Last month, Exxon Mobil Corporation (NYSE:XOM) signed an agreement with Qatar Petroleum that will make it possible for the two companies to export natural gas from their proposed Golden Pass facility in Texas.
If approved, the project could be especially beneficial for the U.K., which has become a major importer of natural gas over the past decade, as its domestic production has fallen sharply in recent years, even plunging to its lowest level since 1985 last year.
Exxon Mobil Corporation (NYSE:XOM) and Qatar’s national oil company have agreed to open up capacity at the South Hook receiving terminal in Milford Haven, in south Wales, to take shipments from Golden Pass. Negotiations on the commercial details of the agreement are expected to commence shortly.
The joint venture partners expect sales from Golden Pass to reach as much as 15.6 million metric tons of LNG a year, facilitated by their existing networks and other arrangements. If all that production were to be exported to South Hook, it would be enough to meet a quarter of the U.K.’s demand for natural gas.
DOE approval required
However, natural gas sales from Golden Pass to the U.K. will require U.S. government approval, since the U.K. doesn’t have a free-trade agreement with the United States. Golden Pass is one of more than two dozen U.S. LNG export facilities that have applied for an export permit from the Department of Energy.
So far, only two projects have received the DOE’s stamp of approval: Cheniere Energy, Inc. (NYSEMKT:LNG)’s Sabine Pass terminal in Louisiana, which was greenlighted in 2011, and the Freeport LNG project in Texas — a $10 billion facility in Texas that’s 50% owned by ConocoPhillips (NYSE:COP) — which received permission this month.
Though Freeport’s approval is a promising sign, the DOE has said it will work through application requests in the order they were received. That means Golden Pass is unlikely to receive a go-ahead any time soon. The company developing the project, a joint venture owned 70% by Qatar Petroleum and 30% by Exxon Mobil Corporation (NYSE:XOM), applied for a permit in October, which puts it at 13th place on the list of applications.
Obama administration signals support for exports
With the Obama administration having signaled that it supports natural gas exports, additional projects are likely to be approved in the months and years ahead. Not only are gas exports seen as vital to increasing U.S. energy security and geopolitical leverage, but they would also offer U.S. gas producers the option to ship their product to more lucrative foreign markets.
Asia stands out as one of the most profitable opportunities. In Japan, for instance, natural gas costs about four times as much as it does in the United States. In the wake of the Fukushima disaster, which has virtually shut off the nation’s supply of nuclear energy, Japan has become an even bigger importer of energy, making it a prime target for U.S. LNG.
The article A Closer Look at Exxon’s LNG Export Venture originally appeared on Fool.com is written by Arjun Sreekumar.
Fool contributor Arjun Sreekumar owns shares of Chesapeake Energy. The Motley Fool has options on Chesapeake Energy.
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