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Page added on March 20, 2014
North American Natural Gas Seeks Markets Overseas
A slew of multibillion-dollar coastal projects compete to ship super-chilled LNG to Asia and Europe.
A refrigerated ship designed for liquefied natural gas (LNG) is towed into harbor on the island of Malta in 2013. The vessel was converted into a receiving facility and is now moored off the shore of Italy.
North America’s natural gas boom is now so big that the industry and its supporters believe it should not be contained to just one continent.
They argue this new bounty should be shared—especially with hungry markets in Asia and Europe willing to pay a high price for the fuel. But long-distance transport of natural gas is one of the world’s most expensive engineering feats, and it will require government approvals, community support, and billions of dollars in capital to take North American gas overseas. (See related quiz: “What You Don’t Know About Natural Gas.”)
Despite the challenges, proposals are now moving forward to make the Chesapeake Bay waterfront community of Cove Point, Maryland, into a global gateway for Pennsylvania shale gas, and to turn the remote British Columbia coastal village of Kitimat into an international energy hub.
Supercool Gas
In all, some 40 new export projects have been proposed in the United States and Canada, giant multibillion-dollar facilities to superchill natural gas into liquid form at -260°F (162°C) so it can be shipped by refrigerated tanker. This liquefied natural gas, or LNG, takes 600 times less space, making it economical to move by vessel.
The LNG business has been around for decades; Japan, the world’s largest importer, relies on such shipments for all of its natural gas. But as the distance between the world natural gas supply and demand centers becomes more clear, price disparities have grown. The International Energy Agency noted last fall that the price of natural gas in the European Union has been running at roughly triple the price in the United States, while Japan has been paying nearly five times as much.
As a result, there is a frenzy of building and planning to build and expand LNG terminals, not only in North America, but in other energy-rich locations such as Australia, the Middle East, and Russia.
Chris Holmes, senior director of global gas and LNG at the consulting firm IHS Energy, said proposed new and expanded international export facilities, a dozen of of which are already under construction, would nearly triple the amount of liquefied natural gas on the market. The increase would likely meet global demand for decades, he said.
“You have a wide [price] spread there and that’s the attraction,” Holmes said.
Yet industry analysts say many of the proposed export facilities might not get beyond the planning stage because of high costs and stiff international competition. Exporting natural gas by ship requires building massive facilities to supercool the gas. Holmes said these liquefaction facilities cost as much as $10 billion, only part of a $30 billion investment to build a new export facility.
“This is a very challenging business,” Holmes said, adding that it can take more than a decade to turn a profit.
A Gas Wedge Against Putin?
The financial realities mean that North American natural gas will not be hitting the high seas anytime soon. That means U.S. energy supplies made bountiful by hydraulic fracturing, or fracking, are not likely to be a useful lever in the short term against the world’s other natural gas powerhouse, Russia, in the current crisis over Crimea and Ukraine, experts say. (See related story: “Green Fracking? 5 Technologies for Greener Shale Energy.”)
U.S. House Speaker John Boehner has suggested that the lack of U.S. natural gas ports amounts to a “de facto ban on exports,” and he has called for President Barack Obama’s administration to dramatically expand natural gas production and speed export facilities in order to supplant Russia as Europe’s natural gas supplier. But the consulting firm IHS said in a report Wednesday that although the United States is on track to become one of the world’s three major LNG exporters by 2020 to 2022, the ultimate impact on European gas supply likely will be limited. (Russia will remain a major gas supplier to Europe because gas sent across the continent by pipeline still will make more economic sense than gas shipped across the ocean.)
However, IHS said the Ukrainian crisis “may promote a shift to simplifying (and expediting)” the U.S. government’s export approval process. (See related story: “Russia Raises Natural Gas Threat Against Ukraine.”)
Fast Track for Cove Point?
At the same time, environmentalists have clearly stepped up opposition to LNG terminals: Leaders of 16 U.S. national and regional groups this week sent an open letter to Obama. They argued that expansion of U.S. LNG exports would undermine his administration’s efforts to tackle the climate crisis. They urged a full federal environmental review of Richmond, Virginia-based Dominion’s proposed $3.8 billion project to turn a moribund LNG import terminal at Cove Point, Maryland, into an export terminal.
Last week, the U.S. Federal Energy Regulatory Commission said it intends to complete its environmental assessment of Cove Point in mid-May, with a decision on federal authorization of the project by August.
The rapid schedule is a disturbing development to some local residents who are concerned about increased air pollution, noise from the liquefaction facility, increased truck and ship traffic, and the risk of explosion or fire from tankers carrying superconcentrated natural gas.
“They are dumping all of this risk on us with no consideration,” said retired Navy engineer Dale Allison, who has lived since 1997 in a home less than half a mile from the facility.
“This is a beautiful place where people are happy to live and don’t want to hear noise 24 hours a day and breathe pollution,” added his wife, Sue. They said they would put their house on the market if the Dominion project gets final approval.
But the project has strong support from Maryland’s construction trade unions and U.S. Representative Steny Hoyer, a Democrat who is one of Maryland’s most powerful political figures. The three-year construction would provide up to 3,000 jobs, and, once operational, the facility would pump $40 million a year into Calvert County, according to Dominion. (See related story: “Can Natural Gas Bring Back U.S. Factory Jobs?“)
On the other side of North America, in Kitimat, a coastal town of 9,000 people in northwest British Columbia, where three separate LNG export projects are proposed, the local economic impact also is a major consideration.
Kitimat Mayor Joanne Monaghan says the terminals are already bringing desperately needed jobs to a community that lost much of its industrial base when a pulp and paper mill closed in 2009.
More than 3,000 workers have traveled from elsewhere in the province for jobs clearing land and doing other work in preparation for construction, Monaghan said. She hopes that number will swell to 10,000 if terminal construction begins. “This was a community of doom,” she said. “Now it’s a community of boom.”
Keeping Low-Cost Gas at Home
But in the debate over North American gas exports, there is another way to look at the economic impact. Even studies that project that increased LNG exports will help boost the U.S. economy conclude that exports will lead to higher domestic natural gas prices.
Not only would Americans pay more for heating fuel, but manufacturers, who use natural gas not only for power but as a feedstock for a wide array of plastic products, would see higher costs as well.
America’s Energy Advantage, an industry group that includes Dow, Alcoa, and others, is pushing to keep natural gas exports in check. Trent Duffy, a spokesperson for the group, said exports could stymie the American manufacturing renaissance that is possible due to the low price of domestic natural gas.
If Asian countries want to buy natural gas, Duffy said, they should be required to sign free trade agreements that would lower barriers for all U.S. goods and services. “Why not use what they need most to pry open their markets?” Duffy asked. “Why are [we] giving away the crown jewel?”
U.S. homeowners would bear the brunt of the rising costs.
Scott Morrison, a spokesman for the American Public Gas Association, which represents publically owned gas distribution companies, and is also a member of America’s Energy Advantage, said exporting gas will lead to a rise in heating costs, while lining the pockets of energy companies and stockholders. “This looks very much like wealth transfer to us,” he said. (See related story: “No Freeze on Winter Energy Prices, Despite Natural Gas Boom.”)
A Global Race
Even as LNG project sponsors face a broad array of export opponents, and a complicated regulatory and financing process, they are racing each other to begin construction.
The Canadian government has approved eight export licenses*, and is considering five other applications. In the United States, there have been 37 LNG export applications, six of which have gained U.S. Department of Energy (DOE) approval, the first step in the regulatory process to export natural gas to countries that do not have a free trade agreement with the United States.
Australia already has three functional LNG export facilities, and seven additional projects under construction. The new facilities have experienced construction cost overruns and delays, but if they are completed, Australia could rival the Middle Eastern giant Qatar by 2020 as the largest exporter of LNG, according to the Paris-based International Energy Agency.
Analysts say projects planned for North America, if built, would put far more LNG on the international market than either Australia or Qatar, so the United States would rank first and Canada second among gas exporters.
Most experts believe that the capital markets will support construction of only a limited number of LNG terminals—enough to supply, but not flood, the market. Otherwise, the price of the fuel would fall too low to justify the enormous upfront investment.
That has some supporters nervous.
In the United States, construction has begun on only one terminal, the $10 billion Sabine Pass project on Louisiana’s Gulf Coast, which is being converted into an export liquefaction facility. The plant was constructed just a few years ago as an import facility, when it looked as though the United States was running short of natural gas. It is a living example of how quickly the global energy supply-and-demand picture can change. (See related story: “With U.S. Natural Gas Booming, a Move to Send It Overseas.”)
Meanwhile in Canada, none of the companies has made a final decision on whether the terminals will go forward. Project sponsors have bristled over a proposed 7 percent tax on LNG facility income by the government of British Columbia.
Monaghan, mayor of Kitimat, thinks the province should quickly make a final decision on its tax structure and negotiate with energy companies so her community does not get beaten in the global LNG race.
“The first over the finish line will win,” Monaghan said. “And the others will be left behind.”
21 Comments on "North American Natural Gas Seeks Markets Overseas"
DC on Thu, 20th Mar 2014 11:57 pm
Nat Geo is apparently offering up propaganda for big oil now? I wonder how much big oil ‘donated’ to Nat Geo to run this tripe?
ghung on Fri, 21st Mar 2014 12:52 am
Sorry DC. Nat Geo is owned by Fox.
DC on Fri, 21st Mar 2014 1:12 am
Things are about as bad as they can be IoW….
antaris on Fri, 21st Mar 2014 1:41 am
I would rather be left behind. Why not just leave the gas in the ground maybe for our great grand kids. As for the debt the 7% would pay off, why not default like every other Province, State and Country are going to do!
My guess is Monaghan has not heard of the global human survival race coming soon.
rockman on Fri, 21st Mar 2014 2:48 am
“They argue this new bounty should be shared”. As was pointed out in an earlier thread there is no bounty of US NG production. We produce less NG than we consume. We are still importing NG to make up the deficit. The desire/ability to export LNG has nothing to do with how much NG the country produces but the better profit margin that might be made by selling it overseas… especially to Asia. No different then why the US exports a lot of diesel: follow the money.
rockman on Fri, 21st Mar 2014 11:49 am
antaris – “Why not just leave the gas in the ground maybe for our great grand kids.” Sorry…missed your question earlier. Easy answer: because your grandkids, kids, parents, siblings and neighbors need every cubic foot of NG we can produce domestically today. And as pointed out even that isn’t sufficient to maintain the economy so we have to import. We do not have any “spare” NG just sitting around with no utility. And as oil eventually declines suspect we’ll become even less capable of meeting our NG requirements.
Nony on Fri, 21st Mar 2014 6:45 pm
We could easily produce enough gas to do net exporting. The reason we don’t make extra now is because there’s nowhere for it to go. The reason we import some is because US and Canada are essentially a closed system and they have excess.
At something between 5 and 6 $, we could probably double our gas output. Right now, the NA gas system is essentially stranded production and market limited.
Northwest Resident on Fri, 21st Mar 2014 6:51 pm
“We could easily produce enough gas to do net exporting.”
Really? “Easily???”. Please explain how we “easily” produce enough NG to cover for the amount that we have been exporting all along, plus enough excess to enable exporting, along with all the super-expensive infrastructure and assets that would be required to do that exporting?
If it was so easy to do, why haven’t they been doing it all along? There must be a reason.
Nony on Fri, 21st Mar 2014 7:07 pm
What are we supposed to do right now with no ex-North America imports possible? Produce it and stick it in a cave for no reason? It’s demand limited now and a market-share battle amongst gas producers.
Nony on Fri, 21st Mar 2014 7:19 pm
There’s a small amount of rigs drilling for gas, yet volume is very strong year over year. Marcellus wells in particular have huge IPs. There’s a lot more that could be extracted with a little higher price signal (i.e. more demand). Any analyst will tell you that.
The 2005ish gas cliff peakers look like putzes now. Berman with his 2009 comments also looks silly. We are not running out of gas, even at comparatively low prices. Very different dynamic than oil. Shale has really been a revolution for NA gas. It’s 40% of the US market now.
Davey on Fri, 21st Mar 2014 7:47 pm
Nony, I am not an expert on geology but I do research the finance side and I don’t believe the money is there reliably for companies to make the commitments for all the export infrastructure alone. The financial world is in a contraction spiral. Markets are populated by the herds that in no way reflect economic reality. It is a big spiked Kool Aid party. Funny money is chasing its tail. When rates go up and the economy further deteriorates production will sharply drop most likely. Markets cycle and always have. BTW Berman is high on my list. I wonder what the Rock thinks of him?
Northwest Resident on Fri, 21st Mar 2014 8:00 pm
Nony — IF there was money to be made in producing enough NG to both eliminate our need for import AND have excess for export, the really smart people in the oil business would have already figured it out. The fact that we are still importing NG and NOT exporting NG means there is ZERO $$$ to be made doing it, and most likely, a fortune to be lost. How you can pretend to know more than the actual experts leaves me wondering what else you *think* you know but actually don’t.
Hey, I’ve been wrong before too, plenty of times. It happens. Fess up. Learn a lesson. Let it go.
Nony on Fri, 21st Mar 2014 8:22 pm
North America is an isolated market/production unit. US producers are not allowed to export to non-NA markets. I am sooo far from wrong and you are so far from strong intuitions on supply and demand (nice guy, but…know your limits).
Who are “the experts”? Rockman, since, he’s been an engineer and a geologist? He’s got some industry experience, but he sure as hell ain’t an analyst. And he knows it.
Or you all peaker people? You’re experts? I can google up all the reports on shale gas. Try the Morningstar report, try EIA, try Ralph Eads. Get out of your peaker comfort zone. Get off this site and go Google stuff and learn both sides.
http://fuelfix.com/blog/2014/03/03/report-marcellus-growth-not-peaking-any-time-soon/
Nony on Fri, 21st Mar 2014 9:03 pm
Davey, if you’re right on the finances, why are there like 20 requests with the Feds to build export terminals? Why is Chenier’s project going forward (real activity, steel in ground). Anyhow, if you’re right, Obama can just approve the requests and we can see what happens. If their is not enough low price gas to justify the costs of compression, shipping, and expansion (at the market site), then the terminals just won’t get built.
Davey on Fri, 21st Mar 2014 9:18 pm
Nony this whole gas deal is a Ponzi scheme. We have already seen several companies get burnt with their gold rush behavior. There is a legitimate resource and industry there I agree. The export terminals are mostly talk. Maybe one or two get built. I don’t understand the engineering but if they could be engineered to take imports too I would be all for them because I think we are going to be high and dry in 10 years. This whole gas deal has been a big Wall Street hype with speculators and market makers. We are seeing that come to an end as the hangover sets in.
Northwest Resident on Fri, 21st Mar 2014 9:28 pm
“Get off this site and go Google stuff and learn both sides.”
Nony — I do that, all the time. And in case you haven’t noticed, the articles that get posted on this site portray both sides of the issues, not just one side.
What?! You think you know more about the oil business and oil finance than rockman? And you *think* you know that it is “easy” to produce enough NG for export when the actual experts can’t even see a way to do it?!
“Peaker people” — give me a break. Just refer to us as “the smart ones who see what’s coming” — that has a much better ring than “peaker people” and it is a lot more accurate.
Nony on Fri, 21st Mar 2014 9:51 pm
OK, smart one who sees what is coming. I’m going to go for a bike ride. Nice day and I want to get strong. Not even commuting, just shamelessly burning calories!
😉
Boat on Sat, 22nd Mar 2014 1:46 am
Late to the conversation but i have some numbers from eia and a cpl of questions
We used to import over 12 bill gal per day. Now it’s 7 mbpd. So we export 4 mbpd of finished petroleum products and before 2011 we did not export much. So what happened. Fracking could explain the drop in imports. But the exports? Why is there so much refining capacity when in the old days the extra refining capacity just closed down?
Is it Nat gas that’s now used to heat the refineries? Is this the new natural advantage of refineries that have access to Nat Gas in the US? The Nat gas boom has been huge and the Market is growing fast. Is alot of it going to refineries now? How can these refineries now import, and export finished goods now vrs 2011. Or is the extra exports a result of demand destruction and the refiners are eating cost which seems unreal. I am using the assumption that oil was used to heat the oil and now Nat Gas. Is that right?
Boat on Sat, 22nd Mar 2014 1:53 am
PS. We only need to import 3 mbpd now to break even with consumption in the US. We need no tar sands if fracking gains another 3 mbpd. The Republican arguments about red tape and regulations were fracked out i guess hehe
Boat on Sat, 22nd Mar 2014 1:57 am
PS2 Even the EIA suggests the breakeven point for Nat Gas for consumption will happen in 2016 or 2017. I guess they just want to drive up the prices with any exports before that.
Nony on Sat, 22nd Mar 2014 12:22 pm
ON the refineries, good insight.
On gas, yes, price will, of course, rise with higher demand. Right now, there’s nowhere for it to go and basically shale is pushing out conventional US and Canadian gas in a market share battle. That said, predictions are very non-steep cost curve and significant capacity below $6.