The debate about whether the United States should export liquefied natural gas (LNG) from Cove Point and other waterfront terminals has been going on for months. It is time for action.
The United States has an abundance of cheap natural gas, thanks to a revolution in gas production. An innovative technique that combines hydraulic fracturing and horizontal drilling has opened up geologic formations containing billions of cubic feet of gas. The supply of natural gas soared, while demand did not keep pace, leading to a collapse in natural gas prices. This is good for consumers in the short run but has forced many energy companies to either shut down their drilling rigs or to switch to oil production.
Insufficient domestic demand for natural gas and inadequate storage capacity have led energy companies to search for other markets, specifically in Europe and Asia. Selling to overseas markets could shore up the price of natural gas and sustain domestic gas production, thus stimulating the economy and creating jobs and revenue. Also, a better match of supply and demand may decrease price volatility.
Much of the focus is on the giant Marcellus shale formation, which stretches from West Virginia to New York and underlies part of Western Maryland. The Marcellus holds vast reserves of natural gas, some of which could be converted to LNG and exported from Dominion's Cove Point Terminal in Lusby on the Chesapeake Bay.
Cove Point is well-positioned to benefit if the U.S. Department of Energy and the Federal Energy Regulatory Commission approve its LNG export permit. Before the surge in shale-gas production, the United States was destined to become a natural gas importer, with LNG terminals like Cove Point used for that purpose.
But now the U.S. price for natural gas is substantially lower than the prices in Europe and Asia. The U.S. price is around $3 to $4 per million Btu, while comparable European and Asian prices are $10 and $15 respectively. Also, the global market for natural gas has expanded drastically as a result of the Fukushima nuclear accident. Japan and Germany urgently need to import large amounts of gas to offset the nuclear power formerly used in their electrical production facilities.
Currently, only one company, Cheniere Energy, has received permits to export LNG. Cheniere is building an LNG export facility at Sabine Pass in Louisiana and has been cleared to export gas for 20 years, beginning in 2015. More than a dozen other natural gas companies have applied for export permits; almost all intend to build LNG terminals on the Gulf Coast.
Clustering LNG terminals on the Gulf has some disadvantages. In recent years, energy facilities off the coasts of Louisiana and Texas have sustained significant damage from hurricanes, with oil and gas rigs and refineries going off line for weeks at a time. By contrast, the Chesapeake Bay has been relatively calm, with big energy facilities like the Cove Point terminal and the Calvert Cliffs nuclear plant able to operate without interruption.
Some groups oppose LNG exports given the likely price increase. The Department of Energy has put its permitting process on hold while it studies the potential effects of exports on domestic gas prices. Depending on the volume and pace of LNG exports, a study by the Energy Information Administration estimated selling gas overseas could add 3 percent to 9 percent to consumer gas bills during the 2015-2035 time period. Furthermore, the same study estimated large-scale exporting of LNG could cause consumer electricity bills to increase 1 percent to 3 percent during the same period.
But the impact on consumers could be minimized by limiting gas exports. At the same time, exports would generate thousands of jobs, not only from sustained gas production but also from constructing and operating LNG export facilities. According to Cheniere, its $10 billion terminal project in Louisiana will employ up to 3,000 workers during construction and directly and indirectly support thousands of permanent jobs after construction. Building and operating an export terminal at Cove Point could do the same for Maryland.
Due to the abundance of shale gas, electric utilities are shifting from coal to natural gas, which improves air quality and reduces greenhouse-gas emissions. Counterintuitively, the Sierra Club has taken legal action to block LNG exports from Cove Point. Ostensibly, the environmental group opposes increased shale-gas production because renewable energy sources like solar and wind will be unable to compete economically with natural gas. But renewable energy sources are intermittent. Solar photovoltaics and wind turbines only produce electricity when the sun is shining and the wind is blowing. Natural gas electrical generation plants can operate continually, regardless of weather conditions.
The naysayers claim to be acting in the public interest. But without the shale-gas revolution, we will continue to burn large amounts of coal and rely on gas from politically unstable parts of the world. The Department of Energy should expedite approval of LNG export permits, starting with Cove Point. It is in our state and national interest to proceed without further delay.
Dan Ervin is a professor of finance at Salisbury University. The views expressed here are his own. His email is firstname.lastname@example.org.