Riding the Fracking Wave All the Way to China

A liquefied natural gas (LNG) tanker arrives at a gas storage station at Sodegaura city in Chiba prefecture, east of Tokyo on April 6, 2009 for the first shipment of LNG from Sakhalin-2 natural gas development project in Sakhalin, Russia. AFP PHOTO / JIJI PRESS (Photo credit should read STR/AFP/Getty Images)
National Journal
Patrick Reis
Dec. 5, 2013, 3:27 p.m.

The race is on to make Amer­ica the Saudi Ar­a­bia of nat­ur­al gas, but not every­one is in love with the idea of the U.S. be­com­ing a ma­jor ex­port­er of the in­creas­ingly abund­ant en­ergy source.

Flush with new pro­duc­tion thanks to the frack­ing re­volu­tion, the nat­ur­al gas in­dustry is hop­ing to send some of its sup­plies over­seas, and bring back some cash back to Amer­ica’s shores in the pro­cess. But if the in­dustry is to move ex­ports bey­ond the cur­rent trickle, it will have to over­come some for­mid­able polit­ic­al and reg­u­lat­ory hurdles — and do it quickly.

As glob­al en­ergy de­mand con­tin­ues to surge there is grow­ing com­pet­i­tion to be­come ma­jor ex­port­ers of gas and oth­er fossil fuels. If the U.S. doesn’t fill the gap, oth­er en­ergy-rich coun­tries will be happy to do it for them.

“There’s a win­dow of op­por­tun­ity, be­cause there are com­pet­it­ors,” said Chris Mc­Gill, vice pres­id­ent of policy ana­lys­is at the Amer­ic­an Gas As­so­ci­ation. “It’s not a 20-year win­dow; it’s something that’s defin­able as over the next dec­ade.”

After that, for­eign com­pet­it­ors such as Aus­tralia, In­done­sia, and above all, Rus­sia will have the mar­ket cornered, Mc­Gill said.

But get­ting nat­ur­al gas from Pennsylvania to the Pa­cific Rim is no easy trick. To be moved over­seas, it has to be con­ver­ted to a li­quid form and loaded onto ocean­go­ing tankers. That pro­cess re­quires build­ing li­que­fied-nat­ur­al-gas ter­min­als that are ex­pens­ive, con­tro­ver­sial, and dif­fi­cult to get ap­proved.

Con­struct­ing an ex­port fa­cil­ity costs about $5 bil­lion, Mc­Gill said, and it re­quires nav­ig­at­ing a com­plic­ated per­mit­ting pro­cess. To get ap­prov­al for a ter­min­al, a com­pany needs per­mis­sion from a pair of for­mid­able fed­er­al bod­ies: the En­ergy De­part­ment and Fed­er­al En­ergy Reg­u­lat­ory Com­mis­sion.

The hurdles and the hurry, however, have not been enough to scare the nat­ur­al gas in­dustry away from try­ing. Four ex­port ter­min­als have already been per­mit­ted in the U.S. that would ex­port a com­bined 6 bil­lion cu­bic feet of gas per day. And that’s just the be­gin­ning: If all pro­posed ter­min­als were to win ap­prov­al, they would add close to 30 bil­lion cu­bic feet per day in ex­port ca­pa­city, ac­cord­ing to the Amer­ic­an Gas As­so­ci­ation.

The po­ten­tial for ex­ports on a grand scale is clear, but why is the in­dustry will­ing to wade in­to this reg­u­lat­ory thick­et?

The al­lure of high for­eign prices is simply too much to res­ist. Un­like with oil, the com­plic­a­tions of li­que­fy­ing, ship­ping, and re-gas­i­fy­ing nat­ur­al gas mean there are large glob­al dis­crep­an­cies in price.

In the U.S., pro­du­cers sold gas for an av­er­age of $2.66 per thou­sand cu­bic feet in 2012, a two-thirds price drop from 2008. In Europe, nat­ur­al gas is typ­ic­ally three times as ex­pens­ive. And in Asia — where China is con­sum­ing more en­ergy but at­tempt­ing to cut back on coal, while Ja­pan is search­ing for sub­sti­tutes for nuc­le­ar power plants — nat­ur­al gas routinely sells for five to six times the U.S. price.

That’s a price gap that U.S. politi­cians, backed by a power­ful co­ali­tion of do­mest­ic nat­ur­al gas cus­tom­ers, are keen to keep — but they fear prices at home will rise dra­mat­ic­ally if sup­plies go over­seas.

Lead­ing that co­ali­tion is Sen. Ed­ward Mar­key, a Mas­sachu­setts Demo­crat, who in 2012 in­tro­duced le­gis­la­tion to ban ex­ports of nat­ur­al gas taken from fed­er­al lands and to freeze the ap­prov­al of any new ex­port ter­min­als through 2025. Mar­key ar­gues that by al­low­ing ex­ports, the U.S. would be vol­un­tar­ily sur­ren­der­ing a cost ad­vant­age for do­mest­ic in­dus­tries.

How much do­mest­ic prices would rise is a mat­ter of con­ten­tion. Ex­port op­pon­ents say it could largely erase the gap between do­mest­ic and for­eign mar­kets, but a May re­port from the Bi­par­tis­an Policy Cen­ter said the ef­fects on do­mest­ic costs would be min­im­al.

What We're Following See More »
WEST WING REDUX
Allison Janney Takes to the Real White House Podium
9 hours ago
WHY WE CARE

Carolyn Kaster/AP

STAFF PICKS
When It Comes to Mining Asteroids, Technology Is Only the First Problem
10 hours ago
WHY WE CARE

Foreign Policy takes a look at the future of mining the estimated "100,000 near-Earth objects—including asteroids and comets—in the neighborhood of our planet. Some of these NEOs, as they’re called, are small. Others are substantial and potentially packed full of water and various important minerals, such as nickel, cobalt, and iron. One day, advocates believe, those objects will be tapped by variations on the equipment used in the coal mines of Kentucky or in the diamond mines of Africa. And for immense gain: According to industry experts, the contents of a single asteroid could be worth trillions of dollars." But the technology to get us there is only the first step. Experts say "a multinational body might emerge" to manage rights to NEOs, as well as a body of law, including an international court.

Source:
STAFF PICKS
Obama Reflects on His Economic Record
11 hours ago
WHY WE CARE

Not to be outdone by Jeffrey Goldberg's recent piece in The Atlantic about President Obama's foreign policy, the New York Times Magazine checks in with a longread on the president's economic legacy. In it, Obama is cognizant that the economic reality--73 straight months of growth--isn't matched by public perceptions. Some of that, he says, is due to a constant drumbeat from the right that "that denies any progress." But he also accepts some blame himself. “I mean, the truth of the matter is that if we had been able to more effectively communicate all the steps we had taken to the swing voter,” he said, “then we might have maintained a majority in the House or the Senate.”

Source:
STAFF PICKS
Reagan Families, Allies Lash Out at Will Ferrell
12 hours ago
WHY WE CARE

Ronald Reagan's children and political allies took to the media and Twitter this week to chide funnyman Will Ferrell for his plans to play a dementia-addled Reagan in his second term in a new comedy entitled Reagan. In an open letter, Reagan's daughter Patti Davis tells Ferrell, who's also a producer on the movie, “Perhaps for your comedy you would like to visit some dementia facilities. I have—I didn’t find anything comedic there, and my hope would be that if you’re a decent human being, you wouldn’t either.” Michael Reagan, the president's son, tweeted, "What an Outrag....Alzheimers is not joke...It kills..You should be ashamed all of you." And former Rep. Joe Walsh called it an example of "Hollywood taking a shot at conservatives again."

Source:
PEAK CONFIDENCE
Clinton No Longer Running Primary Ads
14 hours ago
WHY WE CARE

In a sign that she’s ready to put a longer-than-ex­pec­ted primary battle be­hind her, former Sec­ret­ary of State Hil­lary Clin­ton (D) is no longer go­ing on the air in up­com­ing primary states. “Team Clin­ton hasn’t spent a single cent in … Cali­for­nia, In­di­ana, Ken­tucky, Ore­gon and West Vir­gin­ia, while” Sen. Bernie Sanders’ (I-VT) “cam­paign has spent a little more than $1 mil­lion in those same states.” Meanwhile, Sen. Jeff Merkley (D-OR), Sanders’ "lone back­er in the Sen­ate, said the can­did­ate should end his pres­id­en­tial cam­paign if he’s los­ing to Hil­lary Clin­ton after the primary sea­son con­cludes in June, break­ing sharply with the can­did­ate who is vow­ing to take his in­sur­gent bid to the party con­ven­tion in Phil­adelphia.”

Source:
×