Natural Gas Exports Could Increase Prices

In a move that could increase natural gas prices, the U.S. Department of Energy recently granted final approval for a California based company to export natural gas to Asia, where prices are four times those in the United States, according to an article in The Oklahoman.

The approval authorizes Sempra Energy to build its Cameron LNG export facility on the Louisiana coast, from where it would export as much as 1.7 billion cubic feet of natural gas per day. The Cameron LNG facility joins Cheniere Energy’s Sabine Pass terminal on the Texas-Louisiana border as the first major facilities approved to export U.S. natural gas into the lucrative Asian market.

Natural gas exports are seen by some as a major threat to the continuation of low natural gas prices for home heating and other uses. “The propane crisis this winter was a cautionary tale of going too far too fast,” Trent Duffy, spokesman of America’s Energy Advantage, a group of manufacturers that oppose LNG exports, told the Oklahoman. “Duffy
jumped last winter because companies were exporting the fuel while domestic demand surged because of cold temperatures,” the Oklahoman reported.

Natural gas price spikes during winter are already a familiar phenomenon to customers in New York and New England, where spot market prices hit record highs last winter, at the same time that propane prices were skyrocketing. Natural gas exports are expected to begin next year at Sabine Pass and in 2018 at Cameron LNG.

Prices for a particular energy type, such as natural gas, can change dramatically within a few years. This phenomenon is well illustrated by the fact that some natural gas expert facilities are on the same sites as gas import facilities that were planned or built as recently as a decade ago, when natural gas prices were much higher.

Natural gas was selling for $3.84 per thousand cubic feet last week on the New York Mercantile Exchange, compared to Asia’s prices, which range up to $17 for a thousand cubic feet, according to the Oklahoman.

Fortune reported last week that LNG exports are part of a plan to “position the United States as an energy superpower,” in the words of U.S. Sen. Mary Landrieu (D-La.), who chairs the Senate Energy and Commerce Committee. “Responsible LNG exports are critical to the economic future of the United States and I will continue to work closely with the Department of Energy under its new, streamlined process to secure approval for additional projects in the pipeline as quickly and efficiently as possible,” she told Fortune.

The magazine reports that the Sierra Club and other environmental groups oppose natural gas exports because they fear exports will lead to more natural gas fracking. Refiners and others in the industry also fear that the new natural gas exports will increase prices for consumers.

“In supporting liquefied natural gas exports, President Obama is treating climate change like a game of peak-a-boo, opening his eyes to the harmful impacts of carbon but closing them to the devastating disruption potential of methane,” Kate DeAngelis, climate and energy campaigner for Friends of the Earth, told Fortune. “Allowing more LNG exports completely counteracts President Obama’s expressed commitment to reduce emissions and protect the public health.”

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Limited Water Presents Challenge for Natural Gas Fracking

To extract natural gas from shale rock deep underground producers must use millions of gallons of water for fracking, but much of the world’s natural gas is in regions where water is already scarce, according to an article in the Los Angeles Times.

“Natural gas from shale formations, long inaccessible because of their geology, has been unlocked in recent years by high-volume hydraulic fracturing, or fracking, which involves underground injection of millions of gallons of water mixed with sand and chemicals,” The Times reports, citing a recent report by the World Resources Institute. “The demand for water for fracking has already stoked tensions in the United States as the practice has spread to areas where water resources are limited, such as Texas and
Colorado.”

Some of the largest natural gas deposits in the western United States are in places where there is far greater competition for more limited water resources, especially from agriculture. “Ten gas deposits ‘sit atop aquifers that are being withdrawn at rates that far exceed their natural recharge rate,” The Times reported. The newspaper said natural gas producers could face increased costs and regulations due to the water shortages.

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Administration Moves to Reduce Natural Gas Emissions

The Obama administration this week announced initiatives meant to reduce the amount of methane escaping from the nation’s natural gas pipelines, after a government report faulted
little to plug the leaks, according to an article in the Houston Chronicle.

The administrative actions include a new research and development program aimed at devising better ways to find and plug leaks, according to the Chronicle. Energy Secretary Ernest Moniz also is urging the Federal Energy Regulatory Commission to consider ways it can give gas transmission companies the certainty they will recover the costs of replacing leak-prone pipes and making other retrofits.

While the changes are intended to reduce global warming related to methane emissions, Fred Krupp, President of the Environmental Defense Fund, said they don’t go far enough. “We need coordinated federal and state regulations to address methane pollution and tighten emissions standards,” he said.

The administration issued the recommendations one day after the Environmental Protection Agency’s Inspector General (IG) issued a report stating that the agency isn’t doing enough to reduce methane emissions from natural gas distribution pipelines and should consider boosting regulations and monitoring, according to an article on TribLive.com.

“The EPA’s Office of Inspector General said the leaks harm the environment and consumers, who pay the price for natural gas valued at nearly $200 million that leaks annually from aging pipes carrying gas to homes and businesses,” the article states.

“The IG report said EPA’s voluntary programs to encourage companies to tamp down emissions have not been successful in persuading them to retrofit their aging, leaking pipes, in part because the benefits of preventing the escape of natural gas accrue to the consumer and not to LDCs,” the article continued. The report also reinforced that EPA had an obligation to address methane leakage from pipelines as part of the president’s Climate Action Plan.

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Massachusetts Law Targets Gas Leak Danger

Massachusetts is taking steps to require natural gas utilities to repair leaks in their underground pipelines that threaten public safety, pollute the environment, and cost ratepayers millions of dollars a year, according to an article on WAMC.com.

The utilities previously had been allowed to leave leaking gas mains unrepaired, and the new law, although touted as an important public safety measure, allows that practice to continue, while also allowing utilities to continue billing customers for the gas that is lost from leaks, as well as for the cost of fixing the leaks.

Massachusetts Gov. Deval Patrick this week signed the new law, which falls short of requiring immediate repairs to all gas leaks. Instead, it sets a uniform standard for rating the severity of natural gas leaks and establishes a timetable for making repairs, according to the article.

“The bill establishes natural gas leak classification standards. It requires the gas companies to repair the most dangerous leaks immediately and produce plans for the timely replacement of aging pipelines,” the article states. “Repairs must be prioritized if the leak is detected in a school zone,” but other leaks still need not be repaired immediately.

Massachusetts has more than 21,000 miles of natural gas pipeline with some estimated to be more than 150 years old, according to WAMC. “A study concluded more than a third of the gas delivery infrastructure is prone to leaks,” the article states.

State Rep. Laurie Ehrlich of Marblehead, a lead sponsor of the legislation, said, “The gas beneath our feet traveling in pipes that are very old and corroded and prone to leaks is very flammable. Often times as soon as that gas comes in contact with a spark it can cause an explosion. Tragically, houses have been leveled and people have died. So it is an important issue.”

Leaking natural gas is also costly to MA ratepayers, who have paid an estimated $1.5 billion for natural gas that leaked from utility pipelines (or is otherwise unaccounted for), according to a report prepared for U.S. Sen. Edward Markey. The leaks also release methane into the environment, where it aggravates climate change. The principal ingredient in natural gas, methane, has 86 times the global warming potential of carbon dioxide over a 20-year timeframe.

The new Massachusetts law allows utilities to charge their customers for making pipeline repairs and upgrades and is expected to increase their monthly bills. Initial estimates project an increase of $1 to $2 per month in the average customer’s bill, according to the article.

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Are Natural Gas Prices Poised to Rise?

Natural gas prices could increase and remain volatile due to surging demand and lingering effects from the brutally cold winter, according to recent news reports.

The Motley Fool reports that natural gas demand is increasing rapidly, and suppliers could get caught shorthanded. “With natural gas inventories plunging to 11-year lows last week, the market needs to start including the demand side in the equation,” the article states. “The biggest mistake most make is assuming that abundant supplies in the ground will turn into production by [natural gas producers].” The article went on to state that, “The demand side is regularly ignored, and without a balance, the market
will face the same volatile prices as it has in the past.”

The Motley Fool noted U.S. Energy Information Administration data showing that gas consumption over the last five years has soared, with total consumption rising by almost 14 percent from 2009 to 2013, largely due to industries and power companies switching from coal to natural gas. Manufacturing facilities like a new Nucor plant in Mississippi are also driving demand increases. Nucor manufactures steel and uses as much natural gas as the entire island of Manhattan, according to the article.

A combination of reduced natural gas production and increased usage “could lead to supply disruptions and higher natural gas prices down the road, especially with inventories already very tight,” the article states.

The Wall Street Journal also weighed in on the prospect of rising natural gas prices, noting that severely diminished natural gas inventories might not recover in time for next winter. The latest decline in natural gas inventories was “unusually large for late March,” the article stated. “The drop heightened concerns that gas prices remain too low to convince producers to pump out enough gas this spring and summer to refill storage.”

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