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Chesapeake Energy wants to export LNG

By Oil & Gas Financial Journal staff

Mike Stice, senior vice president for natural gas projects at Oklahoma City-based Chesapeake Energy, would like to create new markets for the natural gas that is inundating the US, due in part to dramatically increased production in shale gas plays. Speaking to an audience of most investment analysts in Washington, DC on Oct. 13, Stice said he would like to see developers build liquefaction capabilities into their LNG import terminals along the Texas Gulf Coast.

“Every operator on the Gulf Coast has a liquefaction plan,” he said. “In the near term, if you get the right political wave, you can do it really quickly.” Stice said Chesapeake prefers not to invest directly in export-oriented liquefaction terminals, but would be willing to support such efforts by signing long-term gas supply contracts, probably tied at first to US Henry Hub index prices and then ultimately to LNG pricing within the Atlantic Basin.

Stice indicated that Chesapeake is “in very serious discussions” with regulators and has signed a memorandum of understanding (MOU) with terminal developer and operator Cheniere Energy of Houston. Cheniere, which has proposed building liquefaction facilities at its import terminal in Sabine Pass, La., previously said that Chesapeake executives said they were willing to send as much as 500,000 Mcf/d of gas to the proposed facility.

Cheniere hopes to get regulatory approval by December of next year and hopes to begin constructing the facility by January 2012, with exports to begin in January 2015.

A second effort is centered on gas-to-liquids technology, Stice said. While he thinks it would take a technological breakthrough on the same scale as what shale gas has done for US gas, plus another five years, to get GTL operations up and running, eventually “GTL will be a reality in the US.”

Liquefying and exporting shale gas from shale plays like the Haynesville, Barnett, and Eagle Ford to global markets holds major promise as the US confronts an oversupply of cheap supplies, said analyst Rick Smead of Navigant Consulting.

“This is real. I think it’s going to happen,” he said at the US Energy Information Administration’s 2010-2011 winter fuels outlook conference in Washington, DC.

The US Department of Energy has approved Cheniere Energy’s application to export LNG from Sabine Pass to Free Trade Agreement countries but is still considering the firm’s request for authorization to export to other countries. The US Federal Energy Regulatory Commission (FERC) would also have to sign off on the project.

Meanwhile, Chesapeake CEO Aubrey McClendon told a group of analysts at company headquarters that his company plans to become one of the five biggest oil producers in the US very soon. He said that Chesapeake has already leased 10 billion to 15 billion barrels of potential reserves in shale oil plays and will use the same leasing and financing techniques it used to unlocked huge volumes of natural gas in shale formations.

“We’re going to take what we learned in unconventional gas and apply it to unconventional oil,” he said.

He told analysts to expect a new joint venture early next year involving Chesapeake’s Niobrara shale oil position in Wyoming and Colorado, with a second partnership by the middle of the year in a shale oil play that he declined to name.

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