The United States could in a few years become part of a North American LNG export hub serving the world market, experts at the LDC Gas Forum Southeast in Atlanta said.
The subject of LNG exports has been controversial in the country, drawing criticism from gas consumers who are enjoying record low prices and environmentalists who worry that the increased demand will accelerate environmental effects they link to hydraulic fracturing. Rep. Ed Markey, D-Mass., issued a report to bolster these arguments against LNG exports.
Bruce McKay, managing director of federal affairs for Dominion Resources Inc., said there are strong economic and geopolitical arguments in favor of exports. Dominion, which has seen LNG imports at its Chesapeake Bay terminal in Maryland drop from a high of almost 80 tanker loads in 2005 to about five in 2011 and none so far in 2012, plans to issue "shortly" a prefiling request for FERC review of proposed liquefaction facilities at the terminal, McKay said.
As currently conceived, he said, the export project would be a tolling facility with long-term capacity contracts with one to three customers, and it would use one or two liquefaction trains to convert about 750 million standard cubic feet of gas per day into LNG for export. McKay said Energy Secretary Steven Chu put it best when he said the development and export of gas could "create a lot of wealth in the United States."
Bill Cooper, president of the LNG trade association Center for Liquefied Natural Gas and an attorney by background, concluded that FERC made a well-reasoned decision in approving the Cheniere Energy Inc. liquefaction project at the Sabine Pass LNG receiving terminal in Louisiana. He praised FERC for not getting its review tangled up in economic impacts and other issues more properly reserved for the U.S. Department of Energy.
FERC regulates the facilities and the DOE regulates the commodity, Cooper said. "And they don't cross over."
By itself, McKay said, the Cove Point export project would support 14,600 permanent oil and gas industry jobs when it goes into operation. It would reduce the U.S. trade imbalance with other countries by about $2.8 billion to $7.1 billion per year and add almost $1 billion a year to federal, state and local governments in taxes and revenues. McKay observed that the U.S. exports many different commodities - doubling coal exports from less than 4 million metric tons per month in 2009 to more than 8 million in January 2012 - and should not select LNG for an embargo.
With so much supply, North America could become a hub for LNG, said Jeff Welch, senior vice president for business development at EDF Trading North America LLC. North America offers gas supply diversity, volume flexibility, portfolio flexibility, price diversity and "very significant price arbitrage" opportunities between it and markets in other parts of the world, he said.
McKay gave another advantage for North America as an LNG trading center: political stability. He noted that countries such as Japan are not shopping for supply on price alone.
McKay, like representatives of other LNG export developers, warned that the U.S. has only a few years to get export infrastructure in place and stake out a piece of the global LNG market. However, Welch was not as concerned that shale production in China and other parts of the world might soon end the U.S. export party. He said the U.S. "has a multi-decade head start" in shale production and China must tend to basic infrastructure needs like roads and pipelines before it can start developing its own shale gas resources.
Copyright 2012 SNL Financial LC. All Rights Reserved.
(Originally published April 25, 2012, in SNL Daily Gas Report.)