U.S. Natural Gas Bounty Destined for Oversea's Ports

Devon Bass | Jun 30, 2013

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The U.S. is producing more natural gas than we can use. Many energy companies are now seeking permission to export the nation’s newfound bounty to other countries.

The revolution in drilling technology that has made fracking a household word has changed the American energy policy discussion. Just a few years ago the focus was on dwindling fossil fuels reserves. Now the U.S is debating what to do with all this extra natural gas we have laying around. According to the Associated Press, up to 40% of the U.S. production of liquefied natural gas (LNG) could be exported if all of the current energy company export requests are approved by the government.

There are two dimensions to the debate: environmental impact and economic impact.

Natural Gas Fracking: Environmental Friend or Foe?

The use of hydraulic fracturing has been the subject of intense debate focusing on ground water contamination, earthquakes, and methane release. Proponents point out that the increased use of natural gas has helped to curb growth in CO2 emissions. As natural gas increasingly becomes the fuel of choice for producing electricity, it is largely replacing coal resulting in a net win in terms of carbon dioxide emissions.

Critics had countered this by pointing out that natural gas drilling operations often result in large unintentional releases of methane into the atmosphere. As a greenhouse gas, methane is several times more powerful than CO2. This could in theory more than offset any gains made by reducing the carbon footprint of electricity generating fossil fuels.

The methane argument recently lost some clout as the EPA itself dramatically lowered its estimates of the amount of methane leaked by modern natural gas drilling operations.  The new data shows that new technologies deployed to reduce methane leaks have resulted in less methane release even as natural gas production has grown considerably.

From an environmental perspective, the impact of increased natural gas production is laudable or regrettable depending on which side of the argument you already fall on. If you feel that increased use of natural gas comes at the expense of other less clean fossil fuels such as coal then it would be seen as a win.

If you fall in the camp that feels every kilowatt of electricity produced by natural gas is a missed opportunity to deploy a renewable energy technology such as solar or wind then you are not too enthusiastic about the prospect of seeing tankers laden with U.S produced liquefied natural gas heading toward foreign ports.

Economic Impact of Exporting Natural Gas

Potential environmental issues aside, it’s hard to deny the potential economic benefits of the U.S. becoming a natural gas exporter. The glut of natural gas production in the U.S has brought prices down so low its getting harder for producers to make a profit. Other parts of the world, on the other hand, are seeing higher prices for natural gas. Energy companies are eager to exploit this.

Undoubtedly, the loss of this supply to the domestic market would affect energy prices in the U.S. This raises the question of whether the economic benefit of increased tax revenue, employment, and, yes, energy company profits would offset the detrimental impacts of higher energy costs.

To begin with, natural gas production has leveled off lately not because there is a shortage of product in the ground but because low prices remove incentive for increased production. Throwing foreign markets into the demand mix might not dramatically impact prices if supply can easily be increased by ramping up production.

The Department of Energy must approve requests to export LNG. To that end, the Department commissioned a detailed study conducted by a third party consulting group named NERA Economic Consulting. NERA used sophisticated modeling techniques to look at various scenarios taking into account a range of possible values for prices, domestic output and foreign demand. The results, laid out in excruciating detail in the 230 page report, point to natural gas exporting being an economically positive outcome for the U.S.  The study concludes that the positive effects increase with assumptions of greater levels of export.

“Across all these scenarios, the U.S. was projected to gain net economic benefits from allowing LNG exports. Moreover, for every one of the market scenarios examined, net economic benefits increased as the level of LNG exports increased. In particular, scenarios with unlimited exports always had higher net economic benefits than corresponding cases with limited exports.

In all of these cases, benefits that come from export expansion more than outweigh the losses from reduced capital and wage income to U.S. consumers, and hence LNG exports have net economic benefits in spite of higher domestic natural gas prices. This is exactly the outcome that economic theory describes when barriers to trade are removed.”

Much like the environmental debate, the two camps on the economic debate are defined by their own entrenched interests. Manufactures and those who have an interest in continued low energy prices don’t want to see anything happen that will result in higher prices. Exporting LNG will certainly do that. This won’t be felt just by large manufactures. Anyone who uses electricity will see their rates go up since natural gas prices are a driver of electricity rates; especially in deregulated areas such as Texas.

Those who stand to benefit from the windfall that could be realized by selling U.S. LNG to overseas markets are likely to win the day, however. Ultimately, there is too much money on the table and too much political pressure.

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EXPORTING LNG vs. SHALE GAS FOR USA – FREE MARKET DECIDES

The US government can sanction Liquified Natural Gas [LNG] export facilities e.g. Qunitana Island TX . Per T. Tunstall “Exporting Natural Gas Will Stabilize U.S. Prices” [Wall Street Journal, May 30, 2013], the additional cost of liquefying, transporting and re-gasifying Natural Gas for shipment to Japan (where natural gas prices range from $16-17/MCF vs. USA natural gas price of $4/MCF) would yield a profit of $6.60/MCF. As USA demand for Natural [Shale] Gas increases its cost may eventually rise to $5 – 6/MCF [per Mr. Turnstall’s research at University of Texas, San Antonio]. 

Per USDOE, US LNG will be particularly attractive if spot prices stay under or around the long-term US spot gas price assumption of about $5-6 per million BTUs. Such higher natural gas prices are not expected to occur, at the earliest, until 2015. When and if natural gas prices exceed the export profit point will depend upon greater US demand. Shale Gas producers will deliver natural gas to domestic or exporters depending upon user prices.

The free market in the USA will determine the efficacy of LNG export vs. domestic use based upon where the greater profit lies.

Please refer to an article of mine published over a year ago, that addresses hydraulic fracturing. I am participating with USEPA and their Scientific Advisory Board [SAB] on investigating potential effects of HF on water resources.

Shale Gas – Friend or Foe [Energy Pulse Weekly Feb 1, 2012}

[http://www.energypulse.net/centers/article/article_display.cfm?a_id=2504

Article Highlights:

·         Stable electricity costs within next few years e.g. South FL

 

·         Coal fired plants conversion to Natural Gas vs. Compliance Retrofit

 

 

·         Energy Economics/Investments

 

·         Engineering Approach to Hydraulic Fracturing]

 

 

Richard. W. Goodwin, West Palm Beach, July 1, 2013

 

Interesting summary

Yet another summary...

We are discussing/arguing/fighting/pondering/regurgitating something that has yet to materialize.  US exporters will modify their facilities and try to export.  They will face fierce competition from Russia, Angola, Australia, Israel, Yemen and other natural gas producing countries.

Vessels will have to get built, customers found, contracts entered into, receiving facilities built.  For all we know, 5 years down the road, there will be sufficient transcontinental pipeline capacity that, for many countries, importing US LNG may not be as desirable as it is today.

Did you hear about the TAP (signed last week)?  Baku to Italy, feeding on its way Turkey,The Balkans (Greece, Bulgaria, Albania, etc.) then going under the Adriatic and moving north to Europe.  There is an abundance of gas worldwide. Russian pipeline to bring n-gas to the East of that country? Shipping Russian LNG through the Arctic?

All analyses have been conducted (as it sometimes makes sense) based on a static view of the international N-Gas/LNG arena.  However, this arena is in constant flux. 

Whether US exports will have an impact (domestic or international) will be debated for a long time.  In about 5-7 years we will have a better picture.  Trying to prevent exports is not a smart idea (think China & rare earths)

 

-- ADThanos

Double Post-Sorry

Sorry

Use our LNG to Power the USA, not Asia!

Our LNG should be rushed into service inside the USA to reduce our dependance on Foreign Energy, not shipped overseas to make big money for our Big Energy off shore businesses that pay little to no US taxes!

Think multi-fuel vehicles and building a LNG/LH2 distribution grid to "fuel" them!

A Perfect Solution:

Add a huge export tax to every cubic foot of LNG shipped outside the USA!

Long View

The Administration has already restricted exploration and drilling for both oil and gas on federal lands. US EPA is investigating federal regulation of hydraulic fracturing, which will likely lead to higher costs and longer delays in bringing new shale gas to market. Those choosing to invest in LNG facilities for export would be wise to consider whether they would be able to recover their investments rapidly enough to avoid economic dead loss as the federal tightens its grip around the throat of the US energy industry.

The Administration is already engaged in a war on coal; and, environmentalists are engaged in a war on the construction of new or expanded coal export facilities, which would allow coal we are prevented by regulation from consuming in the US to be exported to nations, such as China, which are far more concerned about continued economic development.

If the oil and gas segments of the energy industry believe they will be spared, they are likely to be sorely disappointed. The history of those who choose to "feed the crocodile, in the hope that it will eat them last" is festooned with stripped carcasses.

One hopes the economic analysis looked beyond raw product

Natural gas is a feedstock for petrochemical, chemical, and plastics manufacture--products which have a value far beyond the raw value of natural gas.  Those industries generate many more jobs beyond drilling, pipelaying, and gas liquifaction.  Lower electricity costs also make other manufacturing more competitive in the world market.  The higher efficiency and flexibility of generation which can be achieved with gas turbine combined cycle or gas engine combined cycle compared to other processes mean less CO2 and less waste heat/MWh to the atmosphere.  It is hoped all these factors are weighed rather than just immediate economic impacts.