The clock is ticking for the United States to begin exporting liquefied natural gas (LNG) before competitors corner the growing global market, according to Donald Raikes, vice president of Dominion Transmission Inc., one of the companies seeking permission to export shale gas.
"We've got the hustle to make sure we don't miss this opportunity," Raikes said last Wednesday at the Hart Energy Marcellus Midstream Conference and Exhibition in Pittsburgh.
Dominion received permission in October to begin exporting LNG from its Cove Point facility in Maryland to countries that have free trade agreements (FTA) with the United States. However, it is still waiting for approval to export to non FTA countries before it can add liquefaction facilities to the current import operation (see NGI, Feb. 6). While acknowledging a report from the U.S. Energy Information Administration projecting that exports could increase gas and electricity bills 3-9% by 2035, Raikes said, "we think that's modest compared to the benefits," which would include not only 7,000 jobs in the short term, 14,600 jobs in the long term and a reduction of the trade deficit between $2.8 billion and $7.1 billion, but also benefits for the industry.
With gas prices below $2/Mcf, "The producers need the incentive to continue to drill. We think providing markets is one of those incentives," he said. Increased drilling would help the manufacturing sector, he said, because Appalachian drilling is shifting to liquids, which "produces the products that manufacturing needs. So we think there's a lot of benefits, even for the manufacturing sector."
While higher gas prices would certainly help producers in liquids-rich regions, recent analysis from Bentek Energy LLC found the wet-gas window of the Marcellus Shale would earn a nearly 20% internal rate of return if gas prices hypothetically hit zero (see related story). Several congressmen have expressed concern that exports would drive up domestic natural gas prices. Rep. Edward Markey (D-MA) recently introduced a bill to bar the export of LNG until 2025, and Sen. Ron Wyden (D-OR) called for a "timeout" on LNG exports and possibly giving some regulatory authority over exports to the states.
Of the 10 North American projects looking to export a combined 13.7 Bcf/d, Raikes expects only 6-7 Bcf/d total to move forward. At those volumes,"You're going to raise the price in the U.S. by a modest amount. You'll have an impact to the world market, but you're not going to close that gap significantly. I don't see it happening from the U.S." Although Raikes declined to "handicap" the chances of any particular project, he said Cove Point's position near the Marcellus and Utica shales gives it not only a supply advantage, but also a cost advantage over the Gulf Coast. "Southpointe has an advantage over Henry Hub in terms of future basis potential," he said (see NGI, Sept. 19, 2011).
Cove Point could ship to Asia for around $3.00/Mcf, around 5-10 cents more expensive than the Gulf Coast, and to Europe for around $1.00/Mcf, around 20-25 cents cheaper than the Gulf Coast, according to Dominion. Dominion expects Asian demand to double by 2030 as Japan shifts from nuclear to LNG, and European demand to also double over the same time frame, as countries seek alternatives to Russian and Norwegian gas supplies.
Although producers are eager to take advantage of increased demand from Europe and Asia, and the huge price differential between the U.S. and overseas markets -- as much as $9-12.00/Mcf between the U.S. and Japan, Raikes said -- but with producers eying shale deposits in Poland and China, Raikes said the United States must move fast to take advantage of the export market. "I think there is a window and that's why we're looking at 20-year contracts," he said.
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