Debate About US Shale Gas Exports Splits Corporate America
The shale boom has created a rare fissure that runs through the heart of corporate America, pitting manufacturers against energy giants, which have been seeking to raise the price of natural gas by pushing the government to allow them to export to more countries.
On a humid Thursday last April, hundreds of residents of Lake Jackson, a small town on the outskirts of Houston, jostled a college auditorium stage to catch a glimpse of Texas’ rip-roaring governor, Rick Perry. The governor was there to join Dow Chemical Co. Chairman and CEO Andrew N. Liveris in announcing the chemical giant’s plans for a $4 billion expansion of its operations in southeastern Texas, creating almost 5,000 jobs.
The mood was celebratory. “If you had told me 10 years ago I’d be standing up on this podium making this announcement, I would not have believed you,” said Liveris, citing the “miracle” of the shale boom. “Even though Texas had its great mechanisms to attract business, the cost of energy, the cost of feedstocks, which would have been the price of oil and the price of gas, was pricing the United States out of the market.” He was referring to the recent revolution in the ability to extract natural gas from the country’s vast shale formations using hydraulic fracturing, aka fracking, which has led to a bounty of cheap natural gas, one of Dow’s key raw materials.
As production has surged — to about 25 billion cubic feet in 2012 from 17.28 billion cubic feet in 1985 (based on monthly reports of the U.S. Energy Information Administration, or EIA) — the commodity’s price has plummeted: In one case, it went from more than $13 per million British thermal unit in the summer of 2008 to $3.18 per MMBtu a year later. Since then, its price has ranged from a monthly low of $2.98 to a high of around $4, a real bargain by any measure. That’s as good for manufacturers as it is bad for natural-gas producers and drilling companies, since low prices mean reduced exploration and production.
As a result, the boom in production has created a rare fissure that runs through the heart of corporate America, pitting manufacturers such as Dow Chemical against energy giants such as the Exxon Mobil Corp., which have been seeking to raise the price of natural gas by pushing the government to allow them to export to more countries. That concerns manufacturers, which warn that such an export-heavy policy will result in higher energy prices in the U.S. and hurt manufacturing. The policy proposal has also spawned a rare alliance between manufacturers and environmentalists, who have long argued that fracking diverts water from agricultural uses and pollutes the water supply.
Energy companies have been urging the U.S. Energy Department to let them export their gas to nations with which the U.S. does not have a free trade agreement, or FTA, something only the Energy Department can permit, provided it determines that such ventures are consistent with the “public interest.” As of this date, 17 applications for multibillion-dollar facilities to turn the commodity into liquefied natural gas, or LNG, for export are under review by the Energy Department.
‘Shale Gale’ Through 2040
The so-called “shale gale” is not about to blow over. On Thursday, the Bureau of Economic Geology at the University of Texas at Austin released what it called the most comprehensive study to date on shale gas in one part of Texas. Combined with similar studies, it indicates that the nation’s reserves of shale gas are abundant enough to provide gas at or near its current price through 2040.
In other words, the U.S. is in for nearly three more decades of low natural-gas prices, which concerns drilling contractors such as the Parker Drilling Co. and well-service firms such as Schlumberger Ltd. Low prices mean reduced exploration and production, something Wall Street is well aware of.