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.

 

New ACEEE Analysis – Why Is Electricity Use No Longer Growing?

The dynamics of electricity use are complicated. But with the ongoing muddlings regarding U.S. energy policy and the looming specter of climate change, it becomes critical that we do understand electricity usage. A new ACEEE (American Council for an Energy-Efficient Economy) analysis by Steven Nadel and Rachel Young proposes that energy efficiency has become an important factor in U.S. electricity use. As noted by the authors:

Prior to the 1970s energy crises, electricity sales in the United States were growing by more than 5% per year, and as recently as the early 1990s, electricity sales were growing more than 2% per year. In the past few years, growth has essentially stopped: retail electricity sales in 2012 were 1.9% lower than sales in 2007, the peak year. Some observers have attributed this stalled growth to the 2008 economic recession, while others have suggested a variety of other factors. In this paper, we undertake several analyses to consider which factors best explain changes in electricity use in recent years. Our hypothesis is that the recession alone cannot explain the recent stagnation in electricity consumption. We instead hypothesize that electricity savings from energy efficiency programs and from other efficiency efforts such as appliance standards and building codes are having a broad national impact on electricity consumption in the United States, possibly contributing significantly to the recent decline in electricity consumption.

The white paper for this analysis is available at: Why Is Electricity Use No Longer Growing

Top Five 2014 Energy/Environmental Priorities of the EU

I thought that it’s instructive for anyone interested in US energy/environmental policy to look at what the EU has on its 2014 agenda. Environmental journalist Sonja van Renssen outlines the top 5 EU energy/environmental issues. The issue priorities are:

  • The biggest issue on the agenda will be the climate and energy package to be unveiled by the European Commission on January 22nd.

  • ETS and how to include emissions from international aviation will also be high on the agenda, with  the European Parliament and the biggest Member States disagreeing on the way forward.

  • Shale gas will be back on the agenda with a long-awaited proposal to be tabled by the European Commission also on January 22nd.

  • In 2014, DG Environment’s priority will be waste and resource efficiency with a ‘circular economy’ package expected to be presented by environment Commissioner Potočnik in spring.

  • The alternative fuel strategy with difficult trialogue negotiations between the Council, European Parliament and Commission lying ahead.

View environmental journalist Sonja van Renssen talk about the energy/environment priorities:


 

A Snafu for US Gas Exports and US Energy Policy

A cost-overrun dispute on the expanded Panama Canal construction could be a big snafu for exporting US liquefied natural gas. Keith Johnson of the Seattle Times notes that:

The project is the expansion of the Panama Canal to allow more and bigger ships to pass through – for instance, the large tankers that carry liquefied natural gas (LNG). Today, only about 6 percent of the global LNG tanker fleet can pass through the canal; after the expansion, about 90 percent of tankers will be able to use it, according to a U.S. government study. The bigger canal would provide a quicker and cheaper way to ship natural gas from the U.S. Gulf Coast and East Coast to markets in Asia that are desperate to secure supplies of natural gas.

But those plans now could be jeopardized because of a dispute over cost overruns – which means America’s gas-export dreams could be in jeopardy, too.

Why is LNG a critical part of any talk about both US and global energy? LNG is produced when natural gas is cooled to approximately -260 F. As summarized by Charles Morris in his Reuters opinion, The Case Against Natural Gas Exports:

Natural gas, the cleanest of the hydrocarbon-based fuels, has long been a primary choice for heating and power generation, as well as an essential raw material, or “feedstock,” for a vast range of chemistry-based products, including every kind of plastic, synthetic cloth and high-tech composite materials.

More importantly to the LNG/natural gas discussion is that since the early 2000’s, US gas production has increased so much that it has largely outstripped any growth in consumption. As observed by Trefis analysts in their 1/3/2014 posting on Key Trends Impacting Natural Gas Prices:

The outlook for U.S. natural gas supply has changed significantly over the past few years, primarily due to the evolution of horizontal drilling and hydraulic fracturing; these techniques have enabled energy companies to tap the huge shale gas reserves in the U.S. at commercially sustainable rates. Widespread use of these techniques started only during the early 2000s in the Barnett shale play in north-central Texas. However, since then, natural gas production in the U.S. has ramped up much faster than the growth in consumption, which has led to severely depressed commodity prices by international standards.

Today, natural gas prices in the U.S. are less than half of that in the Europe and less than one-third of that in the LNG (liquefied natural gas) dependent Asian economies, such as Japan. Those hoping to make investments in oil and gas may want to use the services of a company like EnergyFunders with help from their elite operator teams and access to diverse, highly vetted investments through an easy-to-use online platform. Huge recoverable reserve estimates lead the EIA (authors note: US Energy Information Administration) to believe that shale gas would account for ~50% of the total natural gas production in the U.S. in 2040. Additionally, as the industry’s understanding of the shale resource basins continues to grow, leading to more productive wells, drilling costs are expected to trend lower. We therefore expect natural gas prices in the U.S. to remain depressed by international standards in the medium to long term.

The significant point here is that the price of US produced natural gas is much, much lower in the US than natural gas sold elsewhere. Charles Morris gives a summary of how the spot price of domestic gas is set:

The spot price of gas is set in the New York futures market, based on trades at a major Louisiana collection center called the Henry Hub. During the worst of the glut, the Henry Hub price dropped below $2 per thousand cubic feet (Mcf), well under the cost of production. But now new pipeline construction has broken the worst pipeline bottlenecks, and customer demand is rising, so prices have been hovering near $4 per Mcf for some time.

However, natural gas prices overseas are typically “oil-linked”, which means the price is coupled to the per-unit energy cost of crude oil. Morris further notes that in the global market:

Global oil and gas are not traded in free markets…World oil prices are carefully managed by the Organization of Petroleum Exporting Countries (OPEC) cartel. Knowing a good deal when they see it, the world’s largest gas producers, Russia and Qatar, both of whom produce gas more cheaply than the American shale industry can, keep gas prices resolutely oil-linked. It’s raining money for all of them.

Thus, one of the primary consequences of LNG exports is an expected rise in the domestic price of natural gas. Morris also points to Australia as the real world example of this:

Fortunately, we don’t have to rely on forecasts. There is a real-life experiment underway in Australia. They have been exporting natural gas for some time in modest amounts. But a number of big projects will start coming on line next year, and local gas prices have already tripled – though there is ample supply and there has been little change in production costs. Suppliers apparently “prefer to sell the LNG to the likes of Japan and South Korea who will pay a premium for it.”

Not surprisingly, a huge lobbying confrontation is occurring in Washington. The confrontation centers on the approval process for liquefaction installations (gas needs to be liquefied at cryogenic temperatures which “shrinks the volume by about 600 times, making the resource easier to store and transport through marine shipments”. The approval process involves both the US Department of Energy and the Federal Energy Regulatory Commission. According to the American Petroleum Institute:

As of October 1, 2013, the U.S. Department of Energy (DOE) had approved only four applications for permits to export liquefied natural gas (LNG) to non-free trade agreement nations. There are currently 21 pending applications, covering 19 facilities where U.S. businesses are seeking to build and operate terminals to process LNG for sales abroad. (A map showing proposed LNG export facilities is on the API website and is linked here.)

Interestingly enough, there is yet another sidelight to US LNG exports as outlined by the Sierra Club in An open letter to Energy Secretary Moniz on natural gas exports:

But the real game-changer for exporting LNG will be if the U.S. completes the free trade agreement called the Trans Pacific Partnership (TPP), which is currently under negotiation with 10 countries across the Pacific Rim. And Japan, the world’s biggest LNG importer, is likely to join the talks in July. The TPP and another pact the U.S. is initiating with the European Union (EU) are likely to require DOE to approve all gas exports, of any amount and without delay, to nations in the agreement. The TPP could be finalized as early as October of this year, and the U.S.-EU trade pact in 2015.

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