Gas Exports Ignite a Feud
Energy Firms Promote Exports, but Manufacturers Fear Their Costs Will Climb
U.S. officials will soon weigh in on a fight between companies that want to export some of America’s fast-growing supply of natural gas and big manufacturers that oppose the exports because they rely on cheap domestic gas.
In the next few weeks, Washington’s number-crunchers are set to estimate whether exports would cause U.S. prices to swell—a finding they will use in deciding the fate of more than a half-dozen projects across the nation.
The battle, which pits manufacturers such as Dow Chemical Co. against energy producers like ConocoPhillips, shows how the boom in U.S. fossil-fuel production is upending markets and forcing policy makers into decisions they didn’t imagine facing just a few years ago.
Natural gas is pumped at a hydraulic fracturing operation in Pennsylvania’s Marcellus Shale in July.
Once seen as a likely significant importer of natural gas—before the boom in domestic shale-gas production provided enough to meet demand—the U.S. is now emerging as a potential supplier of the fuel to nations overseas thanks to the newly tapped sources in shale.
Companies are setting their sights on markets in Europe and Asia where natural gas fetches three to four times the price in the U.S. According to Platt’s, natural gas in Japan and South Korea fetches more than $16 per million British thermal units, compared with a benchmark price of a little more than $3 per million BTUs in the U.S. The companies are looking to spend billions of dollars on new terminals that could ship out about 17% of U.S. daily production, or about 11 billion cubic feet per day, according to the Energy Department. But Dow Chemical and others say allowing exports will crimp the supply available to U.S. users and drive up prices here.
To send natural gas across the oceans, companies must supercool the fuel to minus 260 degrees and convert it to liquid form so it can be loaded onto tankers. Building massive coastal facilities to make liquefied natural gas requires multiple permits from Washington.
The Energy Department is looking at whether exports will drain U.S. supplies and inflate domestic prices. The Energy Information Administration, part of the department, is expected to deliver its analysis in a few weeks.
If the department finds export terminals will raise the domestic price of natural gas and fail to serve the country’s best interests, it could block applicants from exporting to most nations except those with free-trade agreements with the U.S. That could doom the projects.
Sen. Ron Wyden (D., Ore.), whose state includes one of the proposed terminals, says he is concerned U.S. consumers and businesses will get “short shrift” if natural gas supplies are shipped abroad.
“If you see natural gas prices go into the stratosphere, it would make it difficult for other industries to create jobs in the United States,” Mr. Wyden said in an interview.
Among those taking a hit would be chemical companies, which use natural gas as a raw material in car parts, bottles, cleaners, mattresses and other products. Dow Chemical, one of the most outspoken critics of the export proposals, says the U.S. would be better off using its cheap natural gas for domestic manufacturing instead of exports.
“When natural gas is used as a chemical raw material, it creates eight times the value compared to other uses, and fuels higher-paying jobs, exports of finished goods and the vitality of the manufacturing sector,” Dow spokeswoman Kasey Anderson said.
Energy companies say there is plenty of natural gas in the U.S. to meet domestic demand and support exports at the same time. They say building the giant export facilities would create construction jobs and boost long-term employment by encouraging a faster rise in U.S. natural-gas output.
“American consumers are best served when markets rather than regulators determine outcomes,” said Cheniere Energy Inc. spokesman Andrew Ware.
While concern over price increases “gets the most airplay,” the Energy Department is also examining potential benefits of exports, such as creating jobs and offsetting the large U.S. trade deficit, said Chris Smith, the department’s assistant secretary for oil and gas.
Cheniere, which wants to start construction in 2012 on an export facility in Louisiana, is the only company to have cleared the Energy Department hurdle on exports. It got approval to export to most nations in May, before opponents had fully geared up to resist such plans. Cheniere has already signed long-term contracts to supply natural gas to the U.K.’s BG Group PLC, Spain’s Gas Natural Fenosa and GAIL (India) Ltd.
Many companies that are seeking permission to export natural gas had planned to import it just a few years ago. Then U.S. production rose 18% between 2005 and 2010, with the bulk of the increase coming from gas trapped in rock formations known as shale.
Import terminals are now gathering dust. Earlier this year, a terminal owned by Dominion Resources Inc. south of Baltimore had to buy a shipment of natural gas from overseas just to keep its equipment running.
With natural gas prices in the U.S. at multiyear lows, power companies can generate electricity more cheaply and pass the savings to consumers.
A study by Navigant Consulting Inc. found three of the export projects the government is studying could together increase domestic prices by 17% in 2020, with the impact declining over time as more natural gas is produced.
Deloitte, which looked at a separate set of three projects, said the long-term rise in prices would be much smaller.
Charles Ebinger of the Brookings Institution says the impact of exports on prices is “virtually an impossible question” because there are so many hard-to-measure variables. One is whether the popular drilling technique known as hydraulic fracturing continues to grow—boosting natural-gas supply and keeping prices down—or gets bogged down in safety questions.
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Posted on January 16, 2012, in LNG and tagged BG Group, ConocoPhillips, Dominion Resources, Energy Department, Export, Gas Exports, Gas Natural, Navigant Consulting, United States. Bookmark the permalink. 3 Comments.