American Oil and Gas Reporter - January 2015 - 74

Outlook 2015

LNG Exports To Spur Drilling Activity
By Andrew Kunian
BOSTON-As of mid-November, the
United States Department of Energy had
received applications to export 41 billion
cubic feet of liquefied natural gas a day.
Although only a fraction of the proposed
LNG export terminals cited in those applications ultimately will get built, the
sheer quantity of export applications and
the total gas volume they represent show
how excited America's entrepreneurs are
at the thought of sharing the United
States' natural gas bounty.
It is easy to see why, because domestic natural gas has a ready market. Utilities, energy suppliers and other LNG importers in countries such as Korea, Japan,
China and Indonesia are eager to diversify their supply portfolios. In the process,
they hope to move away from import contracts that price LNG based on oil prices
in favor of contracts that price LNG on natural gas. Buying LNG at 15 percent of the
cost of oil was tolerable in the 1990s when
Brent prices tended to average below
$20 a barrel on an annualized basis, but
makes little sense today.
Many LNG importers have another motive for seeking U.S. supplies: They want
to replace coal with clean-burning natural
gas in order to restore or preserve air quality. This is particularly important in China, where smog has become an international embarrassment. Other countries view affordable LNG as a safer alternative to nuclear power in the wake of the Fukushima
disaster.
For many of the people behind the export applications, there is more at stake
than business profit margin. As the coowner of two export projects, Eos LNG
and Barca LNG, I am motivated largely by
a desire to see the United States become
the world's largest supplier of LNG. We
have the abundant gas supplies, infrastructure, and energy entrepreneurs to make that
dream a reality.
And we should. Although LNG terminals themselves require only small staffs
to operate, they have a tremendous effect
on the economy because they increase the
demand for natural gas and encourage domestic drilling. That drilling creates highpaying jobs, including many that do not re74 THE AMERICAN OIL & GAS REPORTER

quire a college education.
LNG export opponents worry that the
additional demand will increase domestic
natural gas prices and stifle growth in the
manufacturing and petrochemical sectors. They are right that prices will go up,
but the increases will be too small to have
a major effect. Thus, in its latest analysis
of the effects of LNG exports, which it
published in October, the U.S. Energy Information Administration found that "increased energy production (from LNG exports) spurs investment, which more than
offsets the adverse impacts of somewhat
higher energy prices."
EIA estimated that the total growth in
gross domestic product from exports
would range from 0.05 percent to 0.17 percent, with the exact amount generally increasing alongside total LNG export volumes.
In addition to bolstering the U.S. economy, LNG exports would increase the
United States' influence abroad, particularly in Asia, where many of the buyers are
located. Given the region's rapid growth,
such influence may be critical from both
an economic and a political perspective.
LNG exports also could enable U.S. allies in Europe to reduce their dependence
on natural gas from Russia. As the pricing disputes, supply disruptions and insurgencies in Europe and the Ukraine from
2006 to the present suggest, Russian
President Vladimir Putin has no qualms
about using natural gas as a weapon to implement Russian policies. That is understandable, for it is an effective one. The
Ukraine, which imports 70 percent of its
natural gas from Russia, is so desperate for
an LNG import terminal that it almost got
swindled into signing a deal with an imposter claiming to represent the Spanish
national gas company.
Fortunately, many European countries
are eager to weaken Russia's grip on natural gas supplies. Toward that end, our
NATO allies Lithuania and Poland are
completing import terminals.
Russia also would be more than happy to extend its influence in other regions.
I have spoken with many Chinese natural
gas purchasers, and they often boast about
the deals they are cutting with Russia, because it offers such low prices. Of course,

a deal with Russia can change, a point I
try to bring up while advocating for U.S.sourced exports.
LNG exports also might enable the
United States to weaken the coffers of Iran,
which is building a natural gas pipeline to
Pakistan that could link to pipelines in India. If superior U.S. LNG economics can
enable us to compete with Iran on
price-and I am confident they will-an import terminal in Karachi would do wonders for the United States' relations with
Pakistan in the wake of the unpopular
drone policy.
Export Volumes
Of course, the economic and political
benefits of LNG exports will occur only
if U.S. entrepreneurs build export facilities. Fortunately, that is exactly what they
are doing. Carib Energy (USA) LLC's
small liquefaction plant in Florida is shipping LNG already to countries in the
Caribbean and Central and South America, but it is an unusual case. It is working with much smaller volumes than
many of the proposed projects, and is using ISO-certified containers rather than
dedicated tankers to transport the LNG.
Carib Energy's plant is authorized to
export only 40 million cubic feet a day, but
much larger terminals will follow shortly. The first to go operational will be Cheniere Energy Inc.'s Sabine Pass liquefaction facility in Cameron Parish, La.,
which is authorized to export 2.2 Bcf/d and
should come on line late this year or early next year. The Sabine Pass terminal will
be followed by Dominion's Cove Point terminal in Maryland, which has a capacity
of 770 MMcf/d.
As of Nov. 14, DOE had authorized five
other facilities to export LNG to countries
with which the United States does not have
free trade agreements. Assuming all five
get built, the United States would have total export capacity exceeding 10.5 Bcf/d
by 2019 (Table 1).
While additional capacity may take
time to come on line, I am confident other terminals will be built (including, I hope,
the two 1.6 Bcf/d facilities my companies
are developing). Constructing an LNG terminal is comparable to building a giant refrigerator. The technology is proven, so the

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