With U.S. Natural Gas Booming, a Move to Send It Overseas

Nelson Roe has been more than just an amazed observer as the shale gas boom has advanced into eastern Ohio.

A banking IT analyst in the small city of Cambridge (map), about 100 miles west of Pittsburgh, Roe watched as the natural gas companies that have been swarming Pennsylvania made their inevitable move across the state line. The firms began inking deals to drill on private land, using the new combination of technologies that can unlock vast reservoirs of fuel locked in the rock formation called shale more than a mile underground.

(Related interactive: "Breaking Fuel From Rock")

(Related: "The Science of Shale Gas")

Roe signed an agreement that gives Oklahoma City's Gulfport Energy the right to prospect for gas on his 59-acre (24-hectare) parcel in return for a signing fee and future royalties. And he's watching his neighbors make similar moves.

"Leasing is going nuts right here, right now," Roe said. As eager as he is to sell the fuel beneath his land, Roe says there is one cross-border move by the natural gas companies he is hesitant to endorse: The burgeoning effort to begin exporting the newly abundant U.S. natural gas by tanker to markets around the world.

"I personally believe it should stay here to meet our needs," he said, adding that he would be more open to the idea if the United States were known to have a surplus. But "if it is going to jack the prices back up, I would probably be less favorable," he said.

Seeking a New Outlet

The opinion of people like Roe may well decide the future of U.S. natural gas in the coming years. Some in the gas industry believe that supplies now are so abundant that the United States could become for the first time a major global player in the fuel trade. Last month, the first such deal was signed-an $8 billion agreement by Britain's BG Energy to purchase liquefied natural gas (LNG) supplied from a coastal terminal to be built by Houston's Cheniere Energy. The assured buyer will help Cheniere obtain financing, but the company still must obtain U.S. government approval to construct a facility on the Louisiana coast to liquefy and concentrate the natural gas for export by tanker by chilling it to minus-260°F (-160°C).

As recently as five years ago, worries were high that the United States was running out of natural gas, and debate was raging over dozens of proposals for coastal LNG terminals, including one by Cheniere-to import gas. Only a few of those were ever approved. In the post-9/11 world, the idea of new supertanker traffic hauling potentially hazardous cargo near cities did not sit well in many communities. Moreover, those ships meant new energy dependence on countries like Nigeria, Trinidad, and Algeria. Cheniere built its terminal, at a cost of $1.4 billion, but it is now mostly idle.

Now, the question that policymakers face is reversed: Should the U.S. clear the way for construction of marine terminals to export the gas overseas?

Thanks to production from shale formations like the Marcellus in the Northeast, Barnett and Eagle Ford in Texas, Haynesville in Louisiana, and Fayetteville in Arkansas, the United States is awash in natural gas. Production, which had been on the decline as recently as 2005, was up 20 percent as of last year-virtually all of that increase due to high-volume water fracturing of shale. Imports, mostly through gas pipeline from Canada, have fallen dramatically.

Most importantly for U.S. consumers, natural gas prices have fallen 40 percent since 2005, and low prices are projected far into the future. For homeowners in the U.S. Northeast, the price of natural gas for home heating, when compared to oil heating, is at an all-time low.

(Related: "With Record Heating Oil Prices Expected, Homeowners Dash to Gas")

And states like Pennsylvania, in the center of the Marcellus shale boom, are dramatically increasing their use of natural gas instead of coal to generate electricity.

But those low prices have put the squeeze on many natural gas producers. And with natural gas selling in China for up to four times as much as the current U.S. spot price of about $4 per thousand cubic feet (mcf), it's no wonder that they are looking to capitalize on the new U.S. abundance by selling the gas overseas.

Which Way for Gas Prices?

For Cheniere, it would be a chance to revive its moribund import terminal at Sabine Pass, Louisiana, but conversion to exports will require a $6 billion investment in liquefaction infrastructure. Cheniere's plan and other proposals awaiting U.S. government approval seek export of up to 6.6 billion cubic feet per day, about 10 percent of the nation's output, according to Chris Smith, deputy assistant secretary for oil and natural gas in the U.S. Department of Energy's Office of Fossil Energy. (Cheniere has approval from the department to export the gas, but still needs construction permits from the Federal Energy Regulatory Commission.)

Speaking at a U.S. Senate Energy Committee hearing last week, Smith said his agency is evaluating the economic effect of increased exports in terms of consumer price, jobs created, and increased gross domestic product; it expects to release a report next year.

Among those fearful that sending natural gas overseas will increase the price for U.S. consumers are the 1,000 publicly owned, not-for-profit gas utilities across the country. "Today, for the first time in a very long time, gas prices are affordable and stable, as contrasted with the price volatility experienced for most of the past 20 years," said Jim Collins, head of underground utilities for the city of Hamilton, Ohio, the largest city-run natural gas utility in the state, speaking on behalf of the American Public Gas Association. The "single greatest threat" to the new stability, he argued, was the move to export and "become part of a global and unstable natural gas market, just as we have with oil."

He argued that exporting LNG would once again tie natural gas to the price of oil, which is "substantially more volatile and less transparent."

(Related: "Crude Reality: Gas Prices Rocket Because They Can")

But Kenneth Medlock, a fellow in energy and resource economics at Rice University's Baker Institute for Public Policy, countered that U.S. gas prices would rise to meet international prices only if supply could not increase to meet demand. And the large U.S. resource estimates and improvements in production techniques bode well for supply domestically. He said the impact of U.S. exports could well be mainly in foreign markets, where the new supply drives the price of gas down overseas.

Meanwhile, in Youngstown, Ohio, long an economically suffering area, there's been a resurgence in some steel production thanks to demand for pipe used to drill in the Marcellus shale in neighboring Pennsylvania.

(Related: "Natural Gas Stirs Hope and Fear in Pennsylvania")

And deals are being made for more shale drilling in Ohio, as Ron Eiselstein can attest. He works with a land management company that brokered the gas rights to a collection of parcels there last month. Eiselstein says there has been a storm of deals, and he can see the economic impact in the steady increase in tankers transporting water to and from wells that are being hydraulically fractured.

"It's kind of like controlled madness," he said. Eiselstein says he believes some of that newfound wealth should be sent overseas.

"Get it to the ports and start selling it," he said. "Otherwise we're going to be sitting on a glut."

(Related: Special Report: The Great Shale Gas Rush)

Randall Leonard is a reporter for Medill News Service.

This story is part of a special series that explores energy issues. For more, visit The Great Energy Challenge.