Liquefied Natural Gas (LNG) Export Controversies in the US

For the past 20 years, the US has been an importer of natural gas with an average of 15.7 percent of its annual consumption coming from Canada. However, the production of this resource in the US has risen over 25 percent since 2005, which comes primarily from the previously inaccessible shale deposits deep in the earth, and is expected to continue growing in the future.

Presently, the production of natural gas in the US is greater than its national consumption and is causing quite the controversy on whether or not the US should export the resource in the global market. A few years ago, liquefied natural gas (LNG) import terminals were constructed across North America in response to the country’s diminishing natural gas supplies. Today, due to the rise of production, major natural gas companies in the US are trying to convert these terminals into export terminals which will transport LNG overseas.

Cheniere Energy Inc., a natural gas company based out of Houston, TX, is the only company in the US with an approved LNG terminal. It was in January of 2012 when Cheniere Energy was given approval by the Department of Energy to export LNG through its Sabine Pass Liquefaction terminal in Cameron Parish, LA, which has the potential to ship up to 2 billion cubic feet of gas per day by the year 2015. The company also intends to open a new export terminal in Corpus Christi, TX by 2017 but will only see production if Cheniere gets the approval.

Chevron’s Gorgon project in Australia.

Other US natural gas companies, who are unable to export domestically, have turned to alternative plans by building exporting facilities on foreign soil (where there are little to no restrictions on natural gas production). For example, Chevron Corporation is one of the leading suppliers of LNG exports with its Wheatstone and Gorgon projects in Australia. The Gorgon Project is Australia’s largest single-resource project, with a 15 million-metric ton per-year LNG facility.

KBR Inc., another US company, is a leading LNG production facility developer, with already having constructed over 40% of LNG facilities around the world.

What is causing all the controversy over exporting LNG?

Industrial consumers of natural gas are worried the exportation of natural gas will increase oil and natural gas prices as well as their production costs.

Alliances are starting to form together and fight against the approval given by the Department of Energy for exporting natural gas. The alliances include utilities dependent on natural gas to fuel electricity generation, chemical companies that use it as a feedstock for making myriad industrial chemicals, and heavy industrial users such Alcoa and Nucor who use natural gas to fire their metal-making operations.

America’s Energy Advantage, a group backed by six large industrial companies including Dow Chemical, Huntsman, and Alcoa, believe tens of billions of dollars for potential investment in US industry are at risk if the government allows for the substantial increase in exported LNG. The group also argues an increase in exporting LNG will hurt the US economy by eliminating domestic jobs and increase natural gas prices.

Today the US price of natural gas is $3.27 per thousand cubic feet, compare this  price to those in the world market, you will see the Europeans pay upwards of $12 per thousand cubic feet and the Japanese pay more than $17. If the US were to start exporting, domestic natural gas prices will increase significantly.

It looks like right now the controversies surrounding natural gas production and exportation in the US will only get resolved if there can be an agreement on some sort of compromise otherwise the issue will never go away.

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Shell Floating LNG Plant

The most recent big development in the area of natural gas exploration is the movement towards FLNG or floating liquefied natural gas, and Shell is leading the charge.  With the development of their Prelude project, Shell is poised to be the first company in the world to create a vessel or platform which can extract remote deposits of LNG according to Bloomberg.  The ability to tap additional reserves of LNG means not only advancement in the movement towards natural gas energy but further economic development for Australia and less environmental impacts.

The $10.8-12.6 billion project means constructing the largest vessel on Earth at a weight of 600,000 tonnes and a length nearly equal to that of the Empire State Building.  The construction of the hull began at Samsung Heavy Industries in South Korea in 2009 and the project is set to begin operation over the Prelude LNG reserve in 2015.  The vessel will be towed to the Prelude reserve after completion and moored at said location for 25 years.

Extracting LNG from remote deposits at sea has always been a sought after goal for natural gas companies but was never economical because locations were either too remote or the costs were astronomical with the amount of pipeline and energy it would take to get the LNG to coastal plants.  Thanks to groundbreaking technology however, scientists have found that by chilling the extracted LNG to -162 degrees Celsius, the volume of LNG can be shrunk by 600 times what it is in its natural state.  Thus allowing for enormous amounts of LNG to be shipped to mainland rather than pumped through pipelines.

The benefits for northwest Australia and Australia as a whole will be immense both environmentally and economically.  The permits to build LNG plants on land in Australia have become few and far between recently and with seven plants currently under construction, they will be even more rare to acquire.  In a sense, the LNG industry is capped at the moment in Australia with nowhere to expand to.  However with the arrival of FLNG plants, the gates are again open for companies to explore and tap previously inaccessible LNG reserves, meaning many more jobs for Australian workers and more money for Australia to tax.

Not only is the development of FLNG good for the Australian economy, it is also a more environmentally responsible means of natural gas extraction.  Thanks to the ability to condense the extracted LNG for transportation, pipelines are virtually eliminated in this segment of the market meaning that there is more LNG production with no more pipelines taking up land.  LNG plants are also more environmentally friendly because it again adds to LNG production while not needing land to be developed for roads, laydown areas, and accommodation facilities.

FLNG plants are becoming a significant part of LNG exploration. With their potential to provide more LNG, stimulate the Australian economy, and do so in a more environmentally responsible manor, this will likely become a much more popular form of exploration and extraction for companies around the world.

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