Egypt a reminder for U.S. to hang onto its gas
By Christopher Swann
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
With foreign prices twice their level in the United States, gas producers are raring to export a good chunk of America’s natural gas bounty. But it’s a risky bet for builders of pricey shipping terminals. And unrest in the Middle East should ram home to policymakers the wisdom of using natural resources at home to reduce foreign energy dependence.
It’s easy to see why gas producers are hankering to get a global price for their quarry. A glut in the United States as vast new shale plays come on-stream has kept prices at around $4.50 per million British thermal units. Across the Atlantic producers can expect to get $8.50 or higher while long-term contracts in Asia can reach as high as $15.
So at first blush the commercial logic for exporting looks unassailable. Several pioneers, such as Cheniere Energy and Freeport LNG, plan to set up the infrastructure to make this possible. Dominion Resources said last week it may build an LNG export plant on the site of its existing import terminal in Maryland.
Companies do so at their peril. Erecting the facilities to cool natural gas to minus 260 degrees Fahrenheit requires multibillion-dollar investments. By the time construction is completed it’s possible that Europe and Asia will have joined the shale revolution — driving down prices in these markets too.
It would not be the first time that Cheniere and its ilk have been badly wrong footed. Hugely expensive LNG import facilities — built in expectation that the United States would become more dependent on foreign sources — now lie idle. Such terminals operate at below 10 percent capacity, according to consultancy Wood Mackenzie. Cheniere shares have lost 80 percent of their value since peaking in 2006.
Building export capacity would get natural gas explorers out of a bind. But the gas could be better used at home. Turmoil in the Middle East provides Congress a reminder of the dangers of relying on energy resources in unstable places. That’s especially true when boosting the use of natural gas in the transport sector — as the state of California is doing — offers a relatively low-cost way of cutting back on imported crude.
The fact that America has so much gas to spare is a sign that the country has not done enough to exploit the shale windfall. Until America has done more to liberate itself from an addiction to foreign oil, exporting hydrocarbons looks plain loopy.