February Editor’s column
Exporting North America’s Natural Gas
By Ron Waszczak, HGS Bulletin Editor
During very recent months, several headlines in the business news grabbed my attention, and further reading the associated columns left me astounded. Here are a few of the headlines that impressed and surprised me: “Pipeline may reverse flow to move shale gas”. “Marcellus shale gas may soon be exported – to California”. “Pipeline reversals seen to result in a single price for natural gas”. Moreover, there were these headlines regarding liquefied natural gas (LNG) that confounded me: “LNG exports from northern America: When, not if” and “LNG terminal plans reverse from importing to exporting gas”. The later two stunning headlines challenged a long accepted tenet of our time, i.e. the United States meets energy needs through imports. Indeed, it has long been a fact that over 60% of the oil utilized and consumed in the U.S. is imported from other countries. But now, are the upstream natural gas industry and its downstream de-gas and re-gas partners beginning to lead the U.S. out of the energy dependence paradigm?
The emergence of plans to export LNG from North America follows the dramatic rise in North America's proven gas reserves over the past few years. Current estimates for recoverable gas in the United States exceed 2.5 quadrillion cubic feet. This is more than double the estimate of 1.1 quadrillion cubic feet in 1995. Recent shale gas discoveries in British Columbia have pushed estimates for recoverable reserves in Canada to more than 1.0 quadrillion cubic feet.
These events contributed to that change: bringing on-line the production of huge newly-discovered reserves of unconventional natural gas; technological advancements in production, particularly directional drilling and hydraulic fracking; and commercialization of compression and transportation methods that allow LNG to be moved around the world oceans.
Additionally, rapidly growing gas reserves have been met with slow and slowing demand for gas. Coincident with that circumstance, underutilized LNG infrastructure — built to manage once-predicted LNG imports which never largely materialized — became assets looking for new uses, e.g. LNG exports. Owners of stranded gas and stranded infrastructure are together now searching for fertile ground in their mutual quest to develop LNG import markets overseas.
Existing U.S. LNG terminals are at Sabine, Lake Charles and Hackberry, LA; Sabine Pass and Freeport, TX; Pascagoula, MS; the Gulf of Mexico; offshore Boston, MA; Cove Point, MD; and Elba Island, GA. Existing Canada LNG terminals are at Saint John, NB and Rivière-du-Loup and Quebec City, QC. Existing Mexico LNG terminals are at North Altamira, Tamulipas, and Baja California with a terminal at Manzanillo slated for construction. Other terminals slated for construction are at Corpus Christi, Freeport and Port Lavaca, TX; offshore Florida; Logan Township, NJ, Baltimore, MD, Long Island Sound, NY and Coos Bay, OR; and Prince Rupert Island and along British Columbia's West Coast.
A global market is emerging for North American LNG exports to overseas destinations where buyers are seeking alternatives to oil and coal. It is predicted that demand from Asia and Europe will drive most worldwide natural gas export flows. Albeit, LNG exports will need to complete with other gas suppliers which include intra-continental pipeline gas. Ultimately, global and regional gas pricing will become the dominant force behind LNG bidirectional cargo movements.
While these changes that could lead the U.S. out of the energy dependence paradigm came seemingly rapidly, I am not certain that thoughtful due-diligence has been devoted to some critical questions. Questions that I hope strategy and policy makers have explored are: What are the implications for U.S. energy security of exporting North America’s natural gas? Are there sound land and sea security and safety standards for LNG terminals and ships? Will exports affect our national and regional economies? Perhaps most importantly: Have our federal, state and municipal governments created incentives for new domestic uses and increased domestic demand for natural gas? Why not use North America’s clean-burning natural gas to fuel North America’s power-generation plants, trains, trucks, buses, and automobiles?