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Natural Gas Companies: Exporters Stymied by Permit Delays

Just days after Forbes explained how American natural gas exports will positively change the world, the U.S. Energy Department released news that could delay natural gas companies seeking to export the fuel.

The DOE announced it will temporarily halt granting new licenses for companies to export liquefied natural gas (LNG) until an economic study is completed later this fall.

Despite finishing in January the first part of a critical study on the impact of LNG exports on U.S. energy production, prices, and consumption, the rest remains incomplete. Until this section is finished and evaluated by members of Congress and executive officials, the DOE will also suspend assessments of proposed export sites.

"The second part of the study, which will assess the broader economic effects of increased natural gas exports, is ongoing," Energy Department spokesman William Gibbons wrote in a release Wednesday. "We expect to be able to release the comprehensive study results late this summer."

The DOE has delayed permits and assessments of proposed sites mainly due to worries from Congressional members. Congress remains concerned about the long-term U.S. energy security and the potential that natural gas prices could increase dramatically as exports begin.

Debate Grows in Washington

Now, it appears that the Energy Department and members of Congress are alerting foreign importers that U.S. natural gas exportation will be a political problem over the decade.

As I noted recently in the Oil and Energy Investor, fracking technology has moved so quickly and volumes of natural gas have been extracted at such high volumes that regulatory agencies have been unable to keep up with such robust growth.

Bureaucracy in general stymies Washington, but each individual agency with skin in the game needs time to conduct studies, compare notes, and institute policy.

Meanwhile, natural gas prices here in the United States have plummeted to $2.50 per British thermal unit in the first quarter, while international prices continue to swell. In Japan, where the aftermath of the Fukushima earthquake still looms, natural gas averaged $16 per thousand cubic feet.

Despite the opportunities for arbitrage or to provide energy to allies, there are potential downsides to selling natural gas to the highest bidder.

First, there are great concerns about environmental degradation and rising local inflation in areas where production takes place.

In addition, there should also be general concerns about the economics of shale production and sustainability. The first year of each new well generally provides robust returns. However, the decay is rapid and production quickly falls in the second and third year. By the fourth year, these wells only produce a small fraction of their initial flow.

Natural Gas Companies Impacted by the Delay

The delay will impact a number of companies. Companies awaiting approval includeSempra Energy (NYSE: SRE), Freeport LNG, Macquarie Group (MQG), and Dominion Energy (NYSE: D).

Dominion is already in a disagreement with the Sierra Club over their proposed Cove Point facility. This legal battle appears to be the greater challenge than a delay in bureaucratic red tape.

Cheniere Energy (AMEX: LNG) had been the only company to receive full approval to begin exporting LNG after clearing final regulatory hurdles in April. However, it remains unclear whether the DOE will renew a new permit after the previous expired in May.

Cheniere previously held a two-year license to re-export natural gas that had previously been imported.

The company is currently reapplying for that permit, though no additional information has been reported on its progress at this time.

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