America's natural gas Companies are pushing for government approval to export gas overseas for higher profits on the international market

Some companies that control America's natural gas are pushing for government approval to export gas overseas for higher profits on the international market, a move that will significantly drive up prices in the United States because this nation still imports more than 10 percent of its domestic needs.
Among the biggest expected customers for American gas exports: energy-thirsty China, other Asian nations and Europe.
Legendary Texas oilman, corporate raider and natural gas advocate T. Boone Pickens told the Tribune-Review that exporting large amounts of natural gas overseas is a mistake — and a national security issue.
If we do it, Pickens said, "we're truly going to go down as the dumbest generation."
"It's bad public policy to export natural gas — a cleaner, cheaper domestic resource — and import more expensive, dirtier OPEC oil," he said.
The United States produced 61.83 billion cubic feet a day of natural gas last year, according to government figures, and that production continues to grow. Politicians and some companies have trumpeted that production as the key to the nation's energy independence.
On May 20, the Department of Energy quietly gave approval for Cheniere Energy Inc. to export 2.2 billion cubic feet of natural gas per day from its Sabine Pass, La., port terminal — the first time the government granted permission to export American-produced gas overseas from the lower 48 states. The action allows exports to all countries except those to which the United States bans trade, such as North Korea.
No one knows for sure how much exporting will increase domestic prices for natural gas, which will also affect costs to heat American homes, fuel electric power, run manufacturing plants and even food. The amount of supply and exports affects that.
However, citing a consultant's report submitted with Cheniere's permit application, the DOE stated that natural gas prices in the United States will increase up to 11.6 percent when the Sabine terminal begins exports in 2015.
Republican Congressman Tim Murphy, who represents the Marcellus-rich 18th Congressional District in Western Pennsylvania and co-chairs the Congressional Natural Gas Caucus, questions the DOE decision.
"Sending natural gas overseas is the medical equivalent of bleeding a patient in order to cure him," said Murphy of Upper St. Clair. "I fear what this would do to prices."
Lining up
Cheniere told the DOE in its application that declining prices of U.S.-produced natural gas slowed drilling in American fields. Access to international markets, where prices for natural gas are as much as triple those in the United States, would induce more drilling and boost U.S. employment, the company said.
Early last week, U.S. gas futures were worth $4.80 per million British thermal units, compared to nearly $14 on the Asian spot market for liquefied natural gas (LNG).
Two other concerns have requests pending before the DOE to export American gas. Freeport LNG Expansion LP, together with Liquefaction LLC, applied on Dec. 17 to export 1.4 billion cubic feet of natural gas per day from a terminal port near Freeport, Texas. Lake Charles Exports LLC, a subsidiary of British-based BG Group and Houston-based Southern Union Company, applied to DOE on May 6 to export 2.0 billion cubic feet a day from its Lake Charles, La., facility.
If the DOE approves those requests, combined with the Sabine permit, the total 5.2 billion cubic feet a day proposed for export would represent 8.4 percent of U.S. production, a Tribune-Review analysis determined.
It might not end there. At least two other companies have publicly indicated they are mulling applications to export American natural gas.
On Tuesday, San Diego-based Sempra Energy, with terminals in Louisiana and Mexico, announced it might ask to export natural gas. Earlier this year, Dominion Resources, a Virginia-based energy company with transmission operations in Pennsylvania, told the Trib it is consulting with customers about applying to turn its Cove Point importing terminal in Maryland into an LNG exporting facility to send gas from the Marcellus shale formation overseas.
Dominion spokesman Dan Donovan said the company expects that by the middle of this decade its Cove Point, Md., terminal port will transform from an import facility to export operation. On May 27, Dominion asked the government to force its natural gas customers such as Shell and BP to import LNG through Cove Port to keep it operational. The company hasn't received an import since February because of a seasonal lack of demand and said it foresees no voluntary shipments.
If the DOE agreed to allow Sempra and Dominion Resources to export the average of the amount of natural gas requested by Sabine and the two pending applicants, 13.9 percent of America's annual natural gas production could be exported based on 2010 figures, a Tribune analysis determined.
Further, the Barclays Capital investment firm predicts that even more ports could open in the western United States and British Columbia, Canada.
Paul Cicio, president of the Industrial Energy Consumers of America, which represents American manufacturers with annual sales of $800 billion and 750,000 employees, said the DOE did not address the potential "cumulative effect" on U.S. supply and prices from allowing four or more exporting facilities.
Cicio called that impact "absolutely frightening" to American manufacturing.
"This is bad policy," agreed David Schryver, executive vice president of the American Public Gas Association, which represents 700 public gas companies in 36 states.
He said the association is aware of proposed exporters-in-waiting and intends to oppose their DOE applications.
Exports not forecast
The DOE approval of Cheniere Energy's request occurs at a time when the United States must import natural gas, mostly from Canada. Despite vast resources being discovered around the nation and in Pennsylvania in deep underground shale deposits, the United States had to import 2.64 trillion cubic feet or more than 10 percent of its natural gas usage in 2009, according to the U.S. Energy Information Administration, an independent arm of the Energy Department.
The EIA forecasts the United States will continue to import about 10 percent of its natural gas needs by 2015 — the year Sabine is expected to begin American gas exports — and will remain a net importer through 2035.
However, there's one problem with the EIA forecasts: They haven't taken into account the possibility that the United States might export a substantial portion of its natural gas.
Phyllis Martin, who works on the LNG portion of EIA annual forecasts, told the Trib: "We do not at present include the possibility of LNG exports, other than from the long-existing Kenai facility in Alaska, in our model."
Cheniere's consultants based some of its prediction of "moderate price increases" for the U.S. market on these incomplete EIA forecasts.
The EIA will begin to factor exports into annual reports "if the budget allows," Martin said.
Foreign companies certainly recognize the opportunity that American shale formations offer. As the Trib reported on April 10, Chinese, Dutch, Norwegian, South Korean, Japanese, British and Indian companies are buying into American shale plays. Many of those companies are multinationals that sell LNG around the world.
The Federal Energy Regulatory Commission reports that as of February, companies planned to expand or extend nearly 3,800 miles of pipelines to handle 32.47 billion cubic feet of natural gas a day — another indication that exporting gas for higher prices is part of operators' business plans.
Jeremy Carl, a Stanford expert on Chinese and Indian energy matters, said there's little doubt that China — which has surpassed the United States as the world's top energy consumer — would be a destination for any country exporting natural gas. Chinese imports of liquefied natural gas "have grown tremendously in recent years, up about 70 percent last year alone," he said.
Carl said he's not certain the DOE has set off an irreversible chain reaction by approving Cheniere's request, because of potential variability in international market prices and the high cost of building export facilities. Equipment needed to convert natural gas to a liquefied form suitable to put into special tankers can cost billions of dollars, he said.
"It's right to be concerned," he said, "but not apocalyptically concerned."
Still, Carl said, "the Pittsburgh story is particularly compelling. ... First, Pittsburgh lost its steel industry to China. Now it's going to export its natural gas there."
Staff Writer Timothy Puko contributed to this report.
Read more: Natural gas prices set to jump with exports - Pittsburgh Tribune-Review http://www.pittsburghlive.com/x/pittsburghtrib/s_741745.html#ixzz1P...

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Permalink Reply by Kathleen Elsie Gibbs on June 12, 2011 at 1:45am

Title to the above post.

 

Natural gas prices set to jump with exports By Lou Kilzer, PITTSBURGH TRIBUNE-REVIEW Sunday, June 12, 2011
Read more: Natural gas prices set to jump with exports - Pittsburgh Tribune-Review http://www.pittsburghlive.com/x/pittsburghtrib/s_741745.html#ixzz1P...

 

 

 

 

Permalink Reply by Kathleen Elsie Gibbs on June 12, 2011 at 1:50am

This is what if worry about. International use first before the citizens of the USA get the benefits of this God given blessing. We in the US do the drilling and little else while China (and this could be the reason China claimed we are defaulting on our debt to force us to sell to them) benefits and the greens saying great then they won't pollute using our coal.

Meanwhile the people of the USA will do what BHO promised. We will be paying skyrocketing utilities and gasoline for our cars. Go figure.

Permalink Reply by Marc on June 12, 2011 at 2:03am
It's complicated question, for sure.  But, at first glance, it's pretty attractive, the thought of exporting something to China for a change.  For one, it would strengthen the dollar.  And when you talk about a 10% jump in natural gas prices, you have to ask what the baseline is.  A rise in gasoline prices from $4.00 to $4.40/gallon is a big deal.  A rise from $1.00 to $1.10/gallon, not so much. Nearly everybody agrees that natural gas is cheap and will be for the forseeable future.  Since it will still be cheap even if it rises a little, maybe employing a few more industry workers and local suppliers to get extra gas out of the ground for export is not the worst thing in the world.  It would also mean extra royalties, which would then be cycled through the economy.  Just saying, you have to look at both sides of the ledger.  Thanks for the link.
Permalink Reply by Jim Litwinowicz on June 12, 2011 at 2:34am

An interesting conundrum. Exports will raise prices and hurt local gas customers, including industrial users.  But exports will increase royalties, taxes, development, and job creation. Exports will also help our foreign trade imbalance and strengthen the dollar.

 

Personally, I would rather see the nat gas industry finance an accelerated transition of diesel trucks to nat gas. The billions that are spent on developing LNG export terminals could be used to convert the rigs and install CNG filling stations along the interstate systems and in major cities. A five billion dollar investment would have a huge impact on such a conversion and have a much bigger impact on the industry and the country as a whole.

 

There are already enough CNG stations for trucks to haul from La to Denver. Build it out across I-80  and some other major interstates and watch what happens. Plus, major cities should all have LNG stations.  Converting fleet operators such taxi cabs, delivery trucks, emergency vehicles, buses and more would make the air a dramatically cleaner.

 

This would be much better than helping China get cheaper energy.

Permalink Reply by paleface on June 12, 2011 at 3:57am
  Accorn fuel and food stations has a deal with chesapeke to put NG pumps in there stations that was on the PCN cable channel.Chesapeke said if the if there is a NG gas line at the street and has sufficient pressure than they are a candidate for a NG fueling station,thats a good idea they wont have to truck it in or have big storage tanks?
Permalink Reply by Marc on June 12, 2011 at 4:43am

Well said, Jim.  Though, I'm not sure it's an either/or proposition.  I think you can both fulfill American demands and find new customers abroad.  You simply have to look at the numbers on both sides of the ledger to decide if it makes sense for the country and the Appalachian region.  Exporting may not be smart but it'll take a close look at the numbers to say that with authority IMO.

 

 

Permalink Reply by Jim Litwinowicz on June 12, 2011 at 5:27am

Speaking of looking at the numbers...the article posted compares nat gas at $4.80 vs $14 for LNG in Asia, which is comparing apples to oranges. The $4.80 is gas at the pipeline before transportation and distribution costs.  I have no idea how much it costs to transport the gas to a liquification plant, liquify the gas, and then ship it to Asia but it has to be significant. And if gas goes up in the next few years to $5.50 or $6 (again pipeline price) as the futures predict they will, than the price discrepancy is even less.

 

Further, according Mr Pickens, one MCF at $4.80 is equivalent to about seven gallons of diesel, which is about $30.  So if nat gas would even triple, which is highly unlikely, it would still be significantly cheaper than diesel. So there is way less risk in converting trucking to gas than investing billions on LNG ports. And that doesn't figure the other benefits such as cleaner air and engines on CNG are so clean that they have a much longer engine life and require fewer oil changes.

 

The market will determine how this plays out. But since there are large companies that specialize in import/export that appear willing to invest the money....and few companies willing to invest in converting trucks and developing the necessary support infrastructure, exporting may win out.

 

All one needs to do is build the terminals as the ships, the supply, and the market are already there.  The Catch 22 of transportation conversion is that no one wants to spend the money to covert their trucks to CNG if there are no fillings stations to support them.  And no one wants to build filling stations until there are enough trucks using CNG to make it worth while.

Permalink Reply by Kathleen Elsie Gibbs on June 12, 2011 at 8:15am
My thoughts exactly. Also how about trying to get NG to homes that are now dependent on fuel oil?
Permalink Reply by George Brown on June 14, 2011 at 10:15am

The value of the natural gas depends upon the demand that exists for it.  Consequently, if there is worldwide demand and we have a method to satisfy this demand, then doing so will drive up the value of the resource.  I submit this is good for all of us.  The more valuable the resource, the more money will be invested to "harvest" this resource.  This means a greater investment in the industry which is exactly what produced the fracking and horizontal drilling technology that is now making everyone wealthier. If the gas wasn't valuable, engineers wouldn't have figured out new and better ways to extract it.

I have great faith in mankind and our ability to use technology and invent new methods when the reward is there to drive it.  So we sell some of our gas overseas and we use the increased profits to find ways to drill deeper, frack better, etc. We'll then be able to get to even more gas and make even more money.

Don't fall for the knee-jerk reaction people have to helping the Chinese or anyone else for that matter.  We are not "giving" them the gas, we are selling it to them.  If we can sell the gas to Martians, let's do that too. We'll take the profits and re-invest, re-invent, and enrich ourselves along the way.

Permalink Reply by Kathleen Elsie Gibbs on June 15, 2011 at 6:15am

Some of what bother me is that with the present Administration and how they have taken over other private enterprise eg the auto industry and ethanol to name two things what will they do if the debt gets so bad that the o&g will look very tempting. What is the saying "too big to fail". Or the homes that were not expensive enough for one town so they took them by eminent domain so private enterprises could build bigger more expensive homes and condos for a "higher tax base". The US Supreme court has already said that the greater good, even if only a better tax base, is reason to take the property of one person to enrich others. It was not free enterprise that set the price but the government.

As this country goes more toward a socialistic form of government is it possible for them to nationalize the energy production and distribution. Look at South America and the Arab countries. They are sitting on a fortune and it is not the average Joe that owned the land but the princes and politicians that now rule and own the assets.

Sorry but this is how I feel. Not sure how others feel. Anyone want to chime in?

Permalink Reply by Brian V. on June 16, 2011 at 2:47am

I agree Kathleen. I have already seen government at all levels clamoring to find ways to tax anything having to do with natural gas everyway possible. Even attempting to the same thing twice. There are counties that are currently severing oil and gas from the surface rights when a property is seized for taxes and then at times selling the property back to the original owner while keeping the oil and gas rights but still taxing the property the same. The single largest mineral owner in this country are our wonderful layers of government.    

 

As to selling the gas overseas, royalty owners won't be the ones seeing the price the gas companies get in say the Asian market. Sure, the market may rise here and that will fetch us a better royalty rate but at the same time we will also be paying for natural gas at a higher rate when we purchase it directly or products produced from natural gas. It truly is a double edged sword for the consumer/royalty owner but a great thing for the industry itself 

Permalink Reply by PA roughneck on June 17, 2011 at 3:36am

I, for one,  am not to overly concerned with the possibility of US gas exports to China.  Yes, many companies are discussing the option of building export facilities, yet only one has been approved and funded (that I'm aware of).

  The facility in Sabine Pass would be exporting some 2.2 bcf/day-roughly the same amount of gas that used to be sent to the northeast but is now being produced right here in PA.

  Export of NG would certainly do a bit to offset our trade deficit, yet few realize that even if drilling increased here in the US, almost all the new rigs required to ramp up production further, enabling vast amounts to shipped to China, would be purchased from China! Personally I'd think that domestic use of CNG would be a more beneficial method of reducing trade imbalances as every $25-$30 worth of NG could displace around $100 worth of crude oil.  Besides the work that CHK is doing towards CNG use in PA, ENCANA is also working on building out a CNG 'corridor' along I-80 through southern WY. If all those most concerned with the possibility of NG exports focused their energies on pushing for the passage of the NATGAS Act (the Pickens Plan), we'd help increase both domestic consumption as well as increase NG prices here at home.

   In the time it takes to plan, finance, permit and build an LNG export plant, China might well be on their own way towards greater domestic shale gas production, after all-

   " According to information released by the US Energy Information Administration (EIA) in April, China has 1,275 tcf of technically recoverable shale gas resources, nearly 50% more than the US. Those estimated recoverable reserves are more than one thousand times the amount of natural gas used in China in 2010." from-China's Shale Gas Could Be the Biggest Boom Yet for U.S. Companies

   Just my $.02 worth.

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