producing twice as much gas as we’ll need for growth.
Finally we come to the appendixes, which gives all of the data used to support their application. This area is lengthy but one part caught my eye in particular. There’s a section that talks about supply routes, and basically details where Downeast might get its gas from.
One portion talks about the “Spectra Route”:
The Spectra Route provides an opportunity for DELNG shippers to source natural gas from the Marcellus/Utica region at upstream points on Algonquin’s system (i.e., Lambertville, New Jersey or Ramapo, New York) and then transport it on one of Spectra’s proposed pipeline expansions into New England.
Lambertville, NJ? Does that ring a bell? It does to me – Lambertville is where the PennEast pipeline interconnects with the Algonquin pipeline system owned by Spectra Energy. In the above quote Downeast is proposing to use that interconnection to get Marcellus gas via PennEast.
And there you have it folks. Does anyone still have any doubt that a significant portion of the PennEast gas is going over seas now?