Wednesday, July 10, 2013

LNG port slated for NY coast. Will gas come or will it go? Shale gas exports/imports stir energy policy debate

The second wave of the shale gas debate:Where does it go? 
The controversy over fracking began with the process of extracting gas from shale. Now it involves where the bounty goes and how it gets there.

First, about where it goes: In response to a glut from an onshore drilling boom, President Obama has voiced support for plans to boost sales by exporting liquefied natural gas (LNG) to countries in Asia and other places where supply is low and prices are high. It’s a strategy opposed by anti-fracking groups because global markets  = more demand = more fracking. Export plans have also drawn resistance from the manufacturing sector and petro-chemical industry, which use natural gas both as fuel and feedstock to create products. As reported by DCBureau.org, Dow Chemical CEO Andrew Liveris argues that it’s far better for America to use its newfound shale gas supply to stimulate domestic jobs and production than it is to  export it wholesale to foreign manufacturing rivals. “America’s natural gas bounty is more than a simple commodity,” he testified at a Senate committee hearing in February. “It’s a once-in-a-generation opportunity for America to export advanced products, not just BTUs.” His position is supported by a report commissioned by the U.S. Department of Energy that shows exporting gas would drive up prices and drive down wages. Yet drawbacks would be more than offset from gains to economic stakeholders in the natural gas extraction and exporting industries, the report concludes.

Now, about how it gets there: Companies are seeking federal approval to convert natural gas import terminals on the Gulf and Pacific coasts to export terminals. Since the Obama administration approved LNG export terminals in Louisiana and Texas, more than two-dozen applicants have lined up with licensing requests.

Whether you are for this or against this, it’s easy to understand the economics. Companies developing low cost domestic shale are finding higher returns in foreign markets, while U.S. manufacturers are better served by keeping an abundance of cheap energy to themselves. But it’s not all that simple. While companies are racing to capitalize on overseas demand, one company is pushing ahead with plans to build a terminal to IMPORT gas to communities in New York and New Jersey, next to one of the world’s largest shale plays. Liberty Natural Gas is proposing the Port Ambrose project, 19 miles off the Long Island, in relatively close regional proximity to the Marcellus play, which extends under northeastern and mid-Atlantic states.

Why?

I put the question to Teri Viswanath, an analyst with BNP Paribas who follows global natural gas markets. Despite a glut in domestic markets, Viswanath said, there are still sizable pockets in parts of New England and New York City where demand is outpacing supply.  With neighboring Pennsylvania now a major producer, it isn’t related to a lack of gas. It’s due to lack of infrastructure. Unlike reserves in Texas and other established oil and gas states, the Marcellus Shale is in large part a “greenfield” development, Viswanath said, meaning it extends over areas that lack established infrastructure.

The aggressive build-out of that infrastructure continues throughout the northeast, including upgrades and add-ons to established pipelines to the south, and both new and expanded pipelines through Pennsylvania and upstate New York to New York City, New Jersey and New England. Even so, pipeline expansion is limited by logistic and social hurdles that will continue to prevent it from bridging the demand-gap in certain east coast markets – what Viswanath called “transportation-constrained” markets.

Pipeline gaps evolved partly due to a “supply push rather than a demand pull.” The supply push characterized natural gas development in the northeast. In other words, as operators explored and developed relatively small hit-and-miss conventional plays in the northeast, they built gas infrastructure along the path of least resistance – often along existing rights of ways. Before unconventional gas development changed the dynamic of energy consumption, natural gas markets were regional and prices fluctuated along with supplies. (Storage projects partly compensate for this by giving producers a place to warehouse gas when demand was low and sell it when demand spiked.) The build-out may have been different if it was driven by demand  – i.e. shaped by a critical mass of consumers and planners seeking access to a large and reliable supply.

Developments in the shale gas era are changing the equation, and they include public policy encouraging demand in the advent of the boom. New York City Mayor Michael Bloomberg is pushing incentives to displace fuel oil with natural gas (and other fuels) through the city’s Clean Heat program; and Connecticut Governor Dannel Malloy is pitching a program to encourage 300,000 households to switch to natural gas through the Connecticut Comprehensive Energy Strategy.

According to Liberty’s website, the company plans to import gas produced without the controversial process of hydraulic fracturing. It will come from “conventional” wells that are “likely in the Caribbean.”  In reality, according to Viswanath, the gas could come from many areas, including shale gas from the Gulf states. That leaves room to wonder how it is economically more feasible to produce shale gas in Texas or Louisiana, liquefy it, and ship it thousands of miles from the Gulf Coast to New Jersey and New York, than to pipe it a few hundred miles from Pennsylvania.

Not everybody buys assurances that the Port Ambrose project is all about importing. A collection of anti-fracking groups, including Catskill Citizens for Safe Energy, Surfrider, and Clean Ocean Action are rallying opposition based partly on this assessment www.marcellusprotest.org posted on Marcellusprotest.org:

Ambrose LNG Port is a gateway to natural gas exports. In liquid form, LNG can be shipped around the world and sold to the highest bidder. While the project is currently described as an import terminal to receive natural gas from Trinidad and Tobago, it is widely believed that since the permit request filed under the Deepwater Port Act automatically covers both import and export, Port Ambrose, once constructed, will be used for export instead.

The question of import or export aside, The Port Ambrose project is generating plenty of controversy in coastal communities in New York and New Jersey still dealing with rebuilding from Hurricane Sandy. Some officials and residents fear the project is being railroaded without due evaluation, consideration, or public input, and some are flatly opposed to it proceeding under any circumstances. A previous version of the project was vetoed by New Jersey Governor Chris Christie.

The new project has been revised and resubmitted, with the cooperation of the federal government. Officials from the Coast Guard and the Maritime Administration recently accepted the Environmental Impact Statement, a complicated document that is a fundamental aspect for approval. The very fact that the proposal is still on the table after being defeated once shows the motivation for companies, reading what they see as encouraging signs from the federal government, to ride the crest of the shale gas wave into the LNG business.

13 comments:

  1. Interesting stuff and awesome work. Not to play connect the dots or anything, by the Spectra NJ/NY pipeline, Williams Constitution and Rockaway Lateral lines all seem to have something to do with the Liberty Port Ambrose LNG terminal. I have no idea. Just seems curious. And a 30 inch gas line seems large for Brooklyn, no?

    Here's an interesting read on the LNG project that I have absolutely no idea if it's from a valid source. Just kind of interesting. Sad and scary if it's true.

    http://www.cleanoceanaction.org/fileadmin/editor_group1/Issues/Ambrose_LibertyLNG_FactSheet.pdf

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    1. Michael, This response to your comment is from Teri Viswanath, the analyst cited in the post:
      "...interesting that the comment to your blog mentions the same pipelines we discussed that will help reduce but not rid the region of its transportation constraints. The writer seems to suspect that there is a link between these pipes and the import facility…there is of course, but not the one that the writer makes. All of these projects seek to take advantage of the sustained high cost basis that will not likely disappear given robust plans for expansion."

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    2. Like I said, seemed curious from afar. I'll accept Teri's explanation, he'd know. The idiom "coals to Newcastle" rarely applies to business plans so importing LNG seemed weird. That's all.

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  3. Hi Tom,

    The Rockaway Lateral which is a proposed 26 inch lateral expansion off of the existing Transco New York Lower Bay lateral into Brooklyn via Gateway National Recreation Area is absolutely connected to Port Ambrose's project. Liberty is registered as an intervenor under the FERC docket (cp13-36) for this project. Liberty's project involves a new 26 inch pipe operating at a MAOP of 960 psi coming off the deepwater port into the existing 26 inch Transco New York Lower Bay Lateral which runs between New Jersey and Long Island. Here is the sole reporter who has linked these two projects which are connected. The pipe expansions are planned for opposite ends of the Rockaway Peninsula, one through Jacob Riis beach from the existing Transco pipe and the other from the existing Transco pipe out to the proposed new port. http://www.gothamgazette.com/index.php/the-eye-opener/entry/city/2013/07/01/groups-call-for-more-public-input-on-proposed-deepwater-gas-port-off-ny-coast


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    1. Thanks for that link. One of the most thorough reports that I have seen, with both macro and micro picture.

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    2. Thank you for tweeting. Sarah has been covering the Rockaway Project which is somewhat complicated really well for some time (we now have two FERC connected projects currently and the non-jurisdictional National Grid piece, legislation that needed to be passed etc) and folks over at Floyd Bennett Field have been trying to get the word out about the connection to Port Ambrose for some time.

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  4. Liberty requires Transco's Rockaway Lateral expansion into Brooklyn in order to build their project as it is described. Port Ambrose and the Rockaway Lateral Project are expansions that are connected.

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  5. Tom,
    Do you know what Liberty Natural Gas LLC is, the company behind Port Ambrose LNG terminal? Apparently it was a subsidiary to Sonde Resources of Alberta Canada until sale to West Face Capital in 2011 (I think a hedge fund). West Face Operates via Sunrise Partners, LP and West Face Event Fund. Sonde Resources does about $30 million (with an M) per year in natural gas E&P.



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  6. Here's something interesting. Shell is constructing a floating liquid natural gas (FLNG) processing plant. I huge 4 or 5 football field long vessel to process natural gas into LNG out at sea instead of on land.

    http://www.shell.com/global/future-energy/natural-gas/flng.html

    This could allows for Port Ambrose to go in and out with gas, if necessary. A major investor in Shell's FLNG is Woodside Petroleum, who has a significant stake in the Leviathan gas field in the Mediterranean Sea west of Lebanon and Israel.

    I'm guessing the overall goal is to make natural gas a global commodity instead of regional and dependent on fluctuating weather and demand conditions.

    At a minimum, there will be more money for commodity traders in New York and London, who so desperately need it. New York can burn gas from the Mediterranean on a giving day and South Korea from Pennsylvania. Sounds efficient.

    I'm sure New York City is hoping some of the gas sales goes to infrastructure modifications that are inevitable.

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    1. Michael, Thanks for the link to the Shell project -- a critical piece to the broad picture. I think you have it exactly right. There is much money to be made for those who can make gas more like oil or coal on global commodities markets

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