On January 14, 2010, I was told at a forum in Laporte, PA, by Penn State Professor Dr. Terry Engelder that as a Pennsylvania landowner on the shale, I was to sacrifice my rural retreat in the woods for the future of my country. It is a sentiment I have often heard repeated, from a local man working at our cabin to glib presentations complete with photos of all-American kids waving the Stars and Stripes.
So two years ago when I read this transcript of Chesapeake Energy's
Q4 2010 report, I was troubled by the following comment:
"We believe that by year-end 2015, liquified natural gas will be exported from the U.S. and/or Canada to foreign markets connecting, for the first time, North American natural gas markets with higher valued European and Asian natural gas markets. This development will be notably aided by a widening of the Panama Canal in the next few years to accommodate large LNG vessels. We believe LNG exports from the U.S. will be a very bullish event and should begin to effect the back of the natural gas curve once ground breaks on several of these projects by year-end 2012. I will add that Chesapeake is actively engaged in helping to advance several of these LNG export projects."
Aubrey McClendon, former CEO,
Chesapeake Energy
Seeking Alpha, February 23, 2011
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IMAGE: Ann Pinca
Pipeline construction in Sullivan County. |
American energy independence has been a major selling point made to all of us to buy into shale oil and gas extraction. Yet here was a plan thought out long ago to send our shale gas across the seas. Does shipping out our natural resource to the highest bidder support American energy independence - or even Americans?
That's the trillion dollar question the U.S. Department of Energy has to answer now that both parts of its commissioned liquid natural gas (LNG) export study are in.
Part one of the study released predictions from the U.S. Energy Information Administration (EIA) that were less than favorable for gas exports. EIA determined that increased gas exports will lead to higher natural gas and electricity prices for Americans, along with an increased demand in natural gas production.
Part two of the study was conducted by NERA Economic Consulting, which arrived at different conclusions. NERA indicated that natural gas prices will rise, but not so greatly as EIA predicts. NERA concluded that America will benefit from unrestrained gas exports, with net benefits directly proportional to the amount of gas exported. However, a disclaimer: in the report's executive summary, it is stated that LNG exports will affect socioeconomic groups differently, depending on their income sources.
While attempting to brighten the picture for everyday Americans by implying that their retirement plans may benefit from stocks owned in natural resource companies, the bottom line is that those of us who rely on income from wages or "government transfers" will not enjoy any benefit from gas exports. Meanwhile, income to owners of natural gas resources will increase.
That's not exactly the rosy picture painted for the average American working family who has been told for years that the natural gas industry will provide jobs with good income and a booming economy for all.
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IMAGE: Ann Pinca
The MARC 1 pipeline cuts through a forest in eastern Sullivan County.
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While references to gas exports
like McClendon's two years ago
indicate that exporting to higher-
priced markets was always part
of the plan, the current gas glut
and low prices are driving the
industry to push even harder to
get there.
As financial consultant Deborah
Rogers so aptly points out in her report "Shale & Wall Street," the
industry now needs to
salvage its balance sheets with net profits made overseas.
But Rogers also warned of the risks associated with LNG exports.
Currently the five major shale gas plays average only a 6.5% to 15% recovery efficiency and unlike traditional wells, shale gas wells quickly experience a sharp decline in production. Over twenty natural gas export applications await approval by the DOE, representing up to 60% of current U.S. demand for natural gas. According to Rogers, the long-term contracts associated with export agreements will force massive drilling operations just to keep up with the demand.
And those export contracts are coming in. Last month, Centrica PLC signed a 20-year deal and ten-year extension option with Cheniere Energy through its Sabine Pass facility. Just this week, Dominion Resources announced that it has agreements with India's GAIL Global LNG LLC and Japanese firm Sumitomo. These are described as 20-year take-or-pay agreements that Dominion can use as collateral to finance necessary improvements to its Cove Point facility in Maryland.
Meanwhile, pipelines are racing to meet the export points, cutting across anything that gets in the way. Pennsylvania's mountains, forests, farms, and towns are showing the impacts, and citizens who felt they were out of harm's way from the drilling industry are beginning to realize the consequences. Pipelines like Columbia, Millennium, Tennessee, Constitution, Commonwealth, NiSource, Texas Eastern, and the infamous Inergy MARC 1 are all making their mark on the land through either expansion loop projects or entirely new pathways.
Natural gas exportation seems certain to increase shale gas production in Pennsylvania. With inadequate bonding rates and an industry-friendly impact fee that encourages drillers to come to Pennsylvania, the natural gas industry's infrastructure and operations will continue to negatively impact our citizens and state. With consequences far greater than the benefits, Pennsylvania citizens will indeed sacrifice their land and quality of life - but only to fill the gas industry's pockets with profits from abroad, not for American energy independence.
While some may believe that gas exports will benefit the Keystone State, I must say that I think "passing gas in Pennsylvania" just stinks.
Thank you to Elaine Lapp Esch and Deborah Rogers for
providing information used in this article.
