Exporting the U.S. Natural Gas Bounty0

Matthew Van Dusen | Thu Oct 25 2012 |

It was only October 2011 when a terminal opened for business in the Port of Pascagoula, Miss., to import liquefied natural gas from foreign countries. But much had already changed since the U.S. Department of Energy granted permission to build the facility in 2007.

That year, domestic natural gas production was the highest it had ever been in the United States, in part due to new technologies that allowed drillers to exploit shale gas resources. Each year since has seen more domestic gross withdrawals of the hydrocarbon. Suddenly, there was less demand to receive imports and stronger incentives to ship it out.

“Domestic production growth has been so strong that the U.S. is considered a possible exporter of LNG—an unthinkable notion just a few years ago,” Dr. Kenneth B. Medlock III, an energy and resource economics expert at Rice University’s Baker Institute, wrote in an August 2012 paper. “This new consensus is fueled by the current reality—one that features abundant supplies and low prices in North America relative to the rest of the world.”

That’s why Gulf Liquefaction Company, LLC, the corporation behind the Southern Mississippi LNG terminal, applied for, and in June 2012 received, permission to export 547.5 billion cubic feet of the fuel per year to other countries.

The company filed one of 19 applications to export LNG out of existing terminals around the country that the DoE received as of Oct. 12, 2012. Five of those applications were still pending approval to send the fuel to countries that have signed a free-trade agreement with the United States.

Businesses are jumping into the export game because they smell opportunity. U.S. Natural gas prices hovered around $3-$4 per million Btu in Aug.-Dec. 2011. Export prices, meanwhile, averaged a considerably higher $13 per million Btu during the same period. “A higher price for LNG in international markets is a major motivation for these applications,” the U.S. Energy Information Administration concludes.

U.S. marketed natural gas production rose to 24.1 trillion cubic feet in 2011, the highest ever, and an expansion of 28 percent from 2005. The increase meant that imports made up only eight percent of the country’s total consumption in 2011.

The situation was much different not that long ago. Between 1985 and 2007, net imports rose by around 420 percent, but they have been falling since then. “In the face of unprecedented levels of domestic natural gas production,” the EIA reported, “net imports of natural gas into the United States fell 25 percent in 2011.”

But low domestic prices and continuing high production have some saying North America is going through a gas glut, which is also pushing exports ahead.

According to the EIA, the volume of natural gas exported from the United States more than doubled between 2006 and 2011. The vast majority each year, 95 percent in 2011, left the country by pipeline to Canada and Mexico. LNG bought by Japan made up most of the remainder during the same period.

The number of potential buyers on the world market has increased with DoE’s approval of sales to FTA countries including Australia, Bahrain, Canada, Chile, Colombia, Dominican Republic, El Salvador, Guatemala, Honduras, Jordan, Korea, Mexico, Morocco, Nicaragua, Oman, Peru and Singapore. All of the LNG exporters have also filed requests to sell to non-agreement countries.

The Baker Institute’s Medlock expects that increasing U.S. exports will not significantly impact domestic prices. He also argues that U.S. exports will not be very large over the long term “given expected market developments abroad.”

“Without doubt, the natural gas supply picture in North America has changed substantially, and it has had a ripple effect around the globe, not only through displacement of supplies in global trade, but also by fostering a growing interest in shale resource potential in other parts of the world,” Medlock wrote.

Top image: Courtesy/Port of Pascagoula