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 craig on June 17, 2011 at 6:22am

roughneck,

I agree with your statements. I also feel that these foreign companies are primarily funding some joint ventures here to acquire the knowledge of extracting gas, etc out of the shale plays....as well as getting some 'hands on' time in the field. They are essentially paying US companies to acquire the knowledge they need and indirectly funding the advancement of our drilling/fracking technology. Lets face it, fracking technology is advancing by leaps and bounds and from what I see they are headed in the right direction......more economical and more eco-friendly. We just need to keep the companies feet to the fire and it will be done properly.

 

 

Permalink Reply by Marc on June 17, 2011 at 6:53am

The point you make about reducing our trade imbalance through displacing crude imports is interesting.  That's why it's so hard to say exports are good or bad unless you crunch an enormous amount of information.  And that's the reason government is bad at directing the economy from on-high.  There's almost too many variables for one decision maker to consider and act on in an intelligent way.

 

Back to your comment: I'd say that you have to factor in that "only" 2/3 of our crude oil is imported, since crude that is not imported does not affect the trade imbalance or the value of the dollar. Thus, by my reckoning, only $66 of imported crude oil would be displaced by $25-30 of nat gas.  Still, nothing to sneeze at.

 

But even that assumes there is not enough domestic production to go around at any one point in time - and I'm not sure that's accurate.  Higher production, not displaced demand, is the more likely affect of exporting possibilities IMO.  That would mean a somewhat quicker draw down of our reserves.  But if the country gets paid handsomely for it, 80 years of nat gas might be better than 100.  Just a thought.

Permalink Reply by George Brown on June 17, 2011 at 7:24am

Not to mention that 80 years from now, our technology will likely have advanced to the point that energy sources, not reachable today, will be commonplace. Just think what life was like 80 years ago (1930). Seems like they were living in the stone age by today's standards.

Permalink Reply by mark ayers on June 18, 2011 at 9:34am
Would it be possible to impose a  severance tax on nat gas exported out of state so as to incorrige it's consumption within the state that it was produced?
Permalink Reply by Marc on June 18, 2011 at 9:53am

Out of state as in "out of Ohio"?  That may or may not be constitutional.  More importantly, it's terrible business.  Unless the severance tax was exceedingly minimal, it would kill Utica shale development.  One of the big advantages of the Utica is the proximity to the high demand areas along the I-95 corridor, i.e. NY, Boston, Philly, DC. Lower transporation costs = more margin for producers deciding what formation to bet the next 30 years on.  

 

This is how business decisions get made, always has been.  For example, Delaware is a center for banking, insurance and corporate formation.  Has been for 100 years.  Before Delaware, New Jersey was the first haven for business.  That lasted about a decade and then Delaware passed more conducive laws.  In the short-to-medium term, you could say that certain states in Appalachia are in a similar competition.  Landowners can protect themselves and their communities' interests through private contracting so long as they are informed and knowledgable and ask for help when they feel out of their depth.

 

 

Permalink Reply by mark ayers on June 18, 2011 at 2:16pm
I was thinking more about Pa. at a rate of around 5%.
Permalink Reply by PA roughneck on June 18, 2011 at 11:11am

I've wondered that myself, particularly in regards to PA. Watching what is going on in NY with their vocal aversion to drilling yet still demanding they get it from somewhere got me thinking how could they pay for such a privilege.

  Taxing exported gas only would probably not hold up to a court challenge,  but, a blanket severance tax levied on all production coupled with a tax credit or refund for gas used in state just might pass legal muster.

  Doing so might actually entice utility co's to site NG power plants in state, as well as other industries that use a lot of NG or its associated products (propane, butane, ethane), further increasing employment opportunities and increasing the state tax base.

 

Permalink Reply by Jim Litwinowicz on June 18, 2011 at 2:39pm
On the subject of taxing the gas companies, one thing I would like to see, and have written to several legislators about, is that some of the monies should go to helping municipalities across the state convert their vehicles to run on CNG and to encourage companies to put in CNG filling stations. Imagine snow plows, police, fire, official cars, buses, and more all running on CNG. This would help the munies save money, help support the gas industry, reduce foreign imports, create more jobs in Pa,   increase tax collections, and help clean the air.  Eliminating  desiel trucks and buses would have a dramatic impact on the air in major cities. I would encourage everyone to write their legislators to get such a bill passed.
Permalink Reply by Kathleen Elsie Gibbs on June 19, 2011 at 2:35am
Really good idea. If the "gas" stations actually sold CNG many of us would be willing to purchase the cars when we need a new one that run on CNG. Government fleets are a good start.
Permalink Reply by PA roughneck on June 19, 2011 at 3:07am

Check out the NATGAS ACT, now in congress.  Provides tax incentives for purchase of CNG powered vehicles and infrastructure nationwide in an effort to increase domestic use in transportation.  I also would encourage those of us in favor of the move to CNG use to contact your federal representative and Senators and let them know of our position.

 For a bit more info-

http://cngnow.com

http://pickensplan.com

Permalink Reply by Kathleen Elsie Gibbs on June 19, 2011 at 7:13am
State College is the closest to us. These stations should be (at the least) along the turnpike, and all interstate rts. Yet in PA they are as rare as hens teeth.
Permalink Reply by George Brown on June 19, 2011 at 3:38pm

So, if Natural Gas filling stations are such a great idea, then get a group of investors together and build them.  Why wait for the government to do it?  They can't do anything right to begin with.  If there is truly a demand to be satisfied, then it should be possible to do it privately.  Build up the infrastructure, and at the same time offer to contract with townships, municipalities, and maybe even private fleets (e.g. UPS or Fedex) to convert their fleets over to natural gas. Write up a business plan and get some investors on board.  Maybe T. Boone Pickens or Donald Trump would be interested.  If you wait for the government to do it, you'll be waiting a long time and it will be done poorly, inefficiently, and at tremendous cost to taxpayers.

And, as for a severance tax, any severance tax, why would anyone want to put more money into the hands of politicians and bureaucrats? I'd much rather see the money go into the hands of O&G rights holders or the oil and gas companies.  At least I can buy stock in the companies and share in their profits.  If the money goes down the tax rat hole, it won't do any good for anyone. I can find no track record of wise fiscal management at the state or federal government level but I can find lots of companies that have made money, employed workers, paid taxes and enriched shareholders.

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