Gas tantalizes Europe, but it’s no quick fix
PLANS AWAIT REGULATORY APPROVAL Louisiana terminal exemplifies revolution in gas market that could help Europe
HOUSTON — As congressional pressure builds on the Obama administration to quicken gas exports to Europe to reduce its dependence on Russia, it may be tempting to gaze upon a marshy, alligator-infested Louisiana inlet of the Gulf of Mexico.
There, 3,000 workers are installing a huge set of turbines, pipelines and refrigeration units, building a terminal that will send U.S. natural gas around the world by the end of next year. By 2017, the facility built by Houstonbased Cheniere Energy could handle roughly one-sixth the amount of gas that flows from Russia to Europe every day.
The Cheniere plant will be part of a new surge of liquefied natural gas supplies coming not only from the U.S., but also Australia, Africa and the Middle East. That surge, perhaps along with increased production in Europe itself, promises to keep the Continent flush with non-Russian natural gas at the end of the decade. But for the short term, the U.S. can offer little hope for Europeans eager to diversify their gas sources as Russia occupies Crimea and may threaten other parts of eastern Ukraine.
For all the discussion in Washington about gas exports to Europe, the Cheniere plant is the only terminal among the dozens proposed to have completed the maze of regulatory approvals to export liquefied natural gas, better known as LNG. And half the gas that will leave Cheniere’s facility has been contracted by India and South Korea. The other half will go to British and Spanish companies that can sell the gas wherever they find the highest price.
“This is not an immediateterm solution,” said Paul Bledsoe, a senior climate and energy fellow at the German Marshall Fund, a policy research group. “It’s not even an intermediate-term solution.”
The West could do little as the Russian company Gazprom increased the price for gas paid by Ukraine by 80 per cent last week, increasing economic pressure and tensions between Moscow and Kyiv.
While Ernest Moniz, the energy secretary, recently suggested that his department was likely to take foreign policy interests more seriously in its deliberations on future terminal approvals, only one new facility has received provisional approval since Russia moved to annex Crimea. And that one, in Coos Bay, Ore., is aimed at exporting to Asia and will require roughly five years to complete the regulatory process, acquire financing and be constructed.
“LNG exports are not about snapping your fingers and making them happen,” said Marvin E. Odum, president of the Shell Oil Co., which has partnered with Kinder Morgan in a proposed export terminal in Georgia awaiting regulatory approval. “These are large business development projects that take several years of construction and several years of business development and engineering design.”
About a half-dozen bills have been introduced in Congress to speed gas exports. But it still can cost $7 billion US or more to build a terminal. Just the exploratory process to find a suitable site can take a year and cost $100 million US. Financing usually can be secured only after long-term purchase agreements are reached with foreign buyers.
Of the seven terminals that have received Energy Department approval, only Cheniere’s has also received approval from the Federal Energy Regulatory Commission, or FERC.
That commission’s approvals for siting, construction and operations are normally as independent from White House influence as Federal Reserve Board decisions, and they can take months or years.
The other six terminals also await state regulatory approval and in some cases face opposition from environmentalists.
More than 20 additional proposed export facilities await initial Energy Department approval for export to countries without free trade agreements with the U.S. They are also seeking approval from FERC.
Bledsoe, who worked in the Clinton White House as an energy adviser, said the Obama administration can be expected to take action soon. He said it could direct the Energy Department to expedite import applications from European countries that want to buy U.S. gas, suggest to FERC that it expedite permitting for national security reasons, and encourage Europe to build more pipelines and produce more gas from its own shale fields.
Russia may struggle in the years ahead to maintain its grip on 30 per cent of Europe’s gas demand.
European gas demand has gradually slid three years in a row, and many countries have built up their storage facilities to protect against sudden surges in demand or declines of supply. While Eastern and Southern European countries like Ukraine, Bulgaria, Greece, Hungary, Serbia and Bosnia remain highly dependent on Russia for gas, the European Union is working to improve pipeline connections to better serve many of those countries.
Additionally, the reopen- ing of Japanese nuclear reactors, expected over the next three years, should free some gas. There will also be the completion and expansion of liquefied natural gas export terminals i n Australia, Africa and Qatar, as well as the U.S., which may double global liquefied natural gas supplies by 2020, according to a new Citi Research report.
Six European LNG import terminals are under construction, including two scheduled for completion in the next few months, that will supplement the 22 existing terminals, enabling Europe to import a vast amount of new gas. Those new supplies should lower gas prices for European consumers.
“For Russia, which depends heavily on hydrocarbon exports, particularly gas to Europe, such a reduction in price and volume would lower total export and tax revenues,” according to the Citi Research report. “These all challenge Russia’s long-term finances.”
Energy experts say Russia may be forced to ship more of its gas to China as a result.
Cheniere’s Louisiana terminal may not be Europe’s immediate rescuer, but it does exemplify a revolution in the global gas market that promises to help Europe.
Charif Souki, Cheniere Energy’s chief executive, got a jump on his competitors because he originally planned the terminal to import gas, not knowing that technological advances in extracting hydrocarbons from shale would suddenly make the U.S. an exporter.
Had the shale boom never happened, the U.S. would import more than 10 billion cubic feet of natural gas a day, tightening world supplies. Now the country is poised to export that much as liquefied natural gas by 2020.
“The U.S. is already making a difference,” Souki said.
“LNG exports are not about snapping your fingers and making them happen.”
MARVIN E. ODUM