U.S. to Release LNG Export Review in 2012
Proposals for Export Terminals May Have Answers Soon
Several years ago, the future of domestic energy in the United States was altered when technology evolved to efficiently and economically extract natural gas from unconventional reserves.
Until then, the natural gas trapped in shale rock had been too difficult to tap. But when hydraulic fracturing was combined with horizontal drilling, the nation suddenly had access to previously unrecoverable reserves.
Since then, natural gas has been flowing freely from the Bakken shale in North Dakota, the Eagle Ford shale in Texas, the Marcellus shale in Pennsylvania, and other deposits across the country like the Barnett and Haynesville shales.
Monthly, production from these locations has been increasing and setting records. But last year's unseasonably warm winter combined with this year's record-hot summer weighed on demand – and prices.
The price of natural gas fell below $2 per million British thermal units (mmBtu) in April. Some companies began to pare back on the number of wells they were drilling, while others sold assets. Companies like Chesapeake Energy (NYSE: CHK) switched their focus from natural gas to oil.
And others began to look abroad.
Demand for cheap liquefied natural gas (LNG) is high in European and Asian countries, where the resource can cost between $10 and $15 per mmBtu. Exporting the resource from the U.S. would not only satisfy nations abroad – it would also drive up demand.
Only one natural gas export terminal has been approved so far. Cheniere Energy (NYSE: LNG) has been approved to turn its Sabine Pass LNG import facility in Louisiana into an export terminal.
But a number of others have been proposed. Cheniere also wants to construct an export terminal in Corpus Christi, Texas.
Dominion (NYSE: D) is looking to export LNG from Cove Point, Maryland. Southern Union (NYSE: SUG) is interested in a facility at Lake Charles, Louisiana. And Sempra (NYSE: SRE) has applied for a facility in Hackberry, Louisiana.
The full list of terminals proposed to the FERC can be found here.
The U.S. Department of Energy has put off an examination of the proposals twice so far, and officials have come under heavy criticism for the delay.
Today, however, deputy assistant secretary Chris Smith announced that the Energy Department would not delay any longer, and an analysis of the proposals would be published by the end of this year.
According to Smith, the Department was concerned about moving ahead too quickly with the decision.
From the Wall Street Journal:
“We want to measure twice and cut once,” he said at the North America Gas Summit in Washington, D.C.
The analysis, however, is not the final decision; it's simply a glorified pros-and-cons list – a compilation and evaluation of the data, how the nation would benefit, and where the harm might be.
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Smith failed to indicate when the proposals would be definitively approved or denied.
Demand for natural gas has started to pick back up now as the weather gets colder, and natural gas futures are hovering around $3.74 per mmBtu. But prices are still expected to remain relatively low.
Exports, on the other hand, would likely drive prices up even further – one of the main reasons officials are reluctant to approve the numerous export facilities.
But the companies would stand to benefit from higher prices, and higher demand could lead to more output. After all, flaring has become a common practice – burning off some gas at the site to slow down production.
And company leaders, like Octavio Simoes of Sempra, are concerned that the delays will cause the U.S. to lose these potential customers, like Japan, whose purchases will face even more delays due to the lack of a free-trade agreement with the U.S.
But the analysis will likely provide some indication of the Energy Department's sentiment. By the end of the year, it may not be too difficult to guess whether or not U.S. companies will be permitted to export U.S. LNG.
That's all for now,
Energy & Capital's modern energy guru, Brianna digs deep into the industry with accurate and insightful updates into the biggest energy companies and events. She stays up to date with the latest market moves and industry finds, bringing readers a unique view of current energy trends. For more on Brianna, see her editor's page.