LNG Exports: The Newest Economic Engine, Or A Fad That Will Pass?

By Richard Nemec | April 2012, Vol. 239 No. 4

At the end of 2011, the shale boom continued to spawn new-found expectations for U.S. oil and natural gas resources that contain large opportunities for the pipeline and other infrastructure sectors that are quietly riding the production upswing. Resulting low domestic gas prices relative to other global markets have sparked a scramble for export licenses to ship liquefied natural gas (LNG) to Europe and Asia.

The roughly decade-old strategy fostered by declining reserves in Canada and the United States that sparked a building boom for LNG import facilities on both coasts and the Gulf of Mexico (GOM) has been turned upside down. As a result, the infrastructure firms are gearing up for a new building boom to support exports.

How and where it rolls out is yet to be determined, and may take several years to be sorted out, but in early 2012 it looks like all major coastal regions could have serious export projects and related facilities in the preconstruction stage. The activity should include Alaska and the U.S.-Canadian West Coast, which observers like the consultants at Canadian-based Ziff Energy Group think will be the leading locations for exporting gas.

In December, Ziff published a report, “North American LNG Exports,” identifying 10 proposed export sites – one on the East Coast, four in the GOM, and five on the U.S./Canada West Coast. It concludes that continued wide differences between U.S. gas prices and the rest of the world will make U.S. LNG exports inevitable.

At year-end, a Congressional Research Service report estimated that total LNG export proposals cumulatively would reach 12.5% of the current U.S. annual natural gas production in 2011. The report noted that pipeline exports, which accounted for 94% of the nation’s gas exports in 2010, were also expected to rise.

Surprisingly, various industry players with interests in future exports all talk fairly bullishly about the economic and technical logistics needed to build multibillion-dollar liquefaction facilities and related infrastructure, such as transmission pipelines and various gathering pipeline systems. Most of the time-consuming part of the export development involves regulatory and political hurdles, they say.

Energy consultants at Wood Mackenzie (Woodmac) assume it will take 10 years to get a North Slope gas-driven LNG export project going out of the Port of Valdez on the east side of the Kenai Peninsula in Alaska. Others think two or three years could be shaved off of that, but the key finding in a Woodmac report in mid-2011 was that Alaskan LNG exports potentially could generate up to $419 billion during the 30-year life of a project for the U.S. economy, particularly in Alaska.

Competing interests for a pipeline through Canada to the United States, which has been a focus of many pipeline and infrastructure companies, particularly Calgary-based TransCanada Corp., argue an export option does not meet regulatory and other economic hurdles.

Four years ago a consultant’s report to Alaskan government officials said an export project would “likely confront significant, expensive, and time-consuming barriers” based on a myriad of requirements for applications to, and approvals by, a host of federal agencies, not to mention U.S. State Department and national security concerns. By contrast, the report found a pipeline-only approach through Canada confronts none those problems, according to the authors, Greenberg Traurig LLP, writing back in 2008.