US shale revolution hinges on exports, execs say

The United States is uniquely positioned to harvest newly accessible natural gas reserves and sell the fossil fuel overseas — but that hinges on the Energy Department’s support for exports, executives said Wednesday.

Not every country can — or will — mirror the United States’ shale drilling surge, said Chevron Gas and Midstream President Joseph Geagea. That gives the U.S. an edge in competing for surging Asian demand for natural gas, as Japan and other countries move away from nuclear power.

“The U.S. model cannot be easily duplicated,” Geagea told delegates at IHS CERAWeek. “Conditions were right for a shale revolution: Technology and expertise was available; the pipeline infrastructure was very well developed; (and) the regulatory system was conducive.”

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The Energy Department is tasked with vetting more than a dozen applications to sell American natural gas to Japan and other countries that don’t have free trade agreements with the United States. Tied to the proposals are plans to build multi-billion dollar facilities for liquefying natural gas and pumping it into tankers to send overseas.

It’s unclear how many export proposals and facilities will win approval from the Energy Department and Federal Energy Regulatory Commission; so far, just one — Cheniere’s Sabine Pass plant in Louisiana — has gotten the government’s blessing.

“LNG projects are massive, complicated and very expensive,” Geagea noted. Getting them off the ground requires “a long-term framework in which free trade principles must apply,” and where those policies aren’t “revisited every few years for political convenience.”

“We really need certainty in that debate,” Geagea added. “Whatever the United States decides to do, we need it to stick . . . so (companies) can have the certainty their investment is not going to be shut off in two years time.”

LNG export terminals are more expensive than the regasification facilities and import terminals built years ago, when the United States was on track to boost the amount of natural gas it bought from other countries. And costs can quickly escalate, noted Peter Coleman, CEO of Australia’s Woodside Energy.

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Four of the seven LNG export terminals under construction in Australia have already announced “significant cost increases,” Coleman said. Already, the seven facilities represent some $215 billion in combined investment, Coleman said.

A surge of liquefied natural gas in world markets could cause continued erosion in long-term pricing contracts indexed to oil, executives widely predicted at CERAWeek yesterday. But forecasts differed on whether — and where — new natural gas hubs might develop around the world. Possibilities include Singapore and Shanghai.

Chevron’s Geagea said hubs can develop and be successful if built on liquidity and infrastructure, but “few pipelines go across (Asian) borders.”

Cheniere CEO Charif Souki said natural gas flowing through Europe and Asia will support new hubs.

“If you bring enough liquidity into the market, you will see a hub developing,” he said.

But Souki anticipates natural gas consumers will still buy the fossil fuel in a mix of ways. “It is entirely plausible for a buyer to pick his menu,” Souki said, with some long-term contracts indexed to oil even as he purchases “cheaper gas somewhere else.”

Yves Vercammen, general manager of trading and shipping for ENI, predicted that gas-to-gas indexed contracts are here to stay in Europe, but the jury is out elsewhere.