U.S. Gas Exports Unlikely to Ease Tensions Over Ukraine

U.S. Gas Exports Unlikely to Ease Tensions Over Ukraine

Europe Will Still Rely on Russian Gas as First U.S. Shipments Are Two Years Away

By

SELINA WILLIAMS
March 18, 2014 12:50 p.m. ET
LONDON—Natural gas exports from the U.S. are unlikely to help ease the tensions between Europe and Russia over Ukraine as the first such shipments are about two years away, a senior executive from oil and gas company BG Group PLC said Tuesday.

The U.S. has vast supplies of cheap natural gas thanks to the fracking boom and could become one of the world’s top three exporters of liquefied natural gas by 2025, BG said. Over the past week, some U.S. politicians have urged the Obama administration to speed up oil and natural gas exports to weaken Russia’s hand over Ukraine.

Russia supplies about 30% of Europe’s gas requirements, half of which transit via Ukraine, a factor some believe has stifled European opposition to Russia’s annexation of Crimea.

Federal law places heavy restrictions on U.S. companies from exporting natural gas to countries, like those in Europe, that aren’t among its free-trade partners.

Applications have already been made to export a total of over 260 million metric tons a year of LNG from the U.S. Even so BG, one of the biggest participants in the global LNG market, said it expects only about 60 million tons to 70 million tons of annual export capacity to be developed by 2025.

Andrew Walker, BG’s vice president of global LNG, said the company didn’t expect much fast-tracking of export applications unless there was a significant change in external circumstances.

BG clinched the first contract to export U.S. natural gas from the Sabine Pass, La., terminal in 2011. It expects those exports to commence in late 2015 or early 2016.

Mr. Walker said that the situation for gas prices and supplies in Europe was “fairly relaxed,” despite political tensions. The region only imported a net 35 million tons of LNG last year, the lowest level in nine years, with demand subdued due to weak economic growth, he said.

Meanwhile, global LNG supplies leveled off for a second consecutive year as new production was offset by unplanned outages, declines in output from existing plants and new projects ramping up more slowly than anticipated. This trend will keep LNG markets tight until at least the end of the decade, BG said in its annual global LNG outlook.

“We’re an industry in hiatus. Developing new supply, rather than demand is the principal challenge the industry faces,” Mr Walker said. Last year, only one in 10 new LNG projects awaiting final investment decisions was sanctioned.

Write to Selina Williams at selina.williams@wsj.com

Case For Exporting Marcellus Shale Gas

Q&A: Industry Economist Makes the Case for Exports

JUNE 18, 2013 | 3:26 PM
BY 

Liquefied natural gas (LNG) storage tanks and a membrane-type tanker are seen at Tokyo Electric Power Co.'s Futtsu Thermal Power Station in Futtsu, east of Tokyo February 20, 2013. Japan's imports of LNG hit a monthly record of 8.23 million tonnes in January, on an increased need for fuel to generate electricity after the nuclear sector was hit by the Fukushima crisis.

ISSEI KATO / REUTERS/LANDOV

Liquefied natural gas (LNG) storage tanks and a membrane-type tanker are seen at Tokyo Electric Power Co.’s Futtsu Thermal Power Station in Futtsu, east of Tokyo February 20, 2013. Japan’s imports of LNG hit a monthly record of 8.23 million tonnes in January, on an increased need for fuel to generate electricity after the nuclear sector was hit by the Fukushima crisis.

The nation’s new energy secretary Ernest Moniz spoke at an energy conference Monday, where he told the audience that applications for new natural gas export facilities would be decided upon by the end of the year. Gas producers want to sell their fuel overseas where it fetches a higher price. But before it gets shipped abroad, it has to be converted to its liquid form known as LNG – or liquefied natural gas. Building those facilities is expensive. The closest proposed LNG export terminal to the Marcellus Shale deposit is in Cove Point, Maryland. That could cost more than $3 billion dollars to convert from its former role as a natural gas import terminal. But domestic manufacturers and those who say U.S. security depends on keeping the fossil fuel stateside are pushing back. Environmentalists worry that exports will stimulate more production in states like Pennsylvania, where activists have been pushing to implement a drilling moratorium. StateImpact spoke to the chief economist of the American Petroleum Institute, John Felmy, about the future uses of natural gas, and the export issues.

A: Felmy: Well, Marcellus Shale could play a tremendous opportunity in terms of exports, because it’s such a vast deposit. Developing it can of course be used to supply other states, as we are doing now. But there is likely to be so much of it, that exporting it at a very good price would help in terms of keeping production going.

Q:  Phillips: Right now we have the price of natural gas at about $4 per million btu [British Thermal Units] here domestically. And what are we seeing oversees?

A: Felmy: Well in Europe, it’s about $12 per million BTU. But in Asia, it’s as much as $17 or $18 because of the challenges that Japan faces with the Fukushima plants.

Q: Phillips: And I know that the industry is getting a lot of push back from manufacturers who are concerned that if you start exporting natural gas the price for them is going to be too high. And what they have been saying the low price in natural gas has allowed them to come back to the US, and that they are seeing a manufacturing renaissance, because of natural gas prices being so low.

A: Felmy: I think there is enough to go around because all indications are, as the economists would say, is that the supply curve is really flat. In other words, when you have an increase in demand from exports you don’t kind of have a sharp increase in price. And if you look at the drilling data, you see that it tends to support that conclusion.

Q: Phillips: And why is that?

A: Felmy: It is because it is a huge resource, and the industry has been so creative at improving technology, such that we have gotten so much more gas from areas that we’ve never dreamed of. Where ten years ago we were talking about building all these LNG import terminals, and you had all these terminals built and so that was the consensus and everyone from Alan Greenspan on down.

Q: Phillips: The price of natural gas has gone up and down and up and down. And when you think about how much it costs to build an export facility, The Dominion proposal at Cove Point, Maryland is about $3.4 billion dollars, how do you manage that risk? It seems like a pretty risky thing.

A: Felmy: Lets let the market work. Lets not have government intervention. It’s the investors who are going to be taking the risk and things could change, but right now the U.S. is so far ahead of other countries, even though many other countries have huge deposits of shale gas, that we are going to have that opportunity for quite a while.

And so, if you look at the major competition internationally, right now it’s Australia and their costs have increased significantly. And if you look at the deposits in other areas like China, Argentina, and Russia they are large, but because of issues of rule of law, and ownership of the resource, because in most countries except for the United States, the government owns that gas. Here in the US private individuals can [own that gas]. Such factors are reasons why we are ahead and why we are likely to stay ahead.

Q: Phillips: So talk to me about the end user here, how feasible is it that we are going to be seeing cars run on natural gas?

A: Felmy: Well, only 3% of natural gas supply is being used in cars right now. It’s primarily fleets, busses, things like that. So you can expand the car fleet with natural gas, but it is very expensive.  So, it’s about $8,000 to convert car, at that level of expense the car will expire before you get your money back.

But for heavy duty trucks and fleets of cabs, that is a very viable option. We are also going to see a lot of growth in electric power generation. And because of emission restrictions we are already seeing a huge shift from coal to natural gas. We’re incidentally seeing a shift from nuclear to natural gas. For example, there’s a [nuclear] plant out in California, the San Onofre, they decided not to restart. Well, the only other alternative to supply that electricity is with natural gas.

Marcellus Shale Exports Could Transform Global LNG Market

Marcellus Shale Exports Could Transform Global LNG Market

JULY 25, 2013 | 10:14 AM
BY 

The offshore loading pier at Dominion has not received a ship importing liquefied natural gas since January 2011.

LINDSAY LAZARSKI / WHYY/NEWSWORKS

The offshore loading pier at Dominion has not received a ship importing liquefied natural gas since January 2011.

In energy-hungry countries, all eyes are on Pennsylvania’s Marcellus Shale gas. In a dramatic shift from just five years ago, the U.S. is looking to export, instead of import natural gas. And if more natural gas starts getting shipped abroad, Pennsylvania’s Marcellus Shale could help change the global market for natural gas, and lighting homes in Tokyo.

The U.S. currently has two export terminals, one in Sabine Pass, Louisiana, and the ConocoPhillips LNG export terminal in North Cook Inlet, Alaska. The U.S. Department of Energy just gave preliminary approval for ConocoPhillips to expand its Freeport, Texas import terminal to export liquefied natural gas. About 17 other export proposals now await approval by the DOE, including the Cove Point liquefied natural gas import terminal operated by Dominion Resources.

 

Lindsay Lazarski / WHYY/Newsworks permalink

The offshore loading platform (background) as seen from the Cove Point Lighthouse.

THE “SWEET SPOT” YIELDS A GLUT

In areas of northeast Pennsylvania, drillers say they’ve hit the “sweet spot.” In a drill rig several stories up above a Susquehanna County forest, gas workers guide a giant diamond drill bit, about the size of a basketball, as it cuts through the rock thousands of feet below. Steve MacDonald is in charge of this operation for Cabot Oil and Gas.

Cabot Oil and Gas public relations officer George Stark with a drill rig worker outside of the "dog house."

SUSAN PHILLIPS / STATEIMPACT PENNSYLVANIA

Cabot Oil and Gas public relations officer George Stark with a drill rig worker outside of the “dog house.”

“This is what we call our dog house, this is the command center of our operations up here,” says MacDonald. “This is our driller Mr. Reed here. He shows you how fast we’re drilling, how fast we’re pumping so he understands what’s going on downhole.”

Downhole in places like this Cabot Oil and Gas well, the company has struck gold, so to speak. Cabot’s natural gasproduction volumes and profits soared in 2012, exceeding all expectations.

And because of wells like these in Pennsylvania’s Marcellus Shale formation, a glut of natural gas has developed nationwide.  Domestic prices for natural gas have dropped about one-third, since July, 2008 before the shale boom really took off.

But overseas, prices are three or four times that.  So drillers here want to ship their gas abroad. The economist for the American Petroleum Institute, John Felmy says exporting Marcellus Shale gas makes sense.

“Because it’s such a vast deposit,” says Felmy, “and developing it, of course, can be used to supply other states as we’re doing now. But there’s likely to be so much of it that exporting it at a very good price would help in terms of keeping production going.”

API’s John Felmy talks to StateImpact Pennsylvania about exports.

As the price has dropped, production in some of Pennsylvania’s gas fields has tailed off.

PIPELINES LEAD TO IDLED IMPORT TERMINAL

In what some call a stroke of luck, the wells across Pennsylvania could easily be connected to an existing interstate pipeline system, which links up to a nearby import terminal.

One of seven holding tanks at Dominion's Cove Point Liquefied Natural Gas Terminal.

LINDSAY LAZARSKI / WHYY/NEWSWORKS

One of seven holding tanks at Dominion’s Cove Point Liquefied Natural Gas Terminal.

That import facility lies about 320 miles south of Susquehanna County, on a spit of land jutting out into the Chesapeake Bay, where large white cylindrical tanks are surrounded by a network of 32-inch pipes. The Cove Point liquefaction plant is operated by Dominion Resources. And Dominion also owns and operates a pipeline system that connects these tanks to Pennsylvania’s gas fields. It was only a couple of years ago when plans for that system were to use it for storage and transport between different markets on the East Coast. Today, the company wants to reverse the flow, transporting shale gas to their export facility in Lusby, Md.

The onshore liquefaction plant sits surrounded by a nature preserve. To get to the offshore dock, visitors have to head down into a tunnel and use a bicycle to travel beneath the water to the pier that lies out in the middle of the Chesapeake Bay.

Before any natural gas gets shipped overseas, it has to be cooled to minus-260 degrees Fahrenheit, the point where it becomes liquid. Export plants that liquefy the gas cost billions of dollars to build. So what they want to do at Cove Point’s idled import facility is spend the relatively bargain basement price of $4 billion converting it to an export facility.

The last time a ship docked at this pier was on New Years Day of 2011. Since then, the seagulls have moved in and made it home.  Hideaways beneath large pipes hold nests with chirping chicks. A nearby dump provides scraps of food, which the nesting birds bring back safely to this deserted pier, leaving the white-washed dock littered with chicken bones and bird poop.

Liquefied natural gas technician Ernest Ortiz monitors the process from the offshore control center.  Ortiz says he would love to start seeing ships coming to the dock. The last one to unload LNG was on New Years Day, 2011.

LINDSAY LAZARSKI / WHYY/NEWSWORKS

Liquefied natural gas technician Ernest Ortiz monitors the process from the offshore control center. Ortiz says he would love to start seeing ships coming to the dock. The last one to unload LNG was on New Years Day, 2011.

Dominion Resources spokesman Dan Donovan says this facility would make one of the best places in the U.S. to export natural gas.

“We have a world class dock and pier,” says Donovan. “We have the storage, we have a pipeline into what is now the second largest natural gas field in the world.”

Donovan’s point about the pipelines is key.

The company’s plan for their pipeline system used to be to pump imported natural gas to states like New York, New Jersey and Ohio. But their plans have changed almost overnight.

“No one saw this coming,” says Donovan.

FUKUSHIMA AND THE SHALE GAS REVERSAL

And Dominion wasn’t the only industry player surprised by Marcellus Shale production.

Wolfgang Moehler is the director of global LNG, the shorthand for liquefied natural gas, for the firm IHS Global.

“[The years] 2007, 2008, the assumption was that the U.S. would become, in the next ten years, the largest gas importers in the world,” says Moehler.

But today, that assumption has been turned on its head, thanks in part to all those productive Marcellus Shale wells, and the March, 2011 nuclear disaster in Japan.

Japan’s energy situation changed dramatically back in March 2011. Before the meltdown at the Fukushima Daiichi plant, nuclear energy supplied a third of Japan’s needs. Where it once had 50 nuclear reactors, today the country is down to just two.

Photo taken from a Kyodo News helicopter over the town of Okuma, Fukushima Prefecture, shows the Fukushima Daiichi Nuclear Power Station on July 9, 2013. Tokyo Electric Power Co., the operator of the crippled plant, said the same day that the density of radioactive cesium in groundwater by the sea at the plant has soared to around 90 times higher than three days ago.

KYODO/LANDOV

Photo taken from a Kyodo News helicopter over the town of Okuma, Fukushima Prefecture, shows the Fukushima Daiichi Nuclear Power Station on Tuesday, July 9, 2013, more than two years after the meltdown. Tokyo Electric Power Co., the operator of the crippled plant, said the same day that the density of radioactive cesium in groundwater by the sea at the plant has soared to around 90 times higher than three days previous.

Analyst Wolfgang Moehler is watching a dramatic shift in the global LNG market, partly due to increasing energy needs in developing countries like India, and the loss of nuclear energy in Japan.

“So a significant amount of that electricity production had to be substituted from fossil fuel generation,” says Moehler.

Japan was already the world’s largest importer of natural gas, but since Fukushima, the pace has increased steadily. Moehler says Japan would love to snag some of that cheaper American gas coming from Pennsylvania’s gas fields. And Pennsylvania’s gas producers would love to sell at a higher price.

He explains that importing nations like Japan are locked into long-term natural gas contracts tied to the price of oil.

“The emergence of the U.S. now as a potential exporter opened up a competition,” said Moehler. [Energy companies in countries like Japan] could also go back to their traditional producers and say well we have a different opportunity, we have to renegotiate the price. So Fukushima has a very very strong impact on Japan’s decision making in that regard.”

SHIFTING GLOBAL LNG MARKETS

Photo shows the inside of the world's largest liquefied natural gas tank in Yokohama near Tokyo, unveiled by Tokyo Gas Co. on March 13, 2013.

KYODO/LANDOV

Photo shows the inside of the world’s largest liquefied natural gas tank in Yokohama near Tokyo, unveiled by Tokyo Gas Co. on March 13, 2013. Japan’s imports of LNG hit a monthly record of 8.23 million tons in January.

But Dominion Resources still has a number of hoops to jump through before it starts piping in Marcellus gas, liquefying it, and shipping it out. IHS analyst Wolfgang Moehler says despite current contracts with neighboring countries like Australia and Indonesia, it may still be cheaper for Japanese energy companies to pay for the Cove Point conversion, and the extra transportation costs of shipping LNG through the Panama Canal to the Pacific rim. This is how good a deal Marcellus Shale gas seems to companies in Japan. Sumitomo Corporation, a Japanese trading company and its U.S. affiliate Pacific Summit Energy, has agreed to help foot the almost $4 billion bill to convert Cove Point to a natural gas export terminal. That company, along with the U.S. affiliate of India’s GAIL Ltd., have signed 20-year service agreements with Dominion to provide natural gas. Sumitomo has since announced that the exported gas would be sold to Tokyo Gas and Kansai Electric Power.

First, the U.S. Department of Energy has to approve any deals with non-free-trade countries, and determine if they’re in the public good. Dominion’s Dan Donovan says they’re pretty confident their proposal will gain approval from the DOE. The Federal Energy Regulatory Commission also has to weigh in. The state of Maryland has to issue about 30 different permits.

LNG EXPORT OPPONENTS

And not everyone is thrilled with LNG exports. American manufacturers don’t like the plan, because cheap natural gas has helped domestic factories become more cost-efficient.  They say exports would raise prices at home.

Listen to StateImpact’s interview with George Biltz of Dow Chemical.

On the environmental front the Sierra Club is challenging the Cove Point plan in court.

Sierra Club attorney Craig Segall says regulators should not turn a blind eye toward the impact of increased production in natural gas fields like Pennsylvania.

Cove Point Lighthouse sits within sight of the Cove Point LNG terminal.

LINDSAY LAZARSKI / WHYY/NEWSWORKS

Cove Point Lighthouse sits within sight of the Cove Point LNG terminal.

“So if that continues, you wind up making these really large national energy policy decisions,” says Segall, “not just here [in Cove Point] but cumulatively across all these terminals and never ask this serious question. This implies x percent increased methane emissions, y percent increased wastewater production, and as a result, increased wastewater capacity in the fracking states.”

Segall wants the federal government to study the larger upstream impacts.

Natural gas exports may be a good deal for drillers, their investors, and  landowners who leased their mineral rights. But Segall thinks more thought should be given to Pennsylvanians who get few of the benefits of drilling but most of the burdens.

So what would Segall say to someone living in Tokyo, facing rising energy costs?

“I think that’s absolutely the hardest question,” he told StateImpact.

Segall says renewables should be pursued. But in the meantime, he has no easy answer.

“But there’s always this question of equity,” he says. “There’s a question about how do we provide energy globally. And there’s the question about who suffers where energy is produced and who wins, upstream in Pennsylvania or anywhere along the supply chain.”

Segall also says the increased tanker traffic in the Chesapeake Bay could upset its already threatened ecosystem.

Dominion Resources says converting the Cove Point plant will create thousands of new jobs in Maryland and upstream in Pennsylvania.

The company expects the Department of Energy to make a decision on its application by the end of the year.

BOOM IN NATURAL GAS PRODUCTION SENDS U.S. SHIPYARDS INTO OVERDRIVE

featured-img

AP

Boom In Natural Gas Production Sends U.S. Shipyards Into Overdrive

The Great American Energy Boom is having a major ripple effect on the shipbuilding industry, which thanks to a 1920s maritime law, is busier than it has been in decades.

Some ten supertankers are currently under construction at U.S. shipyards, with orders for another 15 in the pipeline. That may not seem like a huge number, but considering there are only about 75 such tankers plying American ports now, it represents a genuine boat-building boom.

“We haven’t seen something like this since the 1970s,” Matthew Paxton, president of the Shipbuilders Council of America said to FoxNews.com. “The movement of more oil has built up a real commercial shipbuilding renaissance.”

The renaissance comes despite an economy that continues to struggle. It’s because of a specific sector of the U.S. economy that is also booming: natural gas production. The fuel must be transported, even within the country, either by rail, pipeline or ship. And if it is by ship, the ship must be American-made and American-manned, according to the 1920s Merchant Marine Act, also known as the Jones Act.

Paxton said that it is projected that up to 3.3 million barrels will be shipped out daily from the Gulf Coast by 2020, destined for ports along the east and west coasts, causing huge demand for tanker ships.

“It could be higher as more and more tankers are built,” he said.

With record amounts of gas and oil being extracted from shale by the process of fracking, the U.S. has seen an energy boom in recent years that has proponents calling it the Saudi Arabia of natural gas. Much of the fuel is being exported, but most is staying here, being distributed around the nation for domestic use.

Investing in natural gas

29 August 2013

Investing in natural gas

By Bryan Borzykowski
Is it a good idea to invest in natural gas?(Thinkstock)

British Columbia is best known for its beautiful mountain views and world-class skiing, but by 2015 it could be famous for something else: natural gas transportation.

That may not sound as exciting as a night out in Whistler, but if the Canadian province can successfully build North America’s first major liquefied natural gas terminal, it could dramatically alter the energy industry. With many people’s money tied up in energy stocks, it could boost the average investor’s returns too.

While other LNG terminals in places like Malaysia, Qatar, Yemen, Australia and Norway already send gas to Europe and Asia, it is cheap, abundant North American gas, that many utilities and gas companies are waiting to get their hands on. Demand for the commodity is highest in Asia.

One reason why people are excited about North American gas is that many gas-using companies want to buy from a locale that doesn’t face political risks, said Maartin Bloemen, a Toronto-based portfolio manager with Templeton Global Equity Group. European companies import a lot of gas from Russia, while Japanese and Chinese businesses buy from the Middle East.

Currently, natural gas sells for about $3.50 per 1,000 cubic feet in North America; it goes for $9 in Europe, and about $16 in the growing Asian market. Many investment experts think that once China, Japan and other markets get a hold of North America’s abundant supply of gas, the price gap between North American and Asian gas could close, said Ted Davis, portfolio manager at Denver-based Fidelity Investments.

A more global gas market could give people’s investment portfolios a boost. — Andrea Williams

A more global market could give people’s investment portfolios a boost, said Andrea Williams, a London-based portfolio manager with Royal London Asset Management. Since 2008, investors around the world have suffered from falling North American natural gas prices. The price of gas plummeted by about 85% over the last five years and that has impacted the earnings and stock prices of the many energy operations exposed to the region.

If North American gas prices rise, so too should the fortunes of the continent’s companies, said Davis. Conversely, if gas prices fall overseas — it’s likely they’ll drop somewhat after North American supply hits Asian shores, said Williams — the Russian, Middle Eastern and Australian companies that supply Europe and Asia now could be in trouble, she said.

Getting excited

While the first North American gas plants are still a couple of years away from being built, investors are already getting excited about North American investment opportunities, said Davis.

According to the US Energy Information Administration, North America produces the most natural gas out of any region in the world. With such rich resources, many companies will be able to grow production for decades, said Davis. Right now, all that production is a problem — there’s not enough domestic demand to reduce supply — but investors are anticipating that once gas goes offshore, that imbalance will be fixed.

Historically, European and emerging market producers traded at a premium to North American companies, but that’s starting to change. For example, Russian energy companies have traded at an average 24% premium over the past decade, but now trade at a 70% discount, said Davis. Major European energy companies have traded at a 26% premium over the last 10 years, but now trade at a 27% discount.

Despite the rising valuations, Davis still thinks that North America companies are the better bets in this changing energy environment.

Best bets?

The best bets are the mega-cap energy players, such as Chevron, Royal Dutch Shell and ExxonMobil, said both Williams and Bloemen. Many already have a stake in LNG terminals being built in North America. They are also buying stakes in terminals in Australia, which will help get gas off that continent, too.  In addition, these heavyweight companies have a leg up on signing long-term contracts with utility companies.

“You want someone who already has projects on the go,” Bloemen said. “Newer projects are way behind the eight ball and you want to own a company that can scale up easily.”

Williams is partial to integrated producers — companies that sell gas, but also produce and refine oil as well. These operations are more diversified and should therefore be better able to withstand short-term volatility in the sector than a pure gas producer, she said.

While Davis is keen on the bigger players too, he also suggests looking at small North American exploration and production companies, such as EOG Resources and Apache Corp, which have been much more successful at finding resources than their European and Asian peers.

These operations aren’t necessarily involved in transporting gas overseas, but they are assisting other nations, such as China, Latin America and the U.K., tap into their own gas fields.

“These are the companies that took the risk and unlocked these resources over time,” said Davis. “Their technology will be applied elsewhere in the world.”

Energy experts say there’s no question that global demand for natural gas is increasing and that the industry will forever change once natural gas gets shipped from North America to Asia. While it’s likely big global companies that will benefit first, nearly all investors with exposure to the energy sector should see some bump in their portfolio starting in 2015, said Williams.

“We’re happy to invest in this sector,” she said. “As emerging markets become more westernised, the need for gas will just go up.”

Follow us on Twitter @BBC_Capital

Energy’s unexpected jobs boom

Energy’s unexpected jobs boom

September 5, 2013: 10:17 AM ET

How America’s oil and gas revolution is helping consumers and workers.

By Daniel Yergin

<> on January 18, 2012 in Dimock, Pennsylvania.

FORTUNE — The rapid rise in shale gas and tight oil in the United States constitutes nothing less than a revolution in oil and natural gas. No longer can there be any doubt about the dramatic change in America’s energy position. U.S. oil production is up 50% since 2008, when we were supposedly slated to run out of oil. Natural gas production has increased by 33% since 2005, and shale gas alone now constitutes about 45% of total natural gas production.

This revolution is not just about energy production; it’s an economic story along several dimensions, whether measured in consumers’ pocketbooks, jobs, U.S. manufacturing output, or America’s increased competitiveness in the world economy. This has occurred amid a half-decade of deep recession and high unemployment. Indeed, without the boost from the unconventional oil and gas development, the U.S. economic picture would have looked even worse over the last few years.

According to a new study from my organization, IHS, entitled “America’s New Energy Future: the Unconventional Oil and Gas Revolution and the Economy — A Manufacturing Renaissance,” the unconventional energy boom increased average household disposable income in 2012 by $1,200 — a figure that is expected to grow to $2,700 by 2020. That boost is mainly the result of two factors. First, households are spending less of their total income on utilities, whether directly for less-expensive natural gas or by lowering the cost of electricity generated with natural gas. Secondly, lower energy costs have led to a reduction in the cost of goods and services within the broader economy.

MORE: 100 Fastest-Growing Companies

Government revenues are also seeing a boost on account of the rise of new energy production. The value chain associated with shale gas and tight oil contributed over $74 billion in additional federal and state government revenues in 2012 — that figure is expected to reach over $125 billion by 2020.

The unconventional energy employment picture is equally impressive. Unconventional oil and gas (this does not include conventional oil and gas) supported 2.1 million jobs in 2012 along the entire value chain. That number is expected to rise to 3.3 million by 2020. These jobs include people working in the shale gas and tight oil industry, in related industries such as oil services and information technology, and people whose jobs are supported by the increase in spending that has flowed through the economy.

These additional jobs are spread throughout the United States. New York State may count itself a holdout with its ban on hydraulic fracturing, or “fracking.” Notwithstanding the ban, almost 50,000 jobs in New York result from shale gas and tight oil activity in other states.

Abundant, low-cost natural gas — brought on by the emergence of shale gas — is also transforming America’s position as a manufacturer. It is boosting companies that make products that this new oil and gas industry needs, such as steel and pipes. It is important on an even larger scale for businesses that rely heavily on natural gas or electricity generated with natural gas — ranging from petrochemicals and fertilizer, to food producers and glass manufacturers. For these companies, low-cost natural gas is a game changer and will stimulate an estimated $350 billion of new investment in the United States over the next dozen years. Such growth would have seemed inconceivable half a decade ago, when the expectation was that American manufacturers — and the entire U.S. economy — would have to depend increasingly on high-cost imports of liquefied natural gas as well as high-cost domestic gas.

The price of energy is, of course, only one component in a company’s investment decisions, along with such other factors as market forces, competition, and regulatory and litigation risks. But energy costs are critical just the same, and have made the United States much more competitive in the world economy. In Europe, natural gas costs three times as much as in the United States; in Japan, it’s more than four times as costly.

Business leaders in Europe are aware of America’s current energy advantage, and they are sounding the alarm. The chief executive of Austrian steel company Voestalpine, Wolfgang Eder, declared that “the exodus” from Europe has already “started in the chemical, automotive, and steel industries.” Indeed, Voestalpine announced plans to build a half-billion-dollar plant in Texas to produce iron that it would ship back to Austria for fabrication into steel. European suppliers will follow their customers across the Atlantic, building new factories in the United States to be near their customers’ new factories.

MORE: America’s historic gusher

This summer, I asked IMF managing director Christine Lagarde what the development of shale gas means for Europe’s troubled economy. “Shale gas and the reduction in energy prices,” she said, is “certainly to the advantage of the U.S. relative to Europe.”

This advantage will be measured in growing exports of manufactured products from the United States — and more jobs. For Europe, this development only adds to its angst. For the United States, this demonstrates the widening opportunity resulting from the rise of unconventional oil and gas.

Daniel Yergin, vice chairman of IHS, is author of The Quest: Energy, Security, and the Remaking of the Modern World.

Posted in: Daniel Yergin, economy, energy, fracking, jobs, Shale gas, The Quest, Tight oil

Louisiana LNG Export Proposal Approved Other Requests Pending Amid Concerns About Sending Gas Abroad

 

POLITICS Updated August 7, 2013, 8:32 p.m. ET

Louisiana LNG Export Proposal Approved

Other Requests Pending Amid Concerns About Sending Gas Abroad

By TENNILLE TRACY CONNECT

WASHINGTON—A third proposal to export U.S. natural gas won a government green light Wednesday, signaling the approval process is on a faster track despite some concerns that greater exports will raise natural-gas prices at home.

 

The three projects approved by the Department of Energy would have the capacity to ship 5.6 billion cubic feet of gas a day, or about two trillion cubic feet a year. The U.S. produced about 25 trillion cubic feet in 2012.

 

The latest approval was awarded to Lake Charles Exports LLC, a venture between U.K.-based BG Group PLC and Texas-based Energy Transfer Equity LP that plans to ship up to two billion cubic feet a day from Lake Charles, La. The approval lasts for 20 years and permits sales to countries that lack free-trade agreements with the U.S., including some in Europe and Japan.

 

Energy companies are seeking to take advantage of increased U.S. natural-gas production and robust demand around the world. More than a dozen export proposals are still pending before the Department of Energy.

 

Senate Republicans have urged the Department of Energy to move quickly to approve more export permits, in part because allies are lining up to buy U.S. natural gas. Sen. Lisa Murkowski (R., Alaska) said foreign governments “routinely express their concerns over long delays, as well as the uncertainty surrounding the timeline for review.” Asian countries are particularly hungry for U.S. natural gas. Japan, which is seeking alternative fuels to generate electricity after shutting most of its nuclear power plants, has asked the U.S. to expedite approvals.

 

Although demand is strong, the U.S. is competing with Canada and other nations preparing export plants. Analysts say there is a limited window of opportunity to secure global buyers.

 

The Lake Charles project still needs permits from another federal agency, the Federal Energy Regulatory Commission. FERC approval requires a review of detailed plans, but it is considered less political.

 

The Department of Energy has received requests to ship about 30 billion cubic feet of natural gas per day, but many analysts say fewer than 10 billion cubic feet of export capacity will actually be built. One major reason is the multibillion-dollar cost of building export facilities, which cools natural gas to negative 260 degrees Fahrenheit—turning it into liquefied natural gas, or LNG—before shipment.

 

After issuing Cheniere Energy Inc. the first export approval to non-free-trade-agreement nations in 2011, the Obama administration held off for more than a year as it studied the economic impact of exports. The second green light came in May for a Texas project, and it took less than three months to get to the third approval Wednesday.

 

Moody’s Investors Service has predicted only four export projects were likely to be built, dictated in part by a company’s spot in the queue at the Department of Energy, which has said it would evaluate projects on a first-come, first-served basis.

 

The energy company Dominion Resources Inc. is next in line with its Cove Point project in Maryland, which is seeking approval to ship one billion cubic feet of natural gas a day.

 

Some U.S. manufacturers and their allies on Capitol Hill have questioned the wisdom of allowing unfettered exports, saying the result could be higher prices at home and less competitiveness for U.S. industrial companies that use gas as a feedstock. Several manufacturers—including Dow Chemical Co., Alcoa Inc. and Nucor Corp. —formed a coalition earlier this year to resist the wave of export proposals. “Each permit approval brings us closer to the point that would begin to harm the manufacturing renaissance,” the coalition, known as America’s Energy Advantage, said in response to Wednesday’s approval.

 

Sen. Ron Wyden (D., Ore.), the chairman of the Senate Energy and Natural Resources Committee, said Wednesday that each new permit raises the bar for the Obama administration “to prove these exports are in the best interests of American consumers and employers.”

 

A Department of Energy study last year said natural-gas exports would be good for the U.S. economy and that net economic benefits increased as the level of exports increased. “We believe the process established by the department is fair, transparent, and consistent,” Department of Energy spokesman Bill Gibbons said.

 

—Keith Johnson and Ben Lefebvre contributed to this article.

Write to Tennille Tracy at tenn