There's more than one way to rescue the U.S. balance of payments deficit and Oklahoma's own Aubrey McClendon, CEO of Chesapeake Energy, may have hit on it with his idea to export increasingly abundant North American natural gas, shipping it over the oceans in liquid form.
For one thing, you can get more for it in foreign markets than you can here...like twice the price, McClendon pointed out during Chesapeake's earnings conference call Friday morning. With the industry now finding more natural gas all across the U.S. than anyone ever dreamed, "we will look at investing in LNG [liquefied natural gas] export facilities."
"We make a great widget here, and it's valued at 'x' here and '2x' around the world, we have to figure out a way to get it on a boat with linkage to world prices...We are studying that right now. We have to have linkage for U.S. gas to world markets. And we're dedicated to achieving that linkage."
McClendon said he couldn't reveal too many details about Chesapeake's involvement in LNG export plans, and he offered no time line as to when they might be possible. There also is the other liquid form of natural gas, compressed natural gas (CNG). "With CNG and LNG, really, it creates two huge markets for our industry." The Chesapeake executive, who has been supporting a nationwide campaign promoting natural gas exploration and use, also mentioned the possibility of LNG exports in a speech earlier this year (see NGI, May 5).
One observer questioned whether a liquefaction plant would be located on the Gulf Coast alongside current gasification facilities. If there is indeed a superabundance of U.S. gas supplies it also could mean another meltdown of the LNG import facilities similar to what happened 25 years ago when domestic supplies picked up, prices dropped and two of the four existing import plants were mothballed.
The Japanese have been importing LNG from the only U.S. export liquefaction terminal on the Kenai Peninsula in Alaska since 1969 and some in the state believe additional LNG liquefaction and imports to thirsty Asian markets should be included in Alaska's plans to commercialize its vast North Slope gas reserves (see NGI, May 19).
Proponents of that more than 20-year old North Slope LNG export plan, at one time called the TransAlaska Gas System (TAGS) project sponsored by Yukon Pacific (see NGI, March 30, 1998), have long maintained that prices paid in Asian markets make the project the economic choice over a mega-pipeline to the Lower 48. Roadblocks to LNG exports in the past have come from those who want to keep American resources for Americans, and the fact that there is in place a framework of U.S. and Canadian laws and an international treaty dating back to the 1970s underpinning the pipeline.
In the last few years all across the country technology and higher prices have tapped a wide range of possible shale gas fields that had been overlooked earlier for just those reasons. And the burgeoning North American supply has been turning the tables on prospective imports as the even higher-priced LNG turns to foreign markets. There is no real estimate as to how much gas is contained in the 20-some shale fields which have come into play across the country in the last few years.
There has been a frenzy of shale gas drilling in recent years, and even the majors, shut out politically from many overseas hotspots, have returned to the U.S. and are investing in the new plays. One recent report said there was enough natural gas in unconventional plays to fill U.S. demand at 2007 levels (see related story) for the next 100 years and another projected that the five major U.S. shale plays alone: the Barnett, Haynesville, Fayetteville, Woodford and Marcellus, could produce about 10 Bcf/d by 2010 and to 16.75 Bcf/d by 2012, with a peak of 38.75 Bcf/d around 2027. That projection came in late July from analysts at Friedman, Billings, Ramsey & Co. Inc. (see separate story).
While not everyone agrees, there appears to be a vast unknown out there. The Securities and Exchange Commission only recently changed its rules to allow companies to include all estimated reserves in shale fields and coalbed methane (see NGI, June 30) in their reserves tallies. Previously, those reserves could only be counted if they were already producing.
In his latest Monthly Energy Outlook, analyst Stephen Smith noted that this year "the missing LNG has not been missed. Large year-over-year U.S. gas production gains have now been reported for each of the six months" ending with the latest official data in April. Unofficial "June and July balances imply that U.S. production strength has continued through the summer."
Storage is doing just fine without the LNG imports and the market is beginning "to realize that increased U.S. production has more than replaced the 'missing LNG,' and this could potentially lead to a growing surplus in the fall." Despite the power draw engendered by a hot summer, net U.S. and Canadian LNG imports have been 3 Bcf/d below those of last summer, Smith said, mainly staying below 1 Bcf/d.
The analyst -- who is proprietor of Stephen Smith Energy Associates (www.stephensmithenergy.com) -- has dropped his natural gas price forecast for the fourth quarter from $11.60/MMBtu to $10.15/MMBtu, and his average projected 2008 price from an average of almost $11 to just over $10. Smith sees the 2009 price averaging about $9.75, down nearly a dollar from previous projections.
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