Friday, December 7, 2012

Export or Bust?

The Washington Post blog has a good piece today on the recent DOE report on the possibility of large-scale US exports of natural gas. Cheniere Energy's Sabine Pass Liquefication Project in Lousiana has already been approved for exporting liquified natural gas (LNG) and other projects are pending DOE approval. The pending applications represent 60% of current domestic consumption of natural gas. In other words, this could be a major change to the domestic energy market.

The DOE report argues that under all scenarios exporting LNG will bring net economic benefits to the US. The main winners will be gas producers such as Range, Chesapeake, and Devon. Nuclear plants will also benefit as higher gas prices will make their electricity more competitive. I imagine this means coal would do well too. The losers would be domestic chemical industries that will face higher prices here for their feedstock gas. And, of course, all US natural gas consumers will face higher prices...because supply will drop as producers sell their product for higher prices abroad (currently they can get roughly 5x the money on the Japanese market than on the US market).

But there is another wrinkle noted in the Post blog. The big export might not happen at all. It is very expensive to liquify gas. And the global market is uncertain. For large-scale exports to take off lots of pieces would have to fall in place -- continued low domestic prices (it could be we don't have as much natural gas as most are assuming and there are many growing domestic demands for natural gas that may boost prices here), increased demand from Japan (if it retires all nuclear facilities)....and it is possible that China, India, and E. Europe might add their own shale gas resources to the global market...this would quell demand for US gas. This is all hashed out in a recent Brookings Institution report.

As a friend of mine argues, none of this business is concerned with the poor woman down the street who would like to fry her egg for a penny.

1 comment:

  1. I found an interesting and entertaining comment that I will past below.

    "Ronald Brak • 13 hours ago −
    Hmmm...funny how every second country appears to expect to export huge amounts of gas in the future. Australia apparently expects to massively expand gas exports despite being in the midst of a natural gas consumption slump itself. A considerable amount this slump is due to a modest drive for renewable energy and we expect to sell vast amounts of natural gas to a country that has started a massive drive for renewable energy and has a massive potential for natural gas production itself. I don't know how much luck we'll have with that, and I don't know how much luck the US will have either. Unless China discovers a way to turn natural gas into breakfast cereal I think Austmerica might be in for some disapointment."

    When it comes to exports and shale gas economy I'm betting on Deborah Rogers. She has been right every time.