Ukraine Crisis Fueling Natural Gas Exports Debate

The Ukraine crisis is adding fuel to the natural gas export debate that’s been brewing in Congress. Sen. John Barrasso, R-WY, is proposing that an amendment to lift restrictions on U.S. natural-gas exports be added to the Senate aid package for Ukraine. On March 5, Sen. Mark Udall, D-CO, a senior member of the U.S. Senate Energy and Natural Resources Committee, introduced legislation to increase the ability of energy firms to export liquefied natural gas. Sen. Udall preceded the legislation’s introduction by noting that:

The situation in Ukraine shows the urgent need for Colorado and the nation to export more natural gas. When foreign powers like Russia are able to exploit their monopoly on energy exports to coerce their neighbors, it weakens the international community’s ability to promote stability and avert conflicts.

Currently, under the Natural Gas Act (1938), exports of natural gas are generally limited to countries that have a free-trade deal with the U.S.. Sen. Udall’s recently introduced legislation, known as “The American Job Creation and Strategic Alliances LNG Act” would modify a part of the Natural Gas Act to allow natural gas exports to World Trade Organization member countries. Of course, under this provision, Ukraine and neighboring countries would then be eligible to receive exported natural gas.

However, many energy experts say that the real problem with natural gas exports is not the governmental red-tape involved with actually exporting it, but the dearth of infrastructure to liquefy the natural gas for overseas shipment. There are now six applications for LNG (liquid natural gas) export facilities that have been approved, but only one of them is under construction. This is Cheniere’s $10 billion Sabine Pass terminal in Cameron Parish, Louisiana, which just recently received its required approvals from the U.S. Department of Energy and U.S. Federal Energy Regulatory Commission as well as from any state regulators that are needed. LNG shipments from this facility are scheduled to start in late 2015. As approval processes for LNG export terminals are lengthy, it is unlikely that the other applied-for LNG export terminals would be operational soon. As Energy Secretary Ernest Moniz said earlier this week during a major energy conference in Houston:

After the Cheniere license, the most optimistic view for the next set of LNG shipments to leave the U.S. isn’t until 2017 or 2018, according to Moniz. “So, there’s still quite a ways to go,” he says.

Aside from the natural gas export ban and the lack of infrastructure, the exporting of natural gas also begs the question of what will its price be once it is on the global market? The price of U.S. produced natural gas is much, much lower in the U.S. than natural gas sold elsewhere. An earlier Geopostings blog detailed how the spot price of domestic gas is set and how natural gas prices overseas are typically “oil-linked”, which means the price is coupled to the per-unit energy cost of crude oil. Suffice it to say that it is a real possibility that natural gas prices for domestic consumption will rise, and could rise precipitously. It is also a real possibility that as a market-driven commodity, U.S. produced natural gas will be exported not to Europe, but to the Asian market, where it will command a higher price.

As I said before in my earlier Geopostings blog on natural gas exporting/pricing:

All in all, 2014 is already shaping up as a very interesting year for US natural gas, LNG exports, and US energy policy.