Market Currents
A major study commissioned by the Energy Department delivers a solid endorsement of natural gas...
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Wednesday, December 5, 2012, 3:40 PM ETA major study commissioned by the Energy Department delivers a solid endorsement of natural gas exports; they're generally good for the U.S. economy, leading to net economic benefits that outweigh the downsides resulting from higher natural gas prices. The study provides ammunition for companies applying to export gas from the Gulf coast and elsewhere to countries without free-trade agreements with the U.S.
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This news story has 37 comments:
Those who doubt that seem to misunderstand the goal of the left in this country. It is to, one, remain in power, and, two, weaken the US fundamentally. Nothing else.
"Dominion is not without its intrigue. The company has requested a permit to convert the Cove Point LNG facility to a bi-directional plant that can both import and export natural gas. Located on the Chesapeake Bay south of Baltimore, the facility was recently upgraded to process 1.8 bcf/day with storage facilities of 14.6 bcf. The company has requested permits to export about 1.0 bcf/day and is seeking a long-term buyer of the export LNG capacity. The Sierra Club has challenged the LNG export permits, believing it has veto power over any additional permitting at Cove Point. Find additional information on Sierra Club's position here and Dominion's legal reply here. The company is seeking to start construction by 2014 with initial LNG exports in 2017. Stay tuned"
http://bit.ly/SzwsoW
Here is the Sierra Club's rejection of "dirty LNG exports" partially because it would encourage "dangerous fracking" in the Marcellus. Heavens to Betsy.
http://bit.ly/Vy4375
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Funny how the enviro left pushed us toward wonderful, clean nat. gas decades ago to get away from oil. Now that nat. gas is poised to revolutionize energy in the country, it's dirty. Once wind and solar prevail, they'll argue they're eyesores. The goal is the same as the Unabomber's or Edward Abbey's: a backwards, minimalist, subsistence society living solely off the land. These people do not believe in wealth and prosperity.
YES! I had the exact same thought! If solar and wind ever become economically viable, expect fierce opposition to them. In fact, some environmentalists have already protested large solar power plant installations in the California desert.
You are so right. The only thing these people are consistent about are keeping us from being wealthy and prosperous.
Your comment is purely partisan and of zero value.
The fact is that the costs to export NG are significant enough ($8-9 in add'l cost) so that the profitability isn't that great even when you compare $3-4 Henry Hub versus the $13-15 Japan pays. Minor increases in Henry Hub price can completely eradicate the profitability.
Legislators need to promote expansion of domestic infrastructure to domestic demand areas for large scale domestic economic benefits over exports which will only mildly improve the bottom line of a select few companies.
THAT is exactly the totalitarian tilt of the left on display.
Wait a minute. I thought that liberals say we don't export enough and have too big of a trade deficit. Then we finally get an opportunity to export something the world desperately needs, we get people like kmi saying we shouldn't export. I guess you can only export things that people like kmi find it's OK to export. The definition a centrally planned economy.
Also, I guess we should tell Saudi Arabia that according to KMI they are stupid for exporting all that oil.
Feel free to try harder.
NG as an energy source has been suddenly grasped upon as the solution to all the country's ills by the rightwing fringe in the last 3 years. In fact even more recently than that when I argued as a proponent of NG it was 'leftist' to do so, as oil was the only 'pure and good' energy source.
Your comment underlines how little you know and understand of the global energy market's current condition.
The intellectual dissonance of your comment and dsr's above is a source of tremendous hilarity. Please keep commenting, I find this stream endlessly amusing.
Second of all, conservatives are for things that are economically viable. I am not sure when they were ever against natural gas. They were against throwing more subsidies at natural gas (a la T. Boone Pickens plan) but it is clear now that the only people who are against NG are liberals. Even Obama is promoting NG and fracking.
Finally, just this http://bit.ly/RjMB4X
I can use that one chart to blow up so many liberal arguments just presenting it should be enough to win any argument with liberals regarding energy.
there is demand HERE inside the US that isn't being met due to infrastructure and delivery issues.
The 2 or 3 companies that may perhaps potentially somehow benefit from exporting NG, won't. Because of the fundamentals of the NG market. Massive production coming online in Australia, Mozambique, Israel, North Africa, fracking in Mexico, etc. The global market for NG is actually weak and weakening, with very minor demand growth coming from from some SE Asian countries in the process of diversifying their energy component.
Many markets are delinking or contemplating delinking oil and gas which will further pressure their NG prices downward.
The cost of making NG into a transportable product plus the cost of transportation means the premium for export is small. And within the 3-4 years that it would take to get the export wheels turning, you have some 10 or more projects globally ahead of that timeline, that will be cost competitive plus some.
So basically, what it comes down to, is that you are advocating for massive investment into a dead end that may, perhaps, boost the bottom line of 2 or 3 companies for a brief period, instead of sending domestic supply to domestic demand, supporting domestic manufacturing and keeping domestic productivity costs low and leaving more spending cash inside US pockets.
And the absolute hilarious part of it all is that you are calling me a liberal and lefty to cover the ridiculousness of your poor investment perspective. Fella, if that's the right wing conservative line, you can call me red all you want. Cause dear lord is it stupid.
No Mach, I'm not approaching this from a political angle, like you are, I'm simply not buying the ROI. But I'm sure you can throw labels around and politics to create FUD to further whatever bizarre agenda you have.
I believe if free people see a chance to make money, the problem will be solved. Let some people go the WPRT route, others go the LNG/CQP route, yet others the RDS.A route, yet others the CLNE route. Let's see who wins without the govt. picking a winner for political reasons.
There is no need for the feel good incentives you mentioned originally, and those very incentives will essentially kill the other alternates which may be better. But we'd never know.
I personally believe investing to improve the infrastructure to use NG in its not-energy-dense state is a bad ROI. I think GTL, leveraging the existing, extensive high temp liquid infrastructure is the superior ROI and have invested accordingly.
Let me make my decisions, and you make yours. But please keep your laws off me and my investments.
That comment is radically different from the two previous ones you made above in this market current. It's a rational well-reasoned argument that makes a lot of good points.
The market current's link points out that findings from the DOE's 3rd party study suggest that overall, exports, may provide benefits for the country. It seems you missed that, so I wanted to point it out.
Further, export facility permitting and build out is in progress in the US, so no one is in fact making 'laws' against NG export. In fact, as the link in the market current points out "Federal law generally requires approval of natural gas exports to countries that have a free trade agreement with the United States." So no one is making 'laws' against your 'investments'.
Now, the DOE commissioned this study in order to determine wherein lies the 'public interest.' This is the meat and potatoes. If some entity wishes to engage in what in my own opinion will be a vastly expensive and ultimately painful investment in trying to compete in the international NG market, go for it. But when you engage in policies that will ultimately make my business less competitive, or take my tax dollar, and want to put it to work, you better believe I'll have an opinion on where it ends up. And that's what we're talking about here.
If legislators are intent on promoting, incentivizing, and subsidizing NG, then it isn't export facilities where that activity should be focused. The 'public interest' lies in incentivizing and enabling private interests to create and promote economic activity and productivity. Which for me equates to sending NG to domestic demand areas, like the under-served Northeast for heat/power generation.
Better yet, why not focus on enabling increased access to domestic private interests to access cheap domestically sourced fuel to develop and deploy industrial, manufacturing, and other economic activity by employing domestic labor which is paid and consumed domestically?
As opposed to supporting or enabling exports in order to increase, say, Japanese and South Korean competitiveness for the benefit of what, 15 US entities?
If that's the 'totalitarian tilt of the left on display' as you said above... well then... so be it.
The "public interest" is sending NG to the Northeast.... hmmm - you ever tried to get the permits and right of way agreements for pipelines in the Northeast? You mean the people might not want it!!
Seems to me that the NG E&P industry has done exactly what you say - private interests creating and promoting economic activity. They are hiring people left and right.
If Europe pays Russia $13 for NG and they then agree to pay the US $13 how are we increasing their competitiveness? By this logic perhaps we shouldn't allow Microsoft to sell Windows to foreign companies - after all they use it in their businesses competing with ours? Maybe Apple I-pads should fall under the same.
The logic makes no sense, its not like NG is some sort of rare commodity that will allow others to build nuclear bombs. If folks want to build export facilities - let them. If folks want to build pipeline to said ports let them - if they can sell it to the Germans for $13 let them. We export refined gasoline - should that also be banned?
david:
"tried to get the permits and right of way agreements for pipelines in the Northeast?"
(SE) has pipleline expansions scheduled for 2013 and 2016, among several projects in planning. (SE is currently a 4.50% divvy payer by the way)
" You mean the people might not want it!"
In many parts of the NE utilities provide dual fuel commercial entities with pricing structures to encourage switching off NG in case of high demand because they simply don't have the capacity. (ED) does this. Good company I've held it on and off (4.30% current yield).
"If Europe pays Russia $13 for NG and they then agree to pay the US $13 how are we increasing their competitiveness? " This gas will mostly be sent to demand centers in SE Asia. Europe's demand just isn't there. The net effect of selling to Japan at say a $1 premium to Henry Hub would likely be in part an increase of Henry Hub price, which has the effect of increasing domestic energy costs. So net net, they pay less for energy, we pay more.
" If folks want to build export facilities - let them"
Reading comprehension is fundamental. Please pay attention. No one is talking about 'banning exports'. The points being raised are where the public interest lies, and it certainly does not lie in spending my tax dollars on fruitless adventures in exporting domestic resources so foreign entities can be advantaged to my detriment.
If you are so enamored of this please write me a check for my tax liabilities, I will be happy to provide you with a thank you card in return.
And you didn't really reply to any of the points. NY currently bans fracking - try to get right of way for a pipeline in say Conn. Folks will protest to the nth degree - politicians will align against it and its dead.
There is no public interest in trying to determine what energy source people in various parts of the country will choose. If we want to reduce carbon as part of public policy - then tax it - and still people decide.
You have no idea where the gas might be sold. And it will be sold at market prices. What your really saying is that you should determine which industries will earn profits. Your saying its better for our chemical companies to get gas at $4 than for the owners of the NG E&P to earn the extra $'s by selling it at $13. Thats all your saying.
And you ignore that they will still get it cheaper than the Germans or Japanese because the transport cost will be less.
And where does it end - lots of chemicals go into other products - do we tell DOW - nope can't export those chemicals - that will force other producers to pay more for your chemicals here in the US - so you can't export.
Its fantasy land. If companies want to build export terminals and the pipeline and facilities to get there and sell it to whomever - more power to them.
KMI, at least acknowledge how outside the mainstream your views are. You make it sound like we are totally out there, while it is in fact your views that are in opposition to every economist out there right now.
Now, being outside the mainstream does not automatically make you wrong. I think highly of Scott Sumner's NGDP targeting monetary policy scheme eventhough its still considered far fetched. But don't make it seem like we are ignorant to common knowledge. From Krugman and Reich on the left to everyone on the right, no economist would agree with your economic thinking.
BTW, you also don't refute anything anyone writes against you. Do you refute that fracking has been banned in Europe? Do you refute these articles:
http://bloom.bg/RlyImJ
http://bit.ly/VvsL2i
Did the EU not put out this report: http://bit.ly/RlyGeO
Did Reuters imagine this: http://reut.rs/VvsLiA
Do you dispute NG is 4x more expensive in Europe than in US like this chart shows or is the Federal Energy Regulatory Commission lying: http://1.usa.gov/RlyImM
Spectra as I pointed out is adding pipeline capacity direct to Marcellus, which has huge supply and not enough pipeline.
And frankly, as to "you don't know where the gas is going to be sold" if you've ever done die diligence on any pipeline company, you damn well do.
Wow, as for your $13 to Germany, you don't get that the point to point cost on export doesn't mean that Germany is paying $4 henry hub, in fact there doesn't appear to be any premium AT ALL in selling gas overseas. And again, it isn't going to Europe. Jeez.
It's obvious I'm not the one who doesn't have a clue here, you are talking fantasy land politics and I'm pointing out real world supply demand dynamics.
I got better things to do than post links. I may if I get around to it, maybe during some downtime.
I have almost 20 years as a participant in energy markets. I'm not really posting at you, anyway, since it's pretty clear you have made up your mind, but for other readers of this site who haven't.
Major shopping malls in the nj/ny are set up for gas/oil dual fuel and switch off gas when demand is high as the supply infrastructure is inadequate.
This is the demand reality.
Fracking in UK http://bit.ly/URnsNQ
Fracking in Germany http://bit.ly/W28qUa
Fracking in Ukraine http://bit.ly/URnsNR
Fracking in Romania http://reut.rs/W28oMg
Fracking in Poland http://bit.ly/URnsNS
Fracking in Lithuania http://bit.ly/W28qUd
NatGas demand growth in NYC http://bit.ly/URnsNT
Further, in response to david's comment about market prices, "The latest study, conducted by NERA Economic Consulting, looked at the broader economic impacts of exports. It found that LNG exports could boost domestic gas prices by up to 33 cents/Mcf initially, but that the broad economic benefits outweigh losses to wages and investment income... The study found that exports would increase domestic gas prices and lower wages, "meaning we pay the price here while the companies shipping gas overseas rake in the profits," Brune added."
That's what david is advocating. I'm on the other side.
Now, I'll point out AGAIN, that this an expansion of existing policy: currently law states that exports are allowed to countries we have free trade agreements with, this expansion is examining exports to countries we do not have free trade agreements with. So Europe shouldn't be in the conversation AT ALL.
To further support my other comments,
Weak European LNG demand http://bit.ly/W28p2y
Unknown future Chinese growth in demand http://bit.ly/URnrtg
Deindexing of gas from oil pricing in Japan (which will lead to lower prices for gas, and which is also in process in Europe) http://bit.ly/W28qUg This should likely be the first contract taking gas delivery from US based on Henry Hub.
On CNG->LNG cost: you have three additional factors boosting price, liquification, transport, re-gasification. This cost is adds between $7 and $9 to price. For an actual market price of $10.50-$12.50 based on NG's current price which is holding about $3.50. At the same time you have de-indexing and falling prices on international markets, which pay between $13 and $17 currently.
By opening up exports, Henry Hub gas will inevitably go up, although it may not go up enough to make US based product noncompetitive. At the same time global supplies are growing exponentially. Which should decrease prices internationally. So there's good reason to believe large scale exports will never be viable within the timeframe it will take to set up exports.
So what happens? We achieve an increase in the domestic price of gas for some abstract general economic good, in order to obtain an increase in the top line of some 15 companies revenues.
David thinks no check is being written. He is wrong.
That's pretty interesting, so I thought I'd add it here.
Current FTA countries listed here: http://1.usa.gov/UzbMgv
You should add S. Korea to the list of FTAs
http://bit.ly/TNA1GA
Thats just beyond nonsense. Port facilities will be built. The permanent jobs in ports are very high wage jobs. Pipelines will be built - the technical jobs to operate pipelines are high wage jobs. All the drilling and exploration require a lot of manual high wage jobs. All the pipeline requires pipes to be produced..... those manufacturing jobs are high wage jobs.
What your really saying is that you want to engineer what is "good" business and what is "bad" business. Keep NG prices lower so that your preferred industries will earn more. You just want to pick the 15 chemical companies that will have higher earnings rather than the E&P companies that will have higher earnings - not too mention you don't seem to care about any of the people that will have high wage work due to the export effort.
There still is no evidence you've provided of a single cent being paid to these companies that want to export????? And then you say that international supply is increasing exponetially so it won't be viable anyways.
And you don't mention that NG was selling for $12 just about 5-6 years ago!! And what changed? Oh, those terrible E&P folks trying to increase their top line came up with new and better drilling technology and techniques.
Yeah, better to stop progress and let some idiot bureaucrat decide who should earn money and what businesses should sell to whom.
USSR
> years ago!! And what changed? Oh, those terrible E&P folks trying
This is really the key point in any free society. The promise of a great reward encourage people to take risks and do something. Conversely, the mere threat of govt. edict/taxation/preference dissuades such. It's very, very simple.
And yet, beyond the comprehension of the average Joe.
"What your really saying is that you want to engineer what is "good" business and what is "bad" business. "
Actually, no. That's what you -think- I'm saying, because that's what you want to hear, because it fits into your neat little paradigm of left-right, black-white, good-bad. Typical of ideologues, you find yourself presented with something unfamiliar and you struggle to fit it into one of your neat little boxes.
Actually, david, I'm saying that the public interest lies in producing a domestic resource for domestic consumption by a domestic population paid domestically and consuming domestically, while increasing productivity and competitiveness against foreign entities.
As opposed to subsidizing the energy costs of foreign industry to the detriment of the US population. I'm saying that the government's job is to create the right business environment for domestic private interests to flourish. You want to harm the overall domestic economy because you have a couple of dollars invested in an NG producer or two. That's just asinine.
Take note folks, this is what the wingnuts on the extreme right support.
http://bloom.bg/ncPQpS
Be careful what you wish for as the alternatives are not suitable base load power generation.