Oversupply of Natural Gas Leads to Export Opportunities

PR Newswire
October 3, 2011

Dominion Files With Department of Energy to Export LNG From Cove Point to Non-FTA Countries

Dominion Resources, Inc. has filed the first phase of a two-phase export authorization request with the U.S. Department of Energy to allow exports of natural gas from its Dominion Cove Point liquefied natural gas (LNG) facility, located on the Chesapeake Bay in Lusby, Maryland. Thomas F. Farrell II, chairman, president and chief executive officer of Dominion, said: “Dominion Cove Point has connections to several interstate pipelines and is well-positioned to provide export customers access to abundant and diverse domestic gas supply. The facility is particularly well-situated to export gas production from the prolific Marcellus Shale and promising Utica Shale formations. It is in our nation’s best interests to develop our natural resources responsibly and reliably. In the process, we will be able to improve the nation’s balance of trade.” The application filed by Dominion asks for permission to export up to 1 billion cubic feet per day, or 7.82 million metric tons per year, over a 25-year term to any country with which the U.S. does not prohibit trade. In order to export natural gas, Dominion would have to add liquefaction facilities to the existing Dominion Cove Point LNG import terminal. Construction of the new facilities could potentially begin in 2014 with an in-service date at the end of 2016.

This is an interesting development. With the advances in hydraulic fracturing and horizontal drilling, and the numerous shale plays around the country, the nation’s natural gas supply is surging. At the same time, domestic demand is somewhat flat, given the impacts of the recession on energy demand. So all this gas needs to find a home, and existing LNG import facilities are being expanded to accommodate the export of LNG. One consequence, of course, is that natural gas prices will be somewhat higher in the U.S., since gas supplies that would otherwise depress the U.S. price will instead be sold abroad. According to Dominion’s filing with DOE, exports from its Cove Point terminal would have only a “limited impact” on domestic gas prices. The addition of Cove Point exports to the mix would cause Henry Hub prices to exceed $6 in 2027, two years earlier than in the reference case. Henry Hub prices would be $5.27 in 2020, a 5.7% increase; $6.61 in 2030, a 4.1% increase; and $9.16 in 2040, a 6% increase. Apart from the “limited impact” on domestic gas prices, the prospect of natural gas from the Marcellus shale (and other shale plays around the country) being exported makes the case less compelling for tolerating environmental damages in the interests of “energy independence.” Sure, the export of LNG will help the nation’s balance of trade, as noted by Dominion’s CEO, Tom Farrell. That’s a matter of simple mathematics that if exports increase, the trade imbalance will decrease, and Dominion’s economic studies suggest the LNG export facility could lead to a reduction of the U.S. trade imbalance by at least $2.8 billion annually, and possibly as much as $7.1 billion. Are West Virginians enthusiastic about tolerating the environmental and community impacts of shale gas development in the interests of lowering the world’s price of natural gas and improving our balance of trade? Doubtful A better outcome would be to develop the nation’s infrastructure to use natural gas as a means of reducing dependence on foreign oil, such as implementing the Pickens Plan to convert large trucks to run on compressed natural gas (CNG). Let’s keep the natural gas at home and use it to displace foreign oil, rather than export it. That, too, would reduce the nation’s balance of trade, but by reducing imports not increasing exports. The math works just as well that way, but also promotes energy security and energy independence.