Can u.s. natural gas rescue ukraine from russia – the washington post electricity outage houston tx


It isn’t that easy. The cost of getting U.S. gas supplies to Europe and the lack of infrastructure on both sides of the Atlantic are major obstacles. Plus, Asian customers are offering higher prices. Opponents of gas exports (including consumer groups and petrochemical companies) say that some businesses and politicians are using the Ukraine crisis as an excuse to export. Proponents, by contrast, complain that the Energy Department is dragging its feet.

Both the Senate Energy and Natural Resources Committee and the House Energy and Commerce Committee have hearings on the issue set for Tuesday. Both committees are playing the Europe card. Lithuanian energy minister Jaroslav Neverovic is testifying in the Senate, and Hungary’s ambassador-at-large for energy security, Anita Orbán, will testify in the House.

On Monday, the Energy Department gave conditional approval for an export terminal for the Jordan Cove Energy Project in Coos Bay, Ore. It would be the seventh permit granted by the department, which is required to review sales to countries that do not have free-trade agreements with the United States to make sure they are in the national interest. All seven have been granted since an economic impact study was completed at the end of 2012. The House hearing Tuesday relates to HR6, a bill that would grant permits to all 23 remaining proposed LNG export facilities “without delay or modification.”

In the Senate, Energy and Natural Resources Committee Chairman Mary Landrieu (D-La.) is one of the lawmakers leading for more natural gas exports. Landrieu’s state has many of the biggest petrochemical users of natural gas, with many jobs at stake, but Louisiana is also a major producer of natural gas both from conventional wells and from new shale resources, most notably from the Haynesville formation.

It costs about $3 per 1,000 cubic feet to liquefy natural gas, about $1 to transport it to Europe and $1 or so to turn the liquefied natural gas back into a gas. Current U.S. prices would make U.S. natural gas roughly as expensive as some of the Russian gas under recent European purchase contracts. For U.S. gas to make economic sense in Europe, it has to stay cheap. Right now, Russia, Algeria and Norway have the flexibility to undercut U.S. supplies if they need to.

The same story applies to liquefied natural gas, or LNG, from other sources. Goldman Sachs estimated in its March 4 energy weekly that U.S. LNG prices would be 35 percent to 40 percent higher than Russian prices if imported by Europe in large quantities.

Years from now. The earliest gas exports won’t come until late 2015 or 2016, and most won’t get started until 2017 through 2019. Hungary’s Orban argues, however, that American LNG plans could “immediately change the business calculus of infrastructure investments and send an extremely important message of strategic reassurance to the region.”

NERA completed a study for the Energy Department in late 2012 saying that prices could rise between 22 cents and $1.11 per 1,000 cubic feet. (For perspective, prices peaked at more than $6 per 1,000 cubic feet this winter; prices for delivery next winter are running around $4.60 per 1,000 cubic feet.)

A new NERA study — paid for by Cheniere, owner of the Sabine Pass LNG terminal — says that the price impact would be slightly smaller, around $1 per 1,000 cubic feet. Whether this is a lot depends on your point of view. NERA essentially says that, in the context of the $3.50 price swing this winter, it is well within the margin of error.

A group of big U.S.-based petrochemical companies says that prices could spike higher because of higher demand. The companies say that NERA used too low a range for gas exports and that exports and new power plants could strain supplies. The group, called America’s Energy Advantage, warns that the LNG export terminals already approved would use up 13 percent of the current levels of U.S. gas production. It fears that could reduce or eliminate the huge competitive advantage they now have over European chemical makers and could imperil $125 billion of investment now being made in U.S. chemical plants.

Other analysts have also warned while shale gas is plentiful, production costs vary. Areas in Pennsylvania have very low costs, around $2 per 1,000 cubic feet; shale formations in other parts of the country have much higher production costs and won’t come online until prices rise enough to make drilling worthwhile.

Right now Europe has enough LNG import terminals to handle a substantial surge in supplies. There are 22 terminals and, as of February, six under construction that could handle 220 billion cubic meters, according to Gas Infrastructure Europe. That would pose a threat to Russian imports.

“In relative terms, shale activity in Poland is by far the most active, though it’s still very much in the exploration/ ‘science experiment’ stages,” writes Pavel Molchanov, energy analyst at the investment firm Raymond James. He said encouraging results prompted ConocoPhillips to extend an exploration partnership. “On the other hand, some other international operators, including Exxon, Marathon Oil and Talisman, have been less impressed and exited,” he said.

Yes. There are new prospects in the Black Sea. But with Russia in control in Crimea, those Black Sea blocks most likely will be claimed as Russian territory. One major company executive expressed relief that the deals to drill in those prospects were not completed in January — and that the companies didn’t pay bonuses expected upon signing. Exxon Mobil was leading one of the consortia.