Flood of U.S. Shale to Drown Out LNG

Ken Silverstein | Sep 20, 2011

 

What does the flood of shale gas mean for liquefied natural gas imports, or LNG, in the United States? Odds are that the growth of such frozen gas that is shipped from aboard will remain flat at best. But that does not preclude its expansion overseas or its use in this country if natural gas consumption endures.

The emergence of shale gas here has literally bumped LNG to the back burner. Now that the unconventional gas found a mile beneath the earth's surface can by drilled out using hydraulic fracturing, it has changed America’s energy picture. Estimates are that 100 years of the stuff now exists, which has put a damper on LNG imports that were once thought to be the future darling of natural gas.

Nevertheless, LNG will occupy an important niche internationally and potentially in the United States. If more natural gas is demanded to fuel transportation or to firm up wind and solar facilities that are intermittent, the country does have the capacity to store and re-gasify that energy source.

“The variable cost of producing LNG is low,” says Karl Stanley, vice president of commercial operations for NIPSCO at an Indiana Energy Association conference. “It can still play a role. LNG has international markets and developers can point their ships to where they will get the greatest value.”

The United States has a lot more storage than does Asia, which is where 60 percent of all LNG is consumed. Exporters seeking a trusted trading partner that would procure the fuel under long term contracts would be an attractive option, he adds. 

Moreover, this country has undergone an expansion of its import facilities -- 11 now exists -- and with contracts signed in 2005 about to expire, such terminals would be underutilized. Those assets would be especially valuable if the pipeline infrastructure could not accommodate shale gas expectations.

In the early 2000s, LNG was thought to be golden. Natural gas developers here were unable to gain access to gas-rich deposits while imports from Canada were expected to drop because of higher demand there. Estimates at that time were that U.S. LNG imports would become 23 percent of the natural gas market, all of which led to the build-out of re-gasification terminals here.

International Prospects

But now that the technologies to drill for shale gas have progressed, all that has changed. LNG makes up about 2 percent of all natural gas consumed in this country and that is projected to remain flat, and possibly even decline.

In fact, LNG imports are expected to fall 17 percent from last year, or from 1.2 billion cubic feet per day to 1 billion cubic feet per day, according to the U.S. Energy Information Administration. Five years ago, such imports comprised about 2 billion cubic feet per day. 

By contrast, 2,000 trillion cubic feet of recoverable natural gas exists today. Shale gas makes up 700 trillion cubic feet of that.

“This growth in unconventional gas production has emerged as a shock to the LNG system for two reasons: first, it has made clear that the US will not need to import significant volumes of LNG over the next decade (at least); and second, there is growing uncertainty over whether other countries will be able to replicate the experience of the US and hence, reduce their own needs for imports,” says the International Gas Union in its 2010 report on LNG world markets.

The union tries to answer the question as to whether the success of shale gas in North America can be duplicated aboard. While some nations such as Australia are on their way, others in Asia, Europe and South America are much further off, it says. Altogether, it is anticipating a rise -- internationally -- in the coming years of LNG exports and liquefaction capacity.

Much of the preparation for new LNG supplies was done in the mid-2000s. As such, facilities here have signed long-term contracts with suppliers in Qatar, Nigeria and Russia, among others. But as those deals begin to expire, that fuel will have to find new homes. And the International Gas Union expects that to be not just in Europe and Asia but also in the developing world.

With the United States zeroing on shale gas, LNG’s stock is falling. But don’t sign the obituary: The market place has shown it can evolve quickly -- a dynamic that could potentially have adverse effects on both shale gas supplies and the corresponding prices. The United States would then resume its taste for LNG to feed both the power generation and transportation sectors.

EnergyBiz Insider has been been nominated in 2010 and 2011 for Best Online Column by Media Industry News, MIN. Ken Silverstein has also been named one of the Top Economics Journalists by Wall Street Economists.

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energybizinsider@energycentral.com