Boosting U.S. producers’ plans to export shale gas to the energy-thirsty nations of Asia, the U.S. Department of Energy (DOE) last month approved a plan by Dominion Resources to build a natural gas terminal at Cove Point, on the Chesapeake Bay in Maryland, to export up to .77 billion cubic feet a day (bcfd) to Japan and India. Estimated to cost $3.8 billion to build, the facility could start shipping gas in 2017, the company said.
Cove Point is the fourth U.S. facility to receive federal approval to export liquefied natural gas (LNG) to countries that do not have a free-trade agreement (FTA) with the United States. According to the Oil & Gas Journal, there are 19 other non-FTA export applications under review at the DOE.
The approval “is good news on many fronts,” Dominion CEO Thomas Farrell said in a statement, “including the thousands of jobs that will be created, the boost in government revenues that will result, and the support it provides to allied nations.”
Good For Everyone
Indeed, the natural gas industry sees the coming boom in exports to Asia as a windfall that will shore up the U.S. trade deficit, fuel a long economic boom, usher in a new era of energy independence and prosperity, and, who knows, maybe even end the conflict in the Middle East. Earlier this month, the Energy Information Administration (EIA) announced that it expects the United States to be the world’s leading exporter of petroleum products, including oil and natural gas, in 2013, surpassing Saudi Arabia and Russia.
While that’s good news for the U.S. energy sector and for the U.S. economy in general, the brilliant scenarios being painted by natural gas proponents obscure some less comfortable realities. For one thing, the Asian premium – the elevated price paid by countries in Asia Pacific, particularly Japan and South Korea, the world’s two largest LNG importers – is unlikely to last. “We do not want to pay the so-called ‘Asian premium,’ and the shale gas revolution will play an important role in narrowing that gap,” Jang Seok-hyo, CEO of Korea Gas Corp., told a Washington Post reporter at the 22nd World Energy Congress last week, in Daegu, South Korea.
Technology advances are likely to reduce the cost of liquefying and transporting natural gas, and as more gas gets shipped overseas, eventually, a globalized market of the sort that exists today for crude oil will emerge, normalizing prices across regions and eliminating the sharp cost advantage enjoyed today by U.S. producers. Being “the Saudi Arabia of natural gas” is great, but you can’t expect importers to pay a 400% markup forever.
At the same time, the elephant in the Asian gas market, China, is set to become a major producer of natural gas itself. According to the EIA, China is second only to the United States in technically recoverable natural gas, and while much of that gas is trapped in remote geological formations even trickier to tap than the U.S. shale fields, the Chinese government is clearly determined to recover it. In August, officials at PetroChina, the state oil and gas company, said they will accelerate domestic production of natural gas, largely by tapping abundant shale reserves in the interior. In the first 6 months of this year natural gas production rose by 8.1% over the same period in 2012, and PetroChina President Wang Dongjin said unconventional gas production will reach 2.7 bcfd by 2015, according to Platts. Aided by foreign oil majors, China could even become a net exporter of LNG. Chevron is expected to begin production from the massive Chuandongbei field, in Sichuan Province, next year, and expects to produce some 3 trillion cubic feet there duringthe next 20 years.
China’s natural gas industry is still likely to trail U.S. production. But profits from the expected gas-export boom probably shouldn’t be booked just yet.
Tags: Exports & Trade, Finance & Investing, Fossil Fuels, Natural Gas, Policy & Regulation
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