TRANSACTIONAL: Corporate / London: UK Looks to US for LNG Imports: US Regulatory Approvals Required

by King & Spalding
Contact

UK energy providers have signed deals to buy LNG from the Sabine Pass and nearby Golden Pass LNG export facilities in the US. The supply of LNG from these export facilities to regasification terminals in the UK is conditional on securing US regulatory approvals from the Department of Energy (DoE) and the Federal Energy Regulatory Commission (FERC). We look at the role that US natural gas may play in the UK's future energy mix, and the regulatory approvals that are required to facilitate the export of US LNG to the UK.

UK LNG Import Statistics

Production of domestic gas in the UK, largely from the North Sea, has been in decline since its peak in 2000, and in 2006 the UK became a net importer of gas. In July 2005, imports of LNG commenced at the Isle of Grain import facility in South East England. In 2009, the South Hook and Dragon LNG import terminals at Milford Haven in Wales became operational, and the second phase of the Isle of Grain terminal expansion was completed.

LNG made up 25 percent of the UK's gas imports in 2009, 35 percent of imports in 2010, and 47 percent of imports in 2011. LNG imports into the UK declined in 2012 due to increased LNG demand in Asia leading to increases in LNG prices. In 2012, 98 percent of the UK's LNG imports came from Qatar and 72 percent of total imports were delivered to the South Hook terminal, which is part of the Qatargas 2 integrated value chain.

Imports of LNG increased again in the first quarter of 2013 due to an unusually cold winter in the UK and the fifth coldest spring on record. During this period natural gas stocks fell to dangerously low levels, causing major price spikes and calls for more robust gas supply into the UK. There is a lack of firm, long-term supply deals into the UK's regasification terminals, which makes the UK vulnerable to sudden shortages when LNG exporters in the Middle East divert cargoes to higher-paying markets in Asia, especially in winter.

The UK's Secretary of State for Energy and Climate Change recently said that energy security in the UK "lies in diversity". As well as LNG, the UK imports gas by pipeline from Netherlands and Norway. LNG is expected to continue to be a significant part of the UK's energy mix.

UK Imports from the US

A slump in US natural gas prices caused by increased shale production has created an opportunity for US gas suppliers to sell LNG into Europe and Asia. US benchmark natural gas prices have remained below US$4 per million BTUs since October 2011, compared to the current benchmark price of approximately US$10 per million BTU in the UK.

In March 2013, Centrica, one of the UK's main energy suppliers, signed a deal with Cheniere Energy Partners to import 1.75 million metric tons of LNG a year to the UK for 20 years commencing in 2018 from Cheniere's Sabine Pass LNG export facility. This supply would be enough to power around 1.8 million UK homes.

In May 2013, Exxon Mobil and Qatar Petroleum announced an agreement to send up to the entire annual production of 15.6 million tonnes of LNG each year from their proposed US$10 billion export project at Golden Pass in Texas to the South Hook import terminal. South Hook, which is jointly owned by Qatar Petroleum and Exxon, has the capacity to take all of that LNG, which would meet about 25 percent of the UK's gas requirements.

US Regulatory Requirements

LNG export projects in the US undergo rigorous application and permitting processes imposed by FERC, which authorizes the construction and operation of LNG terminals, and the US DoE, which grants export permits, including permits to export to countries without a free trade agreement with the US. Some of the largest LNG importers in Asia and Europe are non-FTA countries, including the UK and other EU member states.

The deals between Centrica and Cheniere regarding LNG from Sabine Pass, and between Exxon Mobil and Qatar Petroleum regarding LNG from Golden Pass, are conditional on the LNG suppliers obtaining further US regulatory approvals.

Sabine Pass is one of only three LNG export projects in the US authorised by the DoE to date to export LNG to non-FTA countries. Earlier this year, Cheniere applied to FERC for a permit to develop its fifth train, which would supply LNG to Centrica. Any contract between Cheniere and Centrica is subject to a number of conditions precedent, including Cheniere receiving the necessary regulatory approvals, securing financing, making a final investment decision, and issuing a notice to proceed with the fifth LNG train.

In September 2012, Golden Pass received DoE approval to export LNG to countries with whom the US has free trade agreements. The following month, Exxon Mobil and Qatar Petroleum applied for authorization to export LNG from Golden Pass to non-FTA countries. This application put Golden Pass in 13th place on DoE's list of projects applying for such permits and the DoE has said it will process applications in the order in which they were received. DoE approval is a condition precedent to the supply of LNG from Golden Pass to South Hook.

 Nina Howell
 London
 +44 20 7551 7543
 nhowell@kslaw.com

 View Profile »

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© King & Spalding | Attorney Advertising

Written by:

King & Spalding
Contact
more
less

King & Spalding on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.