Liquefied natural gas, or LNG, has once again become a hot topic in the United States. Only this time, it's not a discussion about importing LNG into the US. The talk is about constructing multi-billion-dollar liquefaction facilities and export terminals to ship gas from the Gulf Coast and possibly other US locations to markets in Asia and possibly Europe.
Natural gas prices have been nothing if not volatile over the past several decades. A colleague of mine says gas prices have had more ups and downs than a heroin addict in rehab.
Currently, the US market is a low-price environment for gas in part due to high production volumes from unconventional resource plays, mainly shale, and stable or declining markets. Many producers find themselves in a position where they have to produce to hold on to the assets even though there is little or no profit in it for many of them.
The last OGJ Quarterly financial report covering the largest US-based producers indicated that more than half reported a net loss for the previous quarter. This can be attributed, at least in part, to low gas prices.
What keeps these companies going? Aside from keeping one eye on the commodities exchanges when they're not sleeping, executives from natural gas-weighted companies are looking to the future and potential high-price markets for gas in places like Japan and South Korea.
In addition, gas consumption is growing exponentially in China, India, Russia, and in Africa and Latin America. Even the Middle East is seeing increased energy demand as the population and consumption levels in those oil- and gas-rich countries expand. Saudi Arabia, the United Arab Emirates, Bahrain, and Qatar are still net exporters of petroleum and petroleum products, but their consumption level is growing along with their population and infrastructure requirements.
Qatar is currently the leading exporter of LNG worldwide, but US gas producers are dreaming of the same kind of success. Australia, which has been gaining ground on Qatar recently, is well ahead of the US in LNG infrastructure development and has been transporting LNG to Asian markets for years.
Russia, once known as "The Saudi Arabia of Natural Gas," has aging infrastructure and is badly in need of foreign investment. That country transports much of its natural gas by pipeline to markets in Eastern and Central Europe. Increasingly, Europe has been looking to find other sources for gas to reduce the stranglehold that Moscow has had on the Europeans for years. Accordingly, Russia has also been looking east and has recently cut deals to sell gas to China via new high-capacity pipelines. With the remarkable growth China has seen, it needs energy from all available sources – domestic and foreign, dry gas and LNG, even renewable forms of energy.
Gas producers see a world of opportunity with LNG. No wonder so many small, struggling US independents are holding on, even when faced with brutally low commodity prices domestically.
In a presentation at PennWell's Offshore Middle East Conference in Doha, Qatar, in January, Dr. Susan Sakmar of the University of Houston's Law Center noted that the US has the potential to be the "next Qatar." She noted there are 33 potential North American LNG export sites, most of them along the coast of Texas and Louisiana. It will only take time, billions of dollars, and regulatory approval to build them.
The net economic benefit to the US will be tremendous, although not all Americans share that assumption. For example, Dow Chemical Co. disputed the results of a study commissioned by the US Department of Energy that said exporting LNG would benefit the US economy.
"The top line is we are very disappointed with the conclusions and frankly a bit shocked," said George Biltz, Dow's corporate vice president of energy and climate change. "Our biggest concern is the short shrift that goes to manufacturing."
Dow is one of a number of chemical companies that have committed to investing in upwards of $10 billion in Gulf Coast petrochemical expansions. These companies worry that LNG exports will increase the price of natural gas in the US to the point that their expansions will not be profitable for them.
In rebuttal, the Center for LNG argues that LNG will not undermine American manufacturing. It points out that liquefying natural gas requires many highly-skilled workers to convert raw natural gas into a liquid state. It adds that the pipes, turbines, and other materials necessary to construct and operate a liquefaction facility must be manufactured, purchased, and installed.
"This means a single LNG facility has a long manufacturing value chain with significant economic gains – including jobs – at each step along the way," the CLNG added.
Doubtless, every sector of the economy will not benefit equally from US LNG exports. However, the Brookings Institute, a liberal-leaning think tank; organizations representing the petroleum industry; and the DOE have all concluded that LNG exports will be in the best interests of the country. It makes sense to open new markets for US products.