The heated competition for shale gas

The shale-gas bonanza is fueling a hot competition among businesses that want to claim a share of what is promoted as an abundant long-term energy source.

T. Boone Pickens is pitching compressed natural gas as a cheap motor-fuel alternative to imported oil. Electricity suppliers want gas to fire up new power plants. Entrepreneurs are exploring ways to convert natural gas into gasoline.

And the chemical industry, which buys natural gas as a raw material for plastics, says fuel from resources like Pennsylvania's Marcellus Shale could inspire a resurgence of U.S. manufacturing.

Now, another potentially large rival market for natural gas is emerging: Exports.

The Department of Energy has received five applications from companies that want to create terminals to ship liquefied natural gas (LNG) overseas. One application has been approved.

The natural gas industry, which is eager to sell more fuel, says overseas markets could generate billions of dollars in export earnings, improve the nation's balance of trade, and boost the economy in shale-gas areas such as Pennsylvania.

"Exports represent a good opportunity for the United States," said James J. Balaschak, a principal of Deloitte Services L.P., based in Philadelphia.

The five export facilities could ship up to 6.6 billion cubic feet of gas a day to foreign countries, about 10 percent of total current domestic U.S. consumption.

But some gas customers say exports will drive up domestic prices, mostly benefit gas producers, and undermine a chief virtue of natural gas - energy independence.

Jim Collins, a representative of the American Public Gas Association (APGA), said at a Senate committee hearing last week that allowing natural gas exports would produce "predictable and disastrous" results for household consumers.

"APGA is not against free trade, but when important policies collide, nations must make choices," said Collins, a utility official in Hamilton, Ohio. "U.S. policymakers must carefully consider and prioritize the use of domestic resources according to the national interest over both the short and long terms."

U.S. Sen. Jeff Bingaman (D., N.M.), chairman of the Senate Energy and Natural Resources Committee, appeared to be sympathetic.

"How can we ensure that our export policy is consistent with our continued ability to reap the benefits of our newfound abundance of natural gas?" Bingaman said.

The fact that policymakers are even discussing exports is a remarkable statement about how the shale-gas revolution has turned energy markets on their head.

Six years ago, the natural gas industry was scrambling to import LNG from the Middle East and Africa to meet America's increasing demand. More than 47 import terminals were certified for construction, triggering some local controversies about the safety of such facilities.

But then came shale-gas production, which combines horizontal drilling techniques with hydraulic fracturing to crack open vast swaths of deep shale. Areas such as Appalachia, long a backwater of small-scale gas producers, experienced a massive influx of drilling rigs. The industry says the country is sitting on a 100-year supply.

Pennsylvania's more than 4,000 Marcellus wells now produce more gas than the state consumes. With production expected to multiply, the industry is contemplating reversing the flow of pipelines that now carry natural gas from the Gulf coast to the Northeast.

"Import terminals for LNG are now scarcely utilized, and the prospects that the United States will become highly dependent on LNG imports in the coming years have receded," Kenneth Medlock, the deputy director of the Energy Forum at Rice University's Baker Institute for Public Policy, told the Senate panel last week.

Companies such as Dominion Resources Inc., which owns an underused LNG import terminal on the Chesapeake Bay in Cove Point, Md., now want to convert the plants to handle exports. Dominion's is one of four pending export applications with the Energy Department.

Shipping natural gas overseas is not simple. Gas is cooled to minus 260 degrees to condense it into a liquid, and must be stored in insulated tanks and shipped in special tankers. At the import terminal, the LNG is reconverted into gas and sent by pipelines to customers.

Processing LNG and transporting it around the world consumes large amounts of energy, so it is only attractive when the gas is cheap in the producing country and the price is high in the consuming country. Prices in Japan are now around four times the cost in the United States.

While companies are largely unencumbered to export to countries with free-trade agreements with the United States, most countries that import significant volumes of LNG don't have such treaties. So the Energy Department must authorize those exports.

The government has issued a license to Cheniere Energy, which wants to open a liquefication plant at Sabine Pass in Louisiana in 2015 on the site of its existing import terminal. The plant is authorized to export 2.2 billion cubic feet of gas a day.

Chris Smith, the Energy Department's deputy assistant secretary for oil and natural gas, told the Senate committee last week that two studies will examine the "broad impact" of exporting larger amounts.

"We look at impact to the local economy," he said. "We look at impact to GDP. We look at creation of jobs. We look at energy security and supply. We look at impact on price, and the impact that price may have on - price changes - may have on other industries."

Some senators expressed no fear that exports would harm the domestic market.

"We would perhaps sleep better at night, I'd hope, if we knew that our nation was again an energy exporter, and with a sufficient supply to comfortably remain an exporter while still doing productive things with plenty of our own supply here at home," said Lisa Murkowski of Alaska, the committee's ranking Republican.

Alaska is reconsidering plans to construct a pipeline that would carry its Northern Slope natural gas to the lower 48 states because of the abundance of shale gas, and is exploring the idea of exporting the gas instead to Asian markets.

But some expressed concern that U.S. consumers would lose their price advantage if LNG was freely exported. They are worried that a free market would too closely link domestic gas prices to international markets, in the same way that oil prices are roughly uniform worldwide because crude moves so easily around the globe.

And others do not share the faith that U.S. shale-gas supplies are so robust.

"The history of the fossil-fuels industry is replete with miscalculations regarding supplies," said Collins, the Ohio utility official.