POWER-GEN International

May 20, 2011 may be a day worth noting. The U.S. Department of Energy approved a request by Cheniere Energy to begin exporting liquefied natural gas from Sabine Pass, Louisiana.Only a few years ago, common wisdom was that the U.S. would be a big LNG importer. The “shale gale,” as Daniel Yergin likes to call it, reversed that notion.Las t year, Cheniere asked permission to export 2.2 billion cubic feet per day (Bcf/d) from Sabine Pass for 20 years. Natural gas likely would be sourced from the South, East and Gulf Coast Texas onshore fields, gas fields in the Permian, Anadarko and Hugoton basins and unconventional gas fields in the Barnett, Haynesville, Eagle Ford, Fayetteville, Woodford and Bossier basins.Reports by Advanced Resources International and Navigant Consulting, supported Cheniere’s position that the U.S. has sufficient resources available to support the export proposal as well as domestic demand for natural gas. Cheniere argued that natural gas consumption growth has been essentially flat in most sectors other than electricity generation for the past decade. Bucking the trend, power generators have increased consumption by 32.2 percent (from 5.21 to 6.89 Tcf) from 2000 to 2009.DOE in its decision concluded that domestic natural gas prices likely would rise, but only to the extent they reflect increasing marginal costs of additional domestic production for LNG exports. The Department rejected an argument from the American Public Gas Association that domestic natural gas prices could become tied to the international price of petroleum. The Department agreed that the domestic natural gas supply is likely to be sufficient to support both internal demand and export opportunities.

DOE said it would monitor supply conditions to ensure the exports don’t adversely affect domestic requirements for natural gas.

The Energy Department’s decision is a good one. The U.S., with its industry-leading technology to develop nonconventional natural gas resources, ranks among the lowest-cost producers of this natural resource. It makes sense for domestic producers to be able to take advantage of global market opportunities, bolster U.S. exports and continue to build employment opportunities.

The downside for domestic power generators is that natural gas prices could rise as any excess production in the system is absorbed by exports. A “stroll to gas” approach–as opposed to the disastrous dash of the 1990s–seems most appropriate.