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Obama Likes the Sound of Natural Gas Exports

Over the weekend, President Obama acknowledged that the US would likely become a net exporter of natural gas by 2020. This is a remarkable admission; only five years ago, the government was predicting natural gas imports were set to quadruple. At that time, companies were scrambling for permits to build facilities to import liquefied natural gas (LNG). But thanks to the shale gas bonanza, the US now seems set to permit LNG export facilities. What a difference a few years can make. The FT reports:

US gas prices have fallen to levels that are about one-third of the cost of LNG imported to Europe, and one quarter of the cost of LNG in Asia, a development with the potential to upend global markets. […]

The initial pace of approvals for new LNG export terminals is likely to be measured, a nod to domestic political sensitivities about how to manage the country’s surging energy production. […]

If a new system isn’t in place by 2017, the US is “not going to make it,” [said Sarah Ladislaw, an energy expert at the Center for Strategic and International Studies], because that is when the window for putting pressure on the US to permit projects will diminish, as supplies increase and demand begins easing. “Then the policy impetus goes away for a while,” she said.

Natural gas doesn’t ship as cheaply or easily as oil; it has to be liquified before it makes it onto container ships. That process is expensive, adding about $5 per million btu to the price of the gas, which would more than double the price if America were to start shipping it off. But if current prices around the globe stay fixed, American gas would still be cheaper than what Europe and especially Japan and Korea are paying.

Exporting US gas has pros and cons. Permitting LNG exports can provide (relatively) cheap natural gas to our allies in Asia and Europe, thus helping to stabilize global prices. Domestically, however, energy intensive companies and consumers won’t be happy to see our current stockpile of cheap natural gas go elsewhere.

We’re all for rolling out natural gas exports, provided it’s done sensibly. Back in a December, a study commissioned by the Obama administration found that exporting LNG would have net economic benefits for the country. That, along with the ability to give our allies abroad more choices than lopsided, long-term contracts with Gazprom, seems worth the inevitable rise in domestic gas prices. But the politics are likely to be complicated. Domestic energy-intensive industries and possibly even the green lobby will be working to put the brakes on exports. And as Ladislaw says, time is a factor here. Let’s hope the President starts approving these export facilities sooner rather than later.

[Container ship image courtesy of Wikimedia]

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  • Bill_Woods

    “Natural gas doesn’t ship as cheaply or easily as oil; it has to be liquified before it makes it onto container ships.”
    LNG isn’t shipped in container ships, but in specialized insulated tankers. See
    http://commons.wikimedia.org/wiki/File:LNGtanker.jpg
    or
    http://commons.wikimedia.org/wiki/File:Methanier_aspher_LNGRIVERS.jpg

  • http://www.facebook.com/corlyss.drinkard Corlyss Drinkard

    The O man is still not going to okay the XL pipeline until after the 2014 election.

  • crocodile chuck

    “But thanks to the shale gas bonanza, the US now seems set to permit LNG export facilities. What a difference a few years can make”

    This shopworn trope of VM is past its shelf life. Do the facts in the post linked below give anyone any confidence that LNG terminals with their ruinously high CapEx will ever be built?

    http://resourceinsights.blogspot.com.au/2013/05/patient-contrarians-natural-gas-market.html

    Moreover, does whoever authors this blog understand the dynamics of the energy market?

    • BrianFrankie

      LNG export terminals do not have a ruinously high CAPEX. VM’s estimate is actually a bit high. LNG export facility retrofits amortised CAPEX comes to around $3/MMBTU in the US at existing import terminal locations. And they are, indeed, being built. Here is the first one, which is under construction and will be online in 2016:

      http://www.cheniere.com/lng_industry/sabine_pass_liquefaction.shtml

      The economics look quite good. Get natgas from Henry Hub at $4/MMBTU, liquefy for $3/MMBTU, ship to Asia for $2/MMBTU, and sell it for $18/MMBTU, which is current spot price for many cargoes going into Japan. These Projects can be very profitable.
      The post you linked does not seem to have many facts or understand energy markets well.

  • Fat_Man

    The US will export gas. It has no choice in the matter. It owes far too much to foreigners.

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