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
Add to Briefcase
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 »
STRIKES DOWN NEW HAMPSHIRE BAN
Court: Selfies in Voting Booth Now OK
1 hours ago
WHY WE CARE
WILL LEAD U.S. DELEGATION
Obama to Travel to Israel for Peres’s Funeral
1 hours ago
THE DETAILS
FOUR-POINT LEAD IN FOUR-WAY RACE
Reuters/Ipsos Shows Clinton Ahead by 6
1 hours ago
THE LATEST

In one of the first polls released since Monday night's debate, a Reuters/Ipsos survey shows Hillary Clinton leading Donald Trump 44%-38%. When third-party candidates are thrown into the mix, Clinton's share of the vote drops to 42%, with Gary Johnson picking up 7% and Jill Stein at 2%.

Source:
NO SHUTDOWN
Senate Votes to Fund Government
2 hours ago
THE LATEST

The Senate voted on Wednesday 72-26 on a bill to fund the government through Dec. 9, averting a looming shutdown. The legislation will now go to the House, where it could be voted on as early as Wednesday. After this legislation is approved by the House, Congress will recess until the lame-duck session following elections.

FIRST OVERRIDE OF HIS PRESIDENCY
House Completes Override of Obama Veto
3 hours ago
THE LATEST

"Congress voted Wednesday to override President Obama for the first time in his eight-year tenure, as the House followed the Senate in rejecting a veto of legislation allowing families of terrorist victims to sue Saudi Arabia. The House easily cleared the two-thirds threshold to push back against the veto. The final tally was 348-77, with 18 Republicans and 59 Democrats voting no."

Source:
×