Energy Department Approves Freeport Natural-Gas Export Permit

WASHINGTON - The Obama administration on Friday cleared the way for broader natural gas exports by approving a $10 billion facility in Texas, a milestone in the U.S. transition into a major supplier of energy for world markets.

The decision shows how the boom in U.S. natural-gas production has caused a 180-degree shift in a key area of energy trade.

Five years ago, many companies built natural-gas import terminals, anticipating greater U.S. demand for imported fuel. Now a group of private investors that includes ConocoPhillips (COP) plans to turn one of those terminals--in Quintana Island, Texas--into an export facility to ship natural gas to Japan and other nations. The project, known as Freeport LNG, is expected to require more than $10 billion in investment, according to the owners.

In giving Freeport the green light, the Department of Energy signaled that it found the prospective benefits from exporting energy outweighed concerns about possible downsides for the U.S. economy.

Proponents of greater exports, including the oil and gas industry, say that exporting inexpensive natural gas from the U.S. will help the U.S. trade balance, help advance the adoption of clean-burning fuels around the world and shore up energy-poor U.S. allies.

Opponents counter that exports may cause domestic prices to rise, hurting consumers and some industries such as chemicals that have benefited from cheap natural gas.

Dow Chemical Co., which has vocally opposed unrestricted gas exports, said it supported the DOE's decision because it reflected a careful approach to export approvals rather than the blanket approvals some proponents have called for.

"Dow will adopt a wait-and-see approach regarding further approvals," the company said. It maintained that using natural gas for domestic manufacturing creates "far more" value "than exporting it as a fuel."

The American Petroleum Institute urged the Energy Department to approve the remaining applications without delay "so that the U.S can achieve its full energy and economic potential."

The Department of Energy said it had given preliminary authorization to the Freeport project to export up to 1.4 billion cubic feet per day of liquefied natural gas. The approval is needed for exports to countries with which the U.S. doesn't have a free-trade agreement, a category that includes major trading partners in Europe and Asia. The project still requires final approval from the Federal Energy Regulatory Commission.

The Freeport terminal is the second export facility approved by the Obama administration. Cheniere Energy Inc.'s (LNG) Sabine Pass facility in Louisiana won approval in May 2011 to export LNG to the countries without free-trade agreements.

The first approval got relatively little notice, but the issue gained prominence as export applications piled up and leading companies on both sides of the issue began to clash over the merits of exports. The Department of Energy spent much of 2012 waiting for a report it commissioned on the issue, which was released in December 2012 and concluded that exports would benefit the U.S. economy overall.

Friday's decision is an important harbinger for the remaining 19 applications to export gas to non-FTA countries. That's because according to law, gas exports are presumed to be in the public interest unless shown otherwise.

Freeport LNG has signed preliminary 20-year contracts to sell much of the export facility's capacity to Chubu Electric Power Co., Osaka Gas Co. and BP Energy Co., and the company says it expects to announce a deal for the rest of the capacity this summer. Chubu Electric and Osaka Gas, both major Japanese utilities, have a partial stake in the portion of the facility that is feeding the Japanese demand.

The combination of hydraulic fracturing and horizontal drilling has unleashed a natural-gas bonanza that made the U.S. the world's largest natural-gas producer.

The Freeport permit approval opens up the dam for other pending applications, but the pace of upcoming decisions is still unknown, said Randy Bhatia, an analyst at Capital One Southcoast.

"This is an encouraging step," Mr. Bhatia said. "But you need more than one to get a better idea of what pace we can expect them to process the remainder of that queue."

The Energy Department will next consider the application of a slightly larger export facility in Lake Charles, La. While there are nearly a score of outstanding applications, analysts expect that only a handful will be built, due to the high cost of gas liquefication facilities.

Moody's Investor Service has said that projects building from existing facilities, including Cove Point LNG in Maryland and Cameron LNG in Louisiana, are best placed to secure approval and financing from the private sector.

Further complicating the picture for U.S. exports are uncertainties over future global demand for LNG. Australia and Qatar, among other countries, have expanded their own gas exports in recent years and are well-placed to supply potential customers in Asia and Europe. Due to the cost of liquefying and transporting gas, U.S. exports may not be cost-competitive if domestic prices rise in coming years.

The DOE said it conducted an "extensive, careful review" which considered "the economic, energy security, and environmental impacts," and found that the project was "not inconsistent with the public interest."

The department said that in considering future export applications, it will consider market conditions, including projections about natural-gas prices, supply and demand. All remaining permit applications will be considered on a case-by-case basis, the department said, keeping in mind the cumulative amount of authorized gas exports.

Ben Lefebvre and Tennille Tracy contributed to this article.

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State Department Inspector General Probing Keystone XL Contractor’s Conflicts of Interest

In yet another investigation into the Obama Administration’s activities, the State Department Inspector General is probing the conflicts of interest surrounding the contractor that performed the Keystone XL review,.

The American public was supposed to get an honest look at the impacts of the Keystone XL pipeline. Instead, Environmental Resources Management (ERM), a fossil fuel contractor, hid its ties from the State Department so they could green light the project on behalf of its oil company clients.

Hiring an oil company contractor to review an oil pipeline that its clients have a financial interest in should be illegal – and it is. The Federal Government has strict laws to avoid conflicts of interest and prevent the hiring of contractors who cannot provide unbiased services.

Unredacted documents from the contractor’s proposal (revealed by Mother Jones) show that the company had worked for TransCanada, ExxonMobil and other fossil fuel companies that have a stake in the Canadian Tar Sands.

But, ERM misled the State Department at least twice in its proposal (see C&BP’s original post on ERM’s conflicts of interest)– which may have led to its selection by the State Department to review the Keystone XL pipeline.

First, ERM answered “No” to the question “Within the past three years, have you (or your organization) had a direct or indirect relationship (financial, organizational, contractual or otherwise) with any business entity that could be affected in any way by the proposed work?“ ERM appears to have added to the Yes/No questionnaire that, “ERM has no existing contract or working relationship with TransCanada.” Regardless of the addendum, the oil company contractor misled the State Department by checking “No” to the specific question above. Despite the fact that unredacted documents show that ERM worked for TransCanada and other fossil fuel companies with a stake in Keystone XL pipeline in the three years prior to its proposal.

Second, ERM claimed it was not an energy interest. The State Department question defines an energy interest in part as any company or person engaged in research related to energy development. Yet, ERM has worked for all of the top five oil companies and dozens of other fossil fuel companies. In other words, ERM is clearly an energy interest.

How can we trust ERM to perform an honest review of the Keystone XL pipeline, if it can’t answer a yes/no question honestly?

These misleading statements should have been flagged by the State Department and the contractor should not have been able to perform the review because of these seeming conflicts of interest.

Because of the issues above, Checks & Balances Project (C&BP) and 11 environmental, faith-based and public interest organizations sent a letter  [.PDF] on April 8, 2013, calling on Secretary of State John Kerry and the State Department Deputy Inspector General Harold Geisel to investigate two things: first, whether ERM hid conflicts of interest which might have excluded it from performing the Keystone XL environmental assessment and second, how State Department officials failed to flag inconsistencies in ERM’s proposal.

A few weeks later, C&BP received a voicemail from a Special Agent at the State Department’s Office of Inspector General (OIG):

Hello Mr. Elsner, my name is Special Agent Pedro Colon from the State Department’s Office of Inspector General.  I’m calling to inform you that we have received your request and are reviewing the matter.  If you have any questions please contact me at 703-284-2688.

On May 7, 2013, I called Special Agent Colon but he was unable to speak at the time. I followed up the next day and spoke with the Special Agent via phone regarding the request for an investigation. I asked a few basic questions about the status of the complaint and asked specifically if C&BP would be informed should the complaint be fully investigated by the Office of Inspector General (OIG). Special Agent Colon informed me that he could not speak to any of the questions and referred us to other staff in the OIG.

On May 9, 2013, I received an email from the OIG General Counsel saying, “that the complaint was being processed per the OIG hotline procedures and is under review.” (See the entire email correspondence here [.PDF])

I then asked the OIG General Counsel the same question he asked Mr. Colon:

If the hotline is moved out of the review process and onto the next step (an investigation?), will I be notified?

The OIG  replied via email saying that the OIG Office of Investigations will not comment if it is engaged in an investigation.

The correspondence between C&BP and the OIG indicates that there is a probe into the Keystone XL review conflicts of interest.

The public was supposed to get an honest look at the impacts of the Keystone XL pipeline. Instead, ERM, an oil company contractor, misled the State Department, in what appears to be an attempt to green light the project on behalf of oil industry clients.

The American Public needs a full investigation into the conflicts of interest and misleading statements of the Keystone XL review contractor, Environmental Resources Management.

Secretary Kerry needs to stop the Keystone XL process until the Inspector General completes a full investigation of these conflicts of interest and the State Department has an unbiased review of Keystone XL’s impact.

Filed under KeystoneXL Tagged with Big Oil, Checks and Balances Project, Energy, Energy Production, Environment, ExxonMobil, John Kerry, Keystone, Keystone XL, politics, Secretary Kerry, State Department, Tar Sands, TransCanada, US State Department

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Obama Taps McCarthy to Lead EPA, Moniz to Head Energy Department

WASHINGTON - President Barack Obama Monday announced his picks to lead the Environmental Protection Agency and the Energy Department, selecting a veteran regulator and a noted academic to lead a pair of agencies responsible for driving U.S. energy policies.

Mr. Obama selected Gina McCarthy, the current head of the EPA's clean-air office, to lead the environment agency, an administration official said. For the Energy Department, Mr. Obama nominated Massachusetts Institute of Technology physicist Ernest Moniz.

Both Ms. McCarthy and Mr. Moniz emerged several weeks ago as the top contenders for these posts, and both must be confirmed by the Senate.

Mr. Obama said Monday at the White House that the pair would lead efforts to do "everything we can" to combat climate change.

The nomination of Ms. McCarthy, a Boston native who served under Mitt Romney in Massachusetts, reflects Mr. Obama's stepped-up focus on climate change.

Ms. McCarthy has pushed through some of Mr. Obama's most controversial environmental rules, including a set of greenhouse gas standards that critics say go beyond the scope of the EPA's authority. Her office is currently writing a rule to limit carbon dioxide emissions from new power plants. The rule would effectively forestall the construction of coal-fired units unless new technology becomes available.

The confirmation process could be challenging for Ms. McCarthy. The EPA is a polarizing agency that often attracts criticism from Republicans. Ms. McCarthy herself has been at the center of controversial rules that have been challenged in court, including the greenhouse gas standards.

Even before her formal nomination, some Republican lawmakers were expressing concern.

Mr. Moniz, a nuclear physicist of Portuguese descent, served in the Energy Department under President Bill Clinton. He is the director of MIT's Energy Initiative and sits on Mr. Obama's council of scientific advisers.

If confirmed, Mr. Moniz would play a role in deciding whether to allow energy companies to export U.S. natural gas. In his current role, Mr. Moniz was the co-chairman of a 2011 study that found "there are substantial economic benefits to a global natural-gas market" and said "the U.S. should not erect barriers to natural gas imports or exports."

Mr. Moniz would also lead efforts to advance new nuclear power plants, lower the cost of renewable energy, and boost the energy efficiency of U.S. buildings and appliances -- all goals he has promoted in the past.

He will have to defend those efforts before a Congress wary of government spending and skeptical of energy subsidies after the bankruptcies of some U.S.-backed renewable energy firms during Mr. Obama's first term.

Mr. Moniz will be prepared for those battles, said Phil Sharp, a former Congressman from Indiana who is president of the think tank Resources for the Future and served with Mr. Moniz on a presidential nuclear waste commission. Mr. Moniz's previous government posts have acquainted him with both Congress and the "far-flung operations" of the Department of Energy, with its national network of research labs and nuclear weapons sites, Mr. Sharp said. "He brings a preparation that is probably unusual for the Secretary of Energy."

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