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.

Federal report gives thumbs up to shale gas exports Scenarios would help investors, hurt wage earners

LNG exports: shareholders win, wage earners lose
PHOTO PROVIDED

Exporting the country’s shale gas reserves would drive up prices and drive down wages, according to a report commissioned by the U.S. Department of Energy. Yet drawbacks would be more than offset from gains to economic stakeholders in the natural gas extraction and exporting industries, the report concludes.

The report by NERA Economic Consulting was forwarded last week to Christopher Smith, Deputy Assistant Secretary of the Department of Energy. It shows that policy to encourage exportation of domestic energy reserves, thought by some to be a political non-starter, is being weighed by an administration that has identified on-shore drilling as a priority to stimulate energy independence.

With 20 different plays, the collection of shale gas reserves in the lower-48 United States is thought to be among the largest in the world. President Obama’s support of shale gas development comes despite opposition from some environmental organizations and grass roots campaigns that argue drilling poses risks to public health and the environment while channeling resources away from sustainable energy development.

Wrapped up in the exporting question is a debate over the merits of high volume hydraulic fracturing, a controversial practice to fracture bedrock and release gas by injecting well bores with pressurized chemical solutions. In 2005, the Bush/Cheney administration encouraged shale gas development by making fracking exempt from the Safe Drinking Water Act. That exemption -- known to critics as the Haliburton Loophole -- came in addition to exemptions from hazardous waste laws enacted by Congress in both the Carter and Reagan years. The report issued last week is a sign that, despite a growing anti-fracking movement lead by progressives, the Obama administration could be thinking less about repealing exemptions and more about stimulating demand for the country’s shale gas.

The risks and merits of shale gas development are the subject of a polarizing national debate, including unresolved prospects of the Marcellus and Utica shale’s underlying parts of New York state. While fracking has lead to an onshore drilling boom in Texas, Pennsylvania, Louisiana, Ohio, Colorado, Arkansas, West Virginia and other places, New York, has held off on permitting shale wells as it reexamines policy in light of concerns about impacts on environment and public health. While governor Andrew Cuomo’s administration is shooting for a deadline in late February to finalize regulations, it is awaiting analysis from an independent panel of health experts, and Cuomo has left the door open to shelving the process.


To make it suitable for exporting in tankers, gas is converted into liquid (Liquid Natural Gas or LNG). The idea of exporting domestic supplies to lucrative overseas markets in Europe and Asia is sure to spur more controversy. As prices drop domestically with increased supply, companies have proposed more than a dozen projects to build coastal exporting facilities. These include a $6 billion liquefied natural gas export terminal, already approved, at Sempra Energy’s existing import terminal at Hackberry in southwestern Louisiana, with permits for other projects pending. Gas exports would stimulate more shale gas development by easing a market glut and raising prices. Higher prices, in turn, provide incentive for more exploration, development and infrastructure build out. Critics warn that unconventional extraction methods have outpaced science and regulations to understand and mitigate the costs, even without the catalytic affect of exports.

“Exporting means more fracking, and there are a lot of regulations that need to be developed before this is even close to safe,” said Craig Segall, an attorney for the Sierra Club. “You haven’t done an analysis of the cost to the public and the environment. This is a huge one and you have to think about it.”

Jim Smith, a spokesman for Independent Oil & Gas Association of New York, said the agency would not be inclined to support policy that raises costs to manufacturers, which are a mainstay of the agency’s membership. “We have to look carefully at both sides of the equation,” he said.

Nationally, any gas exporting policy is sure to meet resistance from the manufacturing sector. Gas and its derivatives are used as both fuel and feedstock for domestically produced goods ranging from textiles to fertilizer to packaging. Domestic petro-chemical manufacturers, including DOW Jones and the Koch Industries, have already successfully lobbied against proposed federal subsidies to use natural gas to fuel vehicles because, the argument goes, increased demand would raise prices and hurt manufacturing.

Yet operators and investors can fetch much higher prices in overseas markets due to global demand. The winners and losers under exporting scenarios break down accordingly, with the winners being the natural gas industry and those who invest in it, and the losers being manufacturing, transportation, service, and agriculture sectors.

Under exporting scenarios, according to the NERA report:

“Wage income decreases in all industrial sectors except for the natural gas sector. Services and manufacturing sectors see the largest change in wage income in 2015 as these are sectors that are highly labor intensive.” The report explains that “the overall effect on the economy depends on the degree to which the economy adjusts by fuel switching, introducing new technologies, or mitigating costs by compensating parties disproportionately impacted.”

The most viable “fuel-switching” scenario is this: Plants that might otherwise burn gas would likely be more inclined to burn coal as gas prices rise. Critics argue that could leave the U.S. with both the environmental consequences of air and water pollution (including methane emissions) from unconventional shale gas development, plus CO2 and mercury pollution associated with burning coal.

Updated Dec. 12 Jannette Barth, an economist, consultant and shale gas industry critic, issued a critique today charging that the DOE study did not account for hidden costs -- ranging from increased demands on municipal resources to environmental degradation -- on local communities to produce gas. Barth argues that gas exports will benefit shareholders in gas extraction companies who tend to be affluent. “Only 54% of Americans own stock of any kind, retirement savings or otherwise. Clearly, not all of the 54% own natural gas stock.” Most who do “likely hold tiny numbers of shares in mutual funds.” Additionally, according to Barth’s assessment, many shareholders in the U.S. domestic shale gas play are from outsides the U.S.

What other reports and considerations are relevant to the discussion? What do you think?