Shale Squeezing LNG Overseas

Ken Silverstein | Jan 17, 2012

 

Liquefied natural gas seems to be lost at sea. But does it have to be that way?

LNG, a super-cooled fuel that is shipped to facilities around the world where it can be re-gasified before it consumed, was once a hot commodity. No more. The nation and potentially the world is shifting its focus to newly recoverable shale gas. But those entities with huge investments in existing LNG facilities say that they ought to be able to convert them to export terminals to take advantage of the shale boom.

Some citizens have long expressed concern over LNG, objecting to any new development in their communities. But today’s opposition is coming mostly from big industry that consumes vast amounts of natural gas and which wants those supplies to stay at home.

The major chemical companies such as Dow and DuPont say that the exporting of LNG will drive up natural gas prices and hurt their ability to compete. And with natural gas prices now at $3 per million BTUs and with forecasts not much higher, those businesses are on the front lines. Asia, for example, is paying much higher prices at around $18 for the same unit while Europe is spending about $12.

“If we export significant quantities of natural gas (in the form of LNG), we will become part of an international market in order for short-term profits to be made by the affected producers and exporters.” says Jim Collins, on behalf of the American Public Gas Association, in congressional testimony. “But long-term the effects will be predictable and disastrous: We will experience price increases and the price volatility of the past will return.”

Producers counter that if the nation gets back to work re-tooling those existing facilities, then it would have a positive outcome. They add that the country will have more supply than demand and that those resources should be available for export. The U.S. Department of Energy has received nine applications that would allow companies to send LNG abroad -- to the tune of 15-20 percent of all domestic gas production. Eleven import facilities exist here.

The Energy Department has conditionally approved at least two requests. One of those was from Cheniere Energy, which will retrofit an existing LNG import terminal in Louisiana so that it can increase exports. Experts say that only a small investment needs to be made to make such facilities “bi-directional.”

“Our long term economic strength depends on safely and responsibly harnessing America's domestic energy resources while developing new and innovative clean energy technologies,” says Energy Secretary Steven Chu. “This (Cheniere) project reflects a broad, 'all of the above' approach that will put Americans to work producing the energy the world needs.”

Energy Independence

A decade ago, the country’s power plants thirsted for new energy supplies and had to rely on foreign natural gas exports from Canada to help meet that need. LNG was to be the goose that laid the golden egg.

Now there’s more domestically-available energy than ever before and at relatively cheap prices. In fact, the U.S. Energy Information says that shale gas production will comprise 57 percent of all natural gas development by 2030.

In addition to Cheniere, Dominion Gas received permission from federal authorities to convert its Cove Point LNG terminal in Maryland to an export facility. Meanwhile, Sempra and Southern Union would like to do the same for ones they have in Louisiana. Most of the applications are coming from the Gulf States, which have already been receptive to their LNG import facilities and which would likely support any changes to their operations.

One place that is trying to convert its LNG import plant into an export facility is Jordan Cove in Oregon. While the Federal Energy Regulatory Commission has given the pipeline portion a qualified Okay, the builders are experiencing difficulties from state authorities who say that the facility is unlicensed to do anything other than receive the super-cooled gas. Opponents say that any expansion of those rights would require additional construction and pipelines, hurting local neighborhoods.

But should such valuable assets go under-utilized? After all, the environmental footprint is not much greater whether the unit is used to receive or send LNG. Perhaps the stronger argument is that other nations are also trying to tap their shale gas reserves and if they are successful, those LNG businesses could again be forced to rethink their business strategy. 


Producers and energy companies can debate future economics among themselves. But first they must fend off the industrials here that are objecting to LNG exports and that want the natural gas to be used solely for domestic consumption.


EnergyBiz Insider is the Winner of the 2011 Online Column category awarded 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