Shale Daily / NGI All News Access

Experts Agree: LNG Exports Should Be 'Driven by Market'

In light of the natural gas supply revolution in the United States, four energy experts told a Senate energy panel Tuesday that they support the export of liquefied natural gas (LNG).

Appearing before the Senate Energy and Natural Resources Committee, Ambassador Richard H. Jones, who is deputy executive director of the International Energy Agency, signaled that he backed the export of LNG and said it should be "driven by the market." Two other experts on the panel, Roger Diwan, head of financial advisory at PFC Energy, and Jim Burkhard, managing director of Cambridge Energy Research Associates, agreed.

However, Howard Gruenspecht, acting administrator of the Energy Information Administration (EIA), declined to comment, saying the agency "does not take policy positions." The committee hearing was called to review the EIA's Annual Energy Outlook 2012 (AEO2012).

Domestic gas prices have hit a 10-year low because of the vast amount of relatively low-cost shale gas being produced and the warm weather, Burkhard said. But "even if gas prices remain low, production will continue from these wells because the higher price that oil fetches in the market can offset the lower price of gas."

Shale basins that have the most liquids will continue to be attractive to producers despite anemic gas prices, the energy experts said. However, pipeline infrastructure, designed to transport gas from the Gulf Coast region to the Northeast, still needs to "catch-up" with the shale revival, they noted.

Given the current profitability of liquids-prone drilling, Diwan told the committee, "We will see a continuing development of liquid plays. And I think in the next two to five years...we'll have three or four new plays emerging just because of that price."

As a result of low gas prices, "what we're seeing is more companies shift to liquids or producing oil," said Sen. Rob Portman (D-OH). He asked the energy experts whether there were more wet gas resources in the Utica Shale in Ohio, which would encourage more development there, than in the Marcellus Shale. Diwan agreed that there was more liquids in the Utica, which has been reported by several producers.

One of the biggest challenges facing the shale market in the Northeast is the pipeline infrastructure, said Burkhard. "The U.S. pipeline system wasn't set up to shift gas away from" from the Utica and Marcellus shale basins in Ohio and Pennsylvania. "It was [designed to ship] gas to those areas. So the challenge now is getting the right pipelines to the right places so that gas and liquids can be economically developed," he said.

"What we're seeing is this great revival on the...supply side," but the infrastructure system "has yet to catch up."

In the AEO2012 released last week, the EIA estimated Marcellus Shale resources at 141Tcf, which was well below a 2011 resource estimate of 410 Tcf, but above the mean estimate of 84 Tcf published by the U.S. Geological Survey (USGS) last summer (see Daily GPI, Jan. 24).

In making its downward adjustment in the Marcellus resources, the EIA deferred to the USGS on geology, said Gruenspecht. However the EIA estimate, which took into consideration well productivity, was still higher, he noted. The discrepancy between the federal agencies' resource estimates will not be resolved soon. "I think this is an issue that we will face for a long time," he said.

Nevertheless the United States has a "bright future" for natural gas for a long time, Gruenspecht told the Senate panel. The agency projects that U.S. gas production will exceed consumption early in the next decade.

Comments powered by Disqus