U.S. natural gas exports poised for takeoff despite debate

The export gas rush is on. From the Pacific Northwest to the Mid-Atlantic to the Gulf states, companies are moving forward with plans to export U.S. natural gas despite controversy over the impact on prices and pollution.

Russia's incursion into Crimea has intensified pressure on the Obama administration to expedite approvals for export facilities. Some members of Congress say U.S. exports can weaken Russia's hold on the Ukraine, which depends heavily on Russia for natural gas. Others doubt they'd give the U.S. geopolitical leverage — at least not anytime soon.

The export quandary is relatively new for the USA. Until only a few years ago, the country was importing a sizable share of natural gas, and companies were seeking to build import — not export — terminals.

Fracking, or hydraulic fracturing, changed all that. By breaking apart shale with powerful blasts of chemical-laced water, this drilling method extracted enough natural gas from rock to set off a record boom in U.S. production. The USA now produces more natural gas than any other country. Yet Russia, the second largest producer, is the world's top net exporter, followed by Qatar and Norway.

The reason: U.S. law requires export facilities get a "public interest" approval from the Department of Energy if their buyers are located in countries that haven't signed a Free Trade Agreement with the United States. Non-FTA countries include all European nations as well as China, India and Japan.

Currently, some U.S. natural gas is exported to Canada and Mexico via pipeline, but the proposed facilities would export to Asia and other continents. These billion-dollar liquefaction terminals condense natural gas into a liquid — or LNG — by cooling it to about 260 degrees below zero before shipping it via tankers.

Thirty-one facilities have applied for DOE permission. Since May 2011, six of them — two in Cameron Parish, La., one in Lake Charles, La., one in Texas, one in Maryland and one in Oregon — have received conditional approval. Only one, Cheniere Energy's Sabine Pass Liquefaction terminal in Cameron Parish, has received the final construction go-ahead from the Federal Energy Regulatory Commission. It's slated to begin operation next year.

Like Sabine Pass, several of the approved facilities would be added to existing import terminals. If all six are built, they'd be allowed to export up to 9.3 billion cubic feet of natural gas a day, and if the other 25 proposed projects are also constructed, the total could reach 36 Bcf a day. The USA now produces and consumes about 70 Bcf daily, according to DOE's Energy Information Administration.

"We have crossed a line into an era when we could be massively exporting America's natural gas, sending the jobs and consumer benefits abroad along with the fuel," Sen. Edward Markey, D-Mass., said last month, predicting higher domestic prices. "The level of exports approved is now more than every single American home consumes."

"The propane crisis this winter was a cautionary tale of going too far too fast," says Trent Duffy, spokesman of America's Energy Advantage, a group of manufacturers including Dow Chemical that oppose LNG exports to non-FTA countries. He notes propane prices soared, because companies were exporting a record amount at a time when a cold winter increased U.S. demand.

Duffy says LNG exports could hike manufacturing costs and hurt the U.S. economy. Assuming a large volume of exports, a December 2013 Dow-funded study by Charles Rivers Associates predicts domestic natural gas prices could almost triple by 2030.

No way, says W. David Montgomery, senior vice president of NERA Economic Consulting and author of a DOE-commissioned 2012 report on the impact of LNG exports. He says while domestic prices might rise, exports would deliver net economic gains for the U.S.

"The (price) impact ranged from absolutely nothing to, at the very highest, $1 increase (per million Btu) by 2038," he says about his latest analysis, conducted for Cheniere Energy and released in February. He says the average U.S. household used 40 million Btu last year, so the maximum increase would be about $40.

He expects the domestic price increase would likely be much lower (36 cents by 2038) but American consumers would benefit overall, because LNG exports would boost the value of the U.S. dollar and thus reduce the cost of U.S. imports.

Montgomery says the export market is largely self-regulating. If the price of natural gas rises in the USA, he says the extra costs of liquefaction and shipping will make exports too expensive for foreign buyers. He says high export volumes are only likely if U.S. prices are lower than they are today.

"This is risky business, because if environmental pressures put serious limits on fracking and raise the price of producing natural gas, we might not be exporting any," Montgomery says. "The market does a better job at figuring out the sweet spot than any government agency."

Proponents of U.S. gas exports, including GOP House Speaker John Boehner of Ohio, say they can be wielded as a geopolitical tool. They argue that even U.S. exports to Asia free up global supply that can go to Europe and put pressure on Russia, which is trying to lure customers into signing its own 20-year deals.

"The U.S. can have an immediate impact" by expediting current applications and showing that it's committed to future exports, says Bill Cooper, president of the Center for Liquefied Natural Gas, an industry group. He says this could hurt Russia's negotiating hand.

Last month in Brussels, President Obama told the European Union that it cannot rely on the USA alone to reduce its dependence on Russian energy. He urged it to conclude a new trans-Atlantic trade pact, saying that would make it easier for Washington to license more gas exports. DOE gives almost automatic approval for exports to countries that have signed free trade deals with the USA.

Hastening U.S. gas exports won't have "much immediate effect," Edward Chow, an energy expert at the Center for Strategic and International Studies, told a Senate panel last month. He said they could eventually reduce the significance of Russian exports — now equal to twice the capacity of the six approved U.S. facilities — "but none of this will happen quickly."

Chow notes that U.S. companies — not the federal government — pick LNG buyers, most of which are already under contract in Asia where prices are highest. He says some of those exports could be redirected if Europe were willing to pay equally high prices, but even so, Ukraine has no LNG import terminal.

"The Asian buyers are tremendously interested," says Don Althoff, president and CEO of Calgary-based Veresen, which got conditional approval last month to build a $5.3 billion Jordan Cove LNG export terminal in Coos Bay, Ore. Althoff says the project, assuming it gets the green light for construction, won't likely become operational until early 2019.

Althoff said LNG export backers who are using the Crimea crisis to make their case are "a bit opportunistic," because it can take four years to plan and build a terminal. He says the crisis may help quicken approvals, but the LNG export market is strong enough on its own.

Dominion Cove Point, which received conditional DOE approval in September 2013 for a liquefaction terminal near the Chesapeake Bay, has 20-year contracts to sell all its LNG exports to two customers — GAIL of India, a state-owned gas distribution company, and Sumitomo of Japan.

The $3.8 billion project, about 55 miles southeast of the nation's capital, is waiting for final state and FERC approvals to begin construction, which Dominion's Mike Frederick expects will begin in late summer. If that timetable holds, he says the facility could become operational in late 2017.

Yet it faces increasingly vocal opposition. The "Stop Cove Point" coalition says the facility will not only raise energy costs but also increase smog pollution and global carbon emissions. A group of health, religious, environmental and business leaders, the coalition has delivered 38,000 public comments to the Maryland Public Service Commission, which has to rule on Dominion's application by the end of May.

"These are exactly the projects we should not build if we're serious about climate change," says Jamie Henn, spokesman for 350.org, a grass-roots climate action group. He says fracking for natural gas releases methane, a more potent heat-trapping greenhouse gas than carbon dioxide, and the additional steps needed for export — liquefying and shipping — use a lot of energy that exacerbates global warming.

Henn says LNG exports are another way to expand a fossil fuel industry that needs to be scaled back in order to avoid cataclysmic climate effects.

"We're truly a middleman," says Frederick, noting his facility liquefies and loads the gas but does not produce it. He says it will create 750 construction jobs and add $22 million annually to the local economy beginning in 2018. He says his facility won't cause an increase in fracking because "the production is going to go somewhere."