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.

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