* US and Europe to explore free trade agreement
* Despite FTA, quicker natgas exports to EU unlikely
* Exporters seeking approval to export to non-FTA nations
By Edward McAllister
NEW YORK, Feb 22 A free trade agreement between
the United States and Europe could open new markets for domestic
natural gas, but without access to big growth Asian markets
there still may not be enough demand to launch the export
revolution that the industry desires.
President Barack Obama, in his State of the Union speech,
said the United States wants to foster closer trade relations
with Europe, sparking speculation that an FTA could create an
easy path to shipping liquefied natural gas (LNG) to the
Morgan Stanley energy analysts this week said an FTA could
quicken the timeline for LNG projects targeting Europe and even
increase volumes heading there.
But other experts say few, if any, of the more than a dozen
planned U.S. projects will go ahead before they receive approval
to export gas to major buyers in Asia such as China and India,
which do not have FTAs with the United States.
"Global LNG operators need access to 100 percent of the
markets. Restricting the trade would reduce the value of the
U.S. supply," said Lafayette Herring, an LNG analyst at
Waterborne Energy consultants in Houston.
U.S. LNG exports are tightly restricted and projects must be
approved by Washington. Deals to ship to FTA countries are
typically rubber-stamped; only one project has been approved to
export to a non-FTA country, amid concerns about driving
domestic prices too high.
FTA nations that import LNG represent 20 percent of global
demand, according to Waterborne, most of which is made up by the
world's No. 2 LNG importer, South Korea. Adding Europe to that
list would bring it up to 50 percent.
Financing of export projects, which cost billions of dollars
to build, hangs on companies securing supply deals. Such deals
are far more likely if all the world's importers can be
approached. Without deals, it becomes very difficult to convince
investors that the project will make money.
At stake is the fate of proposed projects run by Royal Dutch
Shell, Exxon Mobil, Sempra Energy and
other smaller ventures.
Some experts said that projects hoping to export from the
United States will already be under construction by the time any
trade deal with Europe is formalized.
"Negotiating a trade agreement is a long-term process. Most
LNG projects in the U.S. will have to pull the trigger much
before this trade deal is even close to being finalized," said
Nikos Tsafos, analyst at PFC Energy in Washington.
Gas export has become a pivotal political question in the
United States as output of the fuel hit record highs over the
past year. Gas producers want to capture higher prices abroad,
but consumers and industry worry exports would push up fuel
costs at home.
Gas prices in Asia are six times higher than the United
States, prompting a string of about 15 export proposals that
hope to exploit the price difference by liquefying the gas for
shipping to higher paying markets overseas.
A government report in December concluded that unfettered
LNG exports from the United States would have a net beneficial
effect on the U.S. economy. The report, currently open for a
comment period, has generated nearly 200,000 responses
expressing strong opinions for and against exports.
So far one project - Cheniere Energy's plant under
construction in Sabine Pass, Louisiana - has the go ahead to
export to FTA and non-FTA countries. Cheniere, which expects to
begin exporting by 2016, has already signed deals to supply
companies in India, Great Britain and South Korea. One deal with
BG Group will likely see U.S. gas exported wherever the British
company has supply deals.
NO PERMITS, NO CUSTOMERS
Even companies without non-FTA supply approval, or the
go-ahead to start construction on their plants, are taking steps
toward completing the commercial side of the projects, lining up
buyers outside the FTA umbrella in expectation that such an
approval will come.
Freeport LNG, which plans to produce LNG on the site of its
existing import terminal in Texas, has signed a supply deal with
two Japanese utilities and, most recently earlier this month,
with Britain's BP, which, like BG Group, supplies to consumers
across the world.
Dominion Resources, which has government approval to
export LNG to FTA countries and is waiting for approval to
export to non-FTA countries, is in talks with potential European
and Asian buyers - including Japan trading house Sumitomo Corp
, company spokesman Dan Donovan said. It plans to file
for a construction permit for its proposed plant at Cove Point,
Maryland with the Federal Regulatory Energy Commission in the
next two months, before receiving Department of Energy approval.
Donovan said it was unlikely that the Cove Point project
would go ahead without a permit to send gas to non-FTA
countries. "I don't think you would get the customers," he said.
(Reporting By Edward McAllister; Editing by Matt Robinson and