D. Dowd Muska


Natural Gas: Explore, Produce, Liquefy, Export

August 16, 2012

What a difference a decade makes.

Ten years ago, big money flowed toward projects to import liquefied natural gas (LNG). It seemed to be smart investing. For decades, U.S. production of natural gas had been stagnant. The “experts” agreed: Much of the fuel Americans use to heat homes -- and increasingly, generate electricity -- would, like oil, need to come from abroad. Domestic wells just weren’t capable of meeting demand, and existing LNG-import infrastructure was skimpy.

Billions were committed, pending siting approvals of course, to prospective LNG facilities. Possibilities dotted the coastline -- San Francisco, San Diego, the Gulf, New Jersey, Long Island Sound, Rhode Island, Maine. “At one point,” Eric Smith of the Tulane Energy Institute told The (New Orleans) Times-Picayune, “there were 44 plants that were proposed to [import LNG]. Then the market didn’t really develop because, in the meantime ... the shale gas phenomenon took off.”

The “fracking” revolution made once-unprofitable deposits worth the effort, and production from shale formations soared. According to federal data, last year, “gross withdrawals” of natural gas totaled 28.6 trillion cubic feet (TCF), up from 23.5 TCF in 2006. That’s a five-year surge of 21.4 percent, despite the housing bust, financial meltdown, and Great Depression Lite.

Heavy supplies sent prices plummeting. While gasoline remains maddeningly expensive, natural-gas bills have drooped by about 70 percent since 2008. The decline has benefitted homeowners and manufacturers. But there’s a problem with the nation’s newfound resource bounty. As Bloomberg Businessweek succinctly explained, “gas is so cheap that it’s no longer profitable to drill.” As a result, many firms are cutting back.

What to do? Reverse the LNG flow -- i.e., sell U.S. natural gas to the world.

Roger Cooper explained the science in a 2011 analysis for the Progressive Policy Institute: “LNG is natural gas that has been cooled to about minus 260 degrees Fahrenheit. At that temperature, natural gas turns into a liquid and has much higher energy density (about 610 times more energy per unit of volume than in its gaseous state).”

The global buying and selling of LNG doesn’t resemble the planet’s petroleum market. It’s neither as old nor as developed, and there are fewer customers. Vendors are scarce as well, and no OPEC-style cartel has been assembled to attempt price-fixing. But demand growth is all but assured, and thus a vibrant, international system of exchange is likely to form. Three factors drive the coming ramp-up of cross-border trade: Asia’s meteoric economic expansion, Europe’s search for new providers, and the crusade against “climate change.”

Korea, Japan, China, and India already purchase a sizable chunk of global LNG, and there’s no reason why they can’t buy from America. European countries, mired in fiscal suicide, regulatory strangulation, and low birthrates, won’t boost their purchases. But the Continent is eager to inject competition into its market, which is currently dominated by Norway and Russia. And with fewer carbon emissions than coal, natural-gas power plants are viewed as tools to avert “global warming.” (Eco-loons’ absurdly unattainable fantasies about wind and solar help expand sales, too, since the hydrocarbon is needed to back up “clean” energy’s unreliable supply.)

If the world wants to buy, we’ve got plenty of gas to sell. The latest annual assessment by federal energy bureaucrats increased U.S. “proved reserves” by 11.9 percent to 317.6 TCF, “the twelfth consecutive annual increase, and the first year … proved reserves for natural gas surpassed 300 TCF.” If history is a guide, there’s far more of the stuff waiting to be tapped by new exploration and drilling technologies.

LNG-import facilities are shifting into export mode, and several companies are planning brand-new outbound terminals. Alaska has essentially abandoned its long-sought gas pipeline through Canada to the Lower 48. The state is considering the creation of a substantial LNG capability.

The only thing standing in the way of the nation’s budding role as the Saudi Arabia of natural gas: politics. Under pressure from environmental extremists, energy-security simpletons, and gas-consuming industries, the White House has hesitated to approve LNG applications. It is “studying” the economic impact of exports.

It’s a foolhardy, and costly, delay. Even if the administration’s foot-dragging weren’t a free-trade atrocity, immeasurably vast resources and historically low prices ensure that selling natural gas to foreigners poses little threat to consumers at home. U.S.-origin coal, enriched uranium, and refined petroleum products are exported. Shouldn’t those sales be blocked, too, if natural gas is a “strategic asset” to be caged?

It’s time to let the shale windfall launch a thousand LNG tankers.

D. Dowd Muska (www.dowdmuska.com) writes about government, economics, and technology. Follow him on Twitter @dowdmuska.

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