Energy Ink

A backlash against U.S. LNG exports builds

March 29, 2012

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A battle could be brewing between natural gas firms seeking export deals with overseas buyers as a means to lift prices at home and domestic chemical companies counting on bargain basement commodity prices to drive growth plans.

Dow Chemical Co., the largest U.S. chemical maker, is worried that exporting domestic supplies of natural gas “indiscriminately” from U.S. shores could raise prices and undermine a $4-billion plan to boost production at the Midland, Michigan-based firm’s Gulf Coast facilities, Jack Kaskey reported yesterday at Bloomberg.

Bloomberg quoted Jim Fitterling, executive vice-president of energy and feedstocks at Dow. Speaking on the sidelines of a petrochemical conference in Houston, the executive said his company is “nervous that we could get into a five-year project and the gas is all being exported and prices spike up.”

The American Public Gas Association has raised similar concerns, arguing in filings with the U.S. Federal Energy Regulatory Commission that exporting natural gas via tankers could have “significant adverse implications for domestic consumers of natural gas, for U.S. energy supply, and for national security.”

The Chemistry Industry Association of Canada has likewise expressed concern that export plans proposed for the West Coast of British Columbia could crimp Alberta chemical makers already coping with ethane shortages wrought by declines in conventional natural gas production.

The association, whose members include Dow and Nova Chemical Corp., worries about losing access to “wet” gas, so-called because it contains valuable liquids used as petrochemical feedstock, according to Dan Hall, a regional director with the group.

In the U.S., Massachusetts Democrat Ed Markey has proposed legislation that would ban foreign sales of domestically produced gas.

A number of firms, including KOGAS and BG Group, have signed off-take agreements totaling 2.1 billion cubic feet per day from the Gulf Coast export terminal proposed by Cheniere Energy Inc. Another 3.6 bcf/d of export capacity has been proposed, even as the U.S. Department of Energy studies the implications of gas exports to non-Free Trade Agreement countries.

“It is possible that the number and volume of [export] licenses may ultimately be restricted,” Wood Mackenzie says in a February report. The consultancy noted that “environmental, technical and commercial challenges will delay the start-up of some projects and increase costs, testing the economic rationale of some proposed facilities.”

This echoes an opinion expressed by American Petroleum Institute chief economist Steve Crookshank, who told a Calgary natural gas conference last month that legislators in Washington lack the requisite “political comfort” with energy exports.

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