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Freeport LNG is only the second project to get the nod for exports to countries that dont have FTAs with the US
The US Energy Department conditionally approved the Freeport LNG project in Texas to export natural gas, concluding that more overseas sales offer net economic benefits for the US.
The Freeport development, which is partly owned by ConocoPhillips, The Dow Chemical Co. and Osaka Gas Co. Ltd, is only the second approved by the Obama administration for exports to countries that dont have free-trade agreements (FTAs) with the US. Similar permission is not required to export to countries that have free-trade deals.
Hydraulic fracturing in shale rock formations has led to record natural gas production in the US. How much of that bonanza should be sold to non-US customers has been hotly debated in Washington in recent months as the Energy Department weighed 20 applications for export terminals.
"Its positive for the entire industry, Will Frohnhoefer, an analyst with BTIG Llc in New York, said in an interview. "The decision shows the Energy Department, is serious about its task and its going ahead and evaluating these projects on their merits, he said.
The decision drew wide praise from industry groups, as they called on the department to quickly approve the remaining applications. "The announcement was welcome news, said Bill Cooper, president of the Center for Liquefied Natural Gas in Washington. Natural gas is cooled to a liquid so that it can be transported by tanker to overseas markets.
"The rain cloud in that otherwise beautiful sky is we dont know the timeline for moving forward, Cooper said in an interview.
Erik Milito, director of upstream and industry operations for the American Petroleum Institute in Washington, said in a statement that the announcement was a step in the right direction.
The Sierra Club criticized the decision, saying it would lead to more development of natural gas.
"More drilling means more fracking, more air and water pollution, and more climate fuelled weather disasters like last years record fires, droughts and superstorms, said Deb Nardone, director of the San Francisco-based environmental groups Beyond Natural Gas campaign.
While oil and gas producers have lobbied for unfettered exports, companies including Dow that use natural gas as an ingredient for their products have argued for limits on overseas sales, fearing they could cause prices to rise domestically.
Dow issued a statement supporting the Energy Departments decision, saying it reflected a measured and balanced review of the issue. George Biltz, Dows vice-president for energy and climate change, said the US should neither block exports entirely nor open the floodgates to overseas sales.
"We like the decision because its not in either extreme, Biltz said in a phone interview.
Less than a decade ago when US demand for gas looked like it might outstrip supply, Dow invested in a Freeport import terminal that would now be converted for exports. That investment may mean the company would get revenue from sales to non-US customers, despite its opposition to large export levels.
Biltz said Dow isnt investing in the multibillion-dollar effort to convert the terminal for exports.
The Energy Department cited the changing energy landscape in announcing the conditional approval of the Freeport terminal, which is jointly operated by Freeport LNG Expansion Lp, and FLNG Liquefaction Llc.
The development of US natural gas resources is having a transformative impact on the US energy landscape, helping to improve our energy security while spurring economic development and job creation around the country, the department said in its news release.
Bill Gibbons, a department spokesman, said the administration was addressing the issue in a responsible way and would weigh applications on a case-by-case basis.
"After a preliminary review, it seems the order provides us everything that we requested in terms of the authorization and we commend the Department of Energy on the thoroughness of their review and consideration of exports and getting to the right result, John Tobola, general counsel of Freeport, said in a telephone interview on Friday.
If all 20 projects were to win approval, they could ship the equivalent of 41% of the total US production this year, according to Energy Department data.
Freeport, a closely held partnership, wants to install refrigeration units, storage tanks and other equipment alongside its existing gas-import terminal on Quintana Island about 65 miles (105km) south of Houston.
The Freeport LNG project must still win approval from the Federal Energy Regulatory Commission.
The big hurdle was thought to be the Energy Department, which must decide if the projects are in the national interest. The department concluded that exports from the Freeport facility are likely to yield net economic benefits to the US.
Freeport would be able to export as much as 1.4 billion cubic feet of natural gas a day for 20 years. In May 2011, the department conditionally approved Cheniere Energy Inc.s Sabine Pass LNG Terminal in Louisiana for a rate of as much as 2.2 billion cubic feet a day.
In the release, the department cited an Energy Information Administration forecast projecting production to reach a record 69.3 billion cubic feet a day in 2013.
Senator Lisa Murkowski of Alaska, the top Republican on the Senate Energy and Natural Resources Committee, said in a statement she hoped the Energy Department decision was the first of many projects that will be approved in the coming weeks and months, not years.
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