The Conundrum of Exporting Natural Gas

By Peter Galuszka

Energy firms and utilities are finding themselves in an odd and unexpected position because of the fast-changing dynamics of the natural gas market.

In a blow to the Sierra Club, a Maryland judge has ruled that Richmond-based Dominion Resources can export liquefied natural gas from its Cove Point facility on the western shore of the Chesapeake Bay south of Annapolis.  Dominion may invest up to $3.5 billion in the facility.

It may sound like a big win for Dominion and other gas traders, but it may not exactly be. As the New York Times points out, energy firms got into a jam when they started building huge port facility to import LNG from abroad. Many of them are in the Gulf Coast petroleum complex.

“Fracking” for natural gas has turned everything upside down. Thanks to the controversial drilling method, used notably from western New York State to West Virginia and in western states, the U.S. energy market is flooded with cheap natural gas that is displacing coal as a fuel for electricity generation and possibly nuclear.

So, energy firms want to turn their big White Elephant import facilities into ones that can export gas, the Times says.

On the surface, it makes sense. This past year, gas prices were three times higher in Europe than in the U.S. In fact, coal firms made up for their losses thanks to gas in the U.S. market by shipping more coal to European utilities.

The Times says that 15 proposed terminals have filed for permission to export gas, including Cove Point.

The problem is that it takes time to build such facilities and by the time they are built, global markets for natural gas could erode as quickly as they have expanded. Other countries are busy trying to follow the American example with fracking and if they succeed, would-be American exporters could lose their race against time.

In the Cove Point case, the Sierra Club had said that a 2005 legal settlement with Dominion had prohibited natural gas exports through Cove Point although the Maryland judge disagrees.

Glen Besa of the Sierras Club was quoted as saying that exporting gas could raise domestic prices by diminishing domestic supply. Besides, utilities should be concentrating on renewable energy sources not fossil fuels like gas. There have also been concerns that LNG ships could be potentially catastrophic bombs if they are involved in an accident.

While there are many questions about the environmental soundness of fracking, which involves shooting toxic chemicals at high pressure deep underground. There’s no denying the sudden economic boom that has resulted from the practice. And if experience with other fossil fuels such as coal is a guide, the gas spigot could shut down just as quickly as it opened up.

9 Responses to The Conundrum of Exporting Natural Gas

  1. the problem with the Sierra Club is they act in the de facto role of spoiler no matter the situation.

    It’s true that gas is a fossil fuel but it’s also true that it is far cleaner than coal and fracking far less risky and damaging than offshore drilling for oil.

    So then what does the SC do? They oppose exporting gas. Why? Because they want Dominion and others to not dig coal or drill oil or gas but develop only “green” energy?

    WTF?

    This is why the SC willingly puts itself so far apart from ordinary people that they are perceived as not pro environment but anti-people.

    I’m an environmentalist but this is the kind of thing that hurts the entire cause. It turns off ordinary people, empowers the radical opposition, and in general seems bound and determined to appeal to only a very small wacko segment of society.

    This is why I have switched my monetary support to Environmental Defense and NRDC. The SC is becoming increasingly irrelevant in most serious environmental issues.

  2. Peter, excellent post; raises important issues.
    Larry, while I have a few friends who are active in the SC and generally reasonable on most things, I think you are right about the organization generally. Many members would like everyone to live in an 800 square foot apartment and take the bus everywhere they go.

  3. I’m remiss in not complimenting Peter also and have a bad habit of taking his writing for granted sometimes.

    I not only have friends in the SC, I used to be a member many moons ago when they had a strong outings program that I felt was emblematic of their love for the outdoors and their commitment to protect it.

    There are genuine environmental concerns with natural gas – no question – but it is far better than the coal alternatives and it is encouraging and making financially appealing to close older heavily polluting coal plants and replacing them with much less polluting gas plants.

    The other big advantage, not even mentioned by SC is that natural gas plants fire up quickly making them ideal complements to wind and solar which become much more viable sources under those conditions and were incompatible with pure baseload coal plants that could not come online quickly to take off for variable solar/wind power.

    The SC are the left-wing counterpart to the Tea Party in that they have the same kind of uncompromising rigid ideology.

    Perfect is always the enemy of good and compromise is surrender.
    I eschew both approaches.

  4. Peter, solid analysis. Permit me to expand on a relatively minor point. You noted, “Other countries are busy trying to follow the American example with fracking and if they succeed, would-be American exporters could lose their race against time.”

    A legitimate fear. On the other hand, the WSJ ran a fascinating article a month or so ago about the difficulties of exporting the fracking revolution. Anyone can use the technology. The difficulty is that the legal and industrial infrastructure is not in place in many countries. The U.S. system gives landowners a stake in exploiting the minerals underneath their land. In other potential fracking countries, government owns the mineral rights, which gives the landowner no skin in the game. For the landowner, it’s all a big hassle, so he resists.

    Another difference is that other countries don’t have the tradition of wildcat drillers (turned frackers) that the U.S. has.

    The shale reserves will get exploited eventually. But the process will take longer for other countries than it did in the U.S.

  5. Jim Bacon… are you saying the over-regulated, job-killing, small-business savagery of the US is propaganda and in reality, we are among the best, if not he best in the world in terms of supporting business and job creation?

    I can’t believe you just said that. I’m AGHAST!

    You keep this up and you’re gonna get a visit from the local tea party RINO checker-uppers….

    LORD!

    Peter – you write excellent articles – but PLEASE hold Bacon’s feet to the fire when he wanders off message…

  6. Shale gas policy is more complex than folks realize.

    On one hand, data show that shale gas may only be marginally “cleaner” than coal in terms of CO2 reduction, especially given its difficult-to-measure methane emissions, let alone its water impact in its retrieval. See the analysis at http://co2scorecard.org/home/researchitem/24, and its coverage in the Post, (http://www.washingtonpost.com/blogs/wonkblog/wp/2012/09/14/why-the-recent-p lunge-in-u-s-carbon-emissions-may-not-last/.

    Then note the analysis in the recent Economist (I don’t have the web cite handy) about the rising use of coal in Europe, raising its CO2 emissions, because it’s buying US coal that is cheaper than its natural gas alternatives (mostly from Russia). What the Sierra Club isn’t figuring in is that US export of shale gas LNG may help Europe reduce its dependence on US coal.

    But don’t slam the Sierra Club. It played a key role in helping citizen in three states successfully eliminate the PATH 270 mile coal mine to east coast 730 KV power line on the grounds that it simply wasn’t needed, was monumentally wasteful (at its assured 14.3% rate of return) and would cause property and environmental harm. Ultimately the PJM acknowledged that it wasn’t needed and the project is dead.

  7. I often fish at the Cove Point facility. Known to us locals as “the gas docks” there are often a lot of hungry rockfish hanging around that man made reef. However, as Peter notes, it’s been years since any LNG tankers have used those docks. So, I am not worried. Until now. As all of us who spend time on water in Maryland’s part of the Chesapeake Bay know – if one of those LNG tankers ever blew – there would be hell to pay. The liquid gas is so cold it would freeze you to death of you touch. However, that would be preferable to what happens when the liquified gas warms up. It turns into natural gas which displaces the oxygen in the air and you suffocate. Of course, even this is preferable to what would happen if a spark lit the gas – it would burn people up to 1.25 miles from the ship. And the burning gas would work its way back to the ship. Once the fire gets to the ship…. the old adage that a bad day fishing is better than a good day at work would be upended.

    Dominion Resources has proven, time and again, that it can’t be fully trusted. From building nuke plants on earthquake fault lines to buying off Virginia politicians so they can raise rates in a phony renewable energy scheme. All of which reminds me of what the Army learned about parachutes. Once the people who packed parachutes just did that – pack parachutes. There were packing errors and good men died. Then, the Army came up with the idea that the people packing the parachutes should be required to randomly parachute out of a plane with one of the parachutes they packed. Fatalities from faulty parachutes dropped immediately.

    If Dominion wants a natural gas dock to export LNG they should build one in Virginia, preferably in Richmond.

    http://www.gao.gov/new.items/d07316.pdf

  8. Laryg,
    Thanks for the compliments, but I can’t run a check on Bacon all the time. I’d go nuts.

  9. it’s okay Peter… I just think we should keep track of him sometimes.. when he goes off message….

    ;-)

    I’d hate to see the right wing show up in robes and dunce caps (very appropriate) in front of his home..in a modern day version of hunting down RINOs….

    ;-)

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