U.S. Gas Exports Clear Hurdle

  • Date: 06/12/12
  • Keith Johnson and Tennille Tracey, The Wall Street Journal

Shipping some of the newly abundant U.S. natural gas overseas would benefit the nation’s economy more than keeping it all at home, according to a long-awaited government study that has the potential to reshape the global energy market.

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The endorsement could turn the tide in a politically sensitive issue. Gas producers are eager to export more, while big consumers including manufacturers and chemical companies are leery that exports could raise domestic prices. Environmental groups, meanwhile, fear that allowing exports would encourage more natural-gas production.

The administration had said the study would be central to its decision on approving exports. It analyzed more than a dozen scenarios for U.S. production and exports of natural gas. It found that “across all these scenarios, the U.S. was projected to gain net economic benefits” from liquefying and then exporting natural gas.

The looming prospect of the U.S.’s becoming a major exporter of natural gas underscores how the energy revolution is transforming the nation’s economic prospects. Just a few years ago, many energy companies were planning to build facilities to import liquefied natural gas into the U.S.

But thanks to technological advances, combining hydraulic fracturing and horizontal drilling, the U.S. has in a short time become a gas-producing powerhouse. The glut of cheap gas has helped underpin a revival in manufacturing and helped lower electricity costs for consumers.

Most of the companies seeking permission to liquefy and then ship gas overseas have been awaiting the report. The Department of Energy had said it wouldn’t issue permits for exports to countries lacking a free-trade agreement with the U.S. until the study was done and it could be assured that exports were in the national interest, as required by law.

One export terminal—Sabine Pass Liquefaction LLC in Louisiana—has already received Department of Energy approval. Fifteen other projects, which could export as much as 21.5 billion cubic feet of gas per day, are awaiting approval. That is roughly one-third of total U.S. production, but analysts doubt more than a handful of the terminals will be built because they cost some $5 billion or more apiece.

One potential exporter is the largest U.S. gas producer, Exxon Mobil Corp. which is teaming up with Qatar Petroleum for a facility near Port Arthur, Texas. The partners are proposing to invest some $10 billion to turn a gas-import terminal into one that can export. A spokesman for Exxon Mobil said, “LNG exports will help increase economic growth, create jobs and add to government tax revenues.”

Already, other nations including Australia are stepping up their capacity to export natural gas. That opens the prospect that natural gas could become more of a globally traded commodity like crude oil. Currently, the difficulty of shipping natural gas means that prices in Asia and Europe are several times the U.S. price.

The rise of the natural-gas trade has geopolitical consequences. Pipelines from Russia now supply a big chunk of the natural gas to Western Europe, but alternative sources could undercut Moscow’s sway. In Asia, the U.S. can bolster allies such as Japan and South Korea by helping lessen their dependence on gas imports from unstable regions.

The Energy Information Administration estimated Wednesday that the U.S. could export about four billion cubic feet per day by 2027, or about 6.6% of the country’s current natural-gas consumption.

The report was expected earlier this year, but the Department of Energy delayed it twice. For President Barack Obama, gas exports could play into his embrace of rising U.S. production and help achieve foreign-policy goals. But there is also political risk because of criticism from environmental groups, which have been among his strongest supporters.

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Workers drill for natural gas in Pennsylvania’s Marcellus Shale.

The Department of Energy said on Wednesday that it would review the economic impact study as well as public comments “prior to making final determinations” on approving LNG-export applications. It said it would study each application on a case-by-case basis.

Exports remain a contentious issue in Washington because of the potential impact on big domestic users. Unlike in some other parts of the world, U.S. natural-gas prices aren’t linked to oil prices, which have been generally high in recent years and stood Wednesday near $88 a barrel in the U.S.

“Let’s not let the oil price bleed back into the domestic gas market,” said Andrew Liveris, chief executive of Dow Chemical Co., this week. Dow is one of the largest consumers of U.S. natural gas and is investing heavily to build new processing facilities on the Gulf Coast. Dow executives say that natural gas brings much bigger benefits as a feedstock for the manufacturing and petrochemical industries than as an export.

“Maybe we should be careful, permit a few [export facilities], see how it goes,” Mr. Liveris said before the release of the study.

Dow Chemical Vice President George Biltz said Wednesday the study failed to account for U.S. manufacturers’ growing use of natural gas. “That’s just not an honest assessment,” he said.

Environmentalists fear that allowing exports will encourage more natural-gas production, which many oppose because they fear that the hydraulic fracturing used to extract natural gas could contaminate groundwater.

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