Spurred by huge natural-gas discoveries in the U.S., two companies are developing terminals along the Gulf Coast to export gas to Asia and, possibly, the Middle East.
If the plans go forward, the U.S. could become a major energy exporter, putting a dent in the U.S. trade deficit. While the U.S. is still the world's largest importer of energy, mostly crude oil, it has also emerged in the past year as a growing exporter of coal, diesel and other fuels.
But some individuals and groups argue that the new facilities to export gas aren't in the U.S.'s interest and don't make economic sense.
Freeport LNG Development LP, working with the Australian financial firm Macquarie Group Ltd. (MQG.AU, MQBKY), expects to receive its first federal export permits in the next few weeks. The company, which already has a terminal south of Houston that it uses to import liquefied natural gas, plans to add equipment that will allow it to export gas as well.
Houston-based Cheniere Energy Inc. (LNG), which has an import terminal in Louisiana, has already received some of the permits it will need to enter into long-term gas export contracts. It, too, would need to add new equipment that would cost several billion dollars.
The companies hope to sell low-priced U.S. gas to overseas markets where contracts for natural gas are linked to much more expensive crude oil.
Major gas producers, including Chesapeake Energy Corp. (CHK) and EnCana Corp. (ECA, ECA.T), are enthusiastic about the idea. It would allow them to produce more gas from their new shale fields without further flooding the glutted U.S. market.
But large industrial consumers of gas are concerned that granting 20-year export licenses could drive up natural-gas prices and make U.S. companies that use the gas less competitive.
"There needs to be a consideration of the American public first," said Paul Cicio, executive director of the Industrial Energy Consumers of America, a Washington trade group. He plans to begin lobbying Congress against allowing exports in the next few weeks.
Proponents respond that exporting gas will create jobs. "There will be more people in the industry drilling wells and more economic development," said Michael Smith, chief executive of Freeport LNG.
Because the U.S. has been such a major energy importer, it doesn't have a clearly defined export policy--or an overall energy strategy.
Meanwhile, potential buyers "are almost knocking our doors down," said Nick O'Kane, Macquerie's Houston-based global head of energy markets, which is handling sales and marketing for Freeport LNG.
Freeport expects sales to Asia but says there are also potential buyers in the Mideast. Industry experts say Bahrain, Dubai and Kuwait will soon be LNG importers and Saudi Arabia could potentially become an importer as well. Cheniere has already signed up power generators in China, Spain and France that are interested in buying U.S. gas.
Combined, the two proposed Gulf Coast terminals could export 3.4 billion cubic feet of gas daily aboard tankers, about 5% of current U.S. consumption. Overseas companies are interested because U.S. gas is now one of the cheapest energy sources available. It costs $4.58 to buy a million British thermal units of gas in Louisiana. To get the same amount of BTUs from crude oil in Asia costs more than $17.
The emergence of the massive amount of gas in the U.S. "is a transformative development" that markets, policy makers and industry are still coming to grips with, said Daniel Yergin, chairman of IHS CERA, an industry consultant.
"Up until 2007 and 2008, the assumption was that the U.S. was going to be a major importer of LNG and we would be integrated into the global market as a buyer," he said. "It never occurred to anyone we may be integrated into it as a seller."
For years, the U.S. has imported huge volumes of gas from Canada. But now that has started to decline. Apache Corp. (APA) last month applied for a Canadian export license and plans to build an export terminal in British Columbia.
Not all gas producers believe the Gulf Coast terminals make sense. Exxon Mobil Corp. (XOM), the largest U.S. gas producer, spent about $2 billion on an import terminal in Louisiana that now sits largely idle.
Mark Albers, an Exxon senior vice president, said that adding export facilities there "is not an investment that we would make" because the company doesn't believe U.S. gas prices will remain inexpensive relative to the rest of the world for long enough to justify the construction costs.
Charif Souki, chairman of Cheniere, said that exporting gas makes abundant sense and fits with President Barack Obama's push to double U.S. exports over the next five years. "We need jobs and foreign currency, and we need to reduce the trade deficit," Mr. Souki said. "It is a very hard argument to say we shouldn't do this."
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