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DOE, Environmental groups blocking access to lucrative LNG market

April 10, 2012

Despite vast reserves of unconventional natural gas that have sent prices plummeting (and made many shale plays uneconomic), US gas producers are missing out on an international market hungry for natural gas in its liquified form.   Although the global market is growing at 40% annually and is expected to reach a demand of 300 million tons per year, US producers are functionally locked out of the market because of the lack of liquefaction and export terminals.  There is currently only a single terminal available for producers wishing to export gas – the Sabine terminal on the Texas/Louisiana border.  A second terminal in Kenai, Alaska, is currently shut down and its owners are evaluating the 50 year old facility for future use.  However, its location rules it out for use by the massive shale plays in the lower 48.  There are multiple projects planned to build new facilities that could allow US companies to ship their goods overseas – creating jobs in construction and running of the plants, and maintaining jobs in the extraction industry – but they are held up for approval by the Department of Energy, under pressure from environmental groups who believe that they can stop fracking by limiting access to lucrative overseas markets.

As reported last weekend in Oilprice.com,

Now what about building LNG liquefaction plants?  Unit Economics says it can cost $3 billion for each million tons of annual capacity for the entire liquefaction supply chain, which includes production, pipelines, the port and the facility itself.

The Wall Street Journal reports there are seven additional projects seeking approval from the Department of Energy to ship LNG to most foreign nations. If all of these projects gain approval they could handle about 25 percent of U.S. gas production. However, the news source reports that approval for all of the facilities is unlikely.

An additional hurdle to the LNG market in the U.S. is political opposition to sending the energy source overseas. The American Chemistry Council has warned the U.S. government that it “should not undermine the availability of domestic natural gas,” but is not necessarily against exporting the substance.

The Sierra Club is concerned that exporting more natural gas will cause companies to increase their fracking operations. While there has been little to no evidence that fracking itself harms the environment, a groundswell of opposition to the practice has emerged, making investing in greater production difficult for the industry.

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