Cove Point, Maryland — Deep in a narrow underwater tunnel, workers wearing hard hats pedal bicycles towards a terminal, an island of gray pipes and pilings a mile off the Western Shore of Maryland on the Chesapeake Bay. When it originally opened in 1978, the chilly passageway was intended to bring liquefied natural gas from large tankers onshore to the Dominion Cove Point facility, where it was warmed, turned back into gas and sent on to customers. But Cove Point has had a sporadic history and has not been visited by a tanker for delivery since 2011 thanks to reduced U.S. demand for natural gas.
Now, Dominion Transmission wants to reverse the flow. It is seeking regulatory approval for a plan to invest $3.8 billion so that Cove Point could cool U.S. gas to –265 degrees Fahrenheit (–165 Celsius) and export the resulting L.N.G. The company has already signed 20-year contracts with utilities in Japan and India. Thomas F. Farrell, chief executive of Dominion Resources, which owns the facility, said Cove Point, which has easy access to the Marcellus shale fields in Pennsylvania, was “cost-effective and environmentally compatible.”
Dominion is just one of many companies now seeking approval to export L.N.G. from about 20 upgraded or new facilities in the United States. The companies want to take advantage of the recent flood of cheap shale gas brought on by advanced drilling techniques and helped by the extensive American domestic pipeline network. “You have an abundance of reserves and a tremendous infrastructure to move molecules around the lower 48 states and Canada,” said Jamie Welch, chief financial officer of Energy Transfer Equity, based in Dallas.
Mr. Welch’s company — along with its partners, BG Group of Britain and Lake Charles Exports — have recently won federal regulatory permission to build an $11 billion L.N.G. export station in Lake Charles, Louisiana.
American L.N.G is clearly going to be exported, but how much of an impact those exports will have on global markets is a matter of intense interest and debate. Global annual consumption today is about 240 million tons, but some analysts forecast that demand will more than double to 550 million tons annually by 2030. If all of the proposed plants are built, the U.S. could supply 200 million tons, or almost half of world demand, in one highly optimistic estimate. If that happens, “of course it will have an impact,” says Philippe Sauquet, head of the gas and power division of Total, the French oil and gas giant. L.N.G. prices around the world might be affected, putting pressure on projects worth tens of billions of dollars already under way in places like Australia.
But many analysts say exports will wind up being more modest. Jean-Marie Dauger, executive vice president of GDF-Suez, the French utility, said that perhaps 10 or 12 of the U.S. plants would be built, with an output of about 60,000 tons annually. “This volume will not be sufficient to impact prices in Asia,” he said.
Still, Mr. Dauger describes the overall L.N.G. market as “booming.” Natural gas emits half as much carbon dioxide as coal, the dominant fuel in Asian markets like China, and the world nuclear power industry has not yet recovered from the Fukushima nuclear disaster of 2011. Meanwhile, new uses for L.N.G. are emerging, including for powering ships and heavy trucks. Even before the American shale gas revolution, global energy firms had been scrambling to come up with new L.N.G. facilities to tap remote fields from Australia to Angola to the Russian Arctic.
Companies including Chevron, Exxon Mobil, Royal Dutch Shell and Total are planning up to $400 billion in L.N.G. investments around the world. In the dry outback of Australia and in the jungles of New Guinea, the price of building L.N.G. facilities can be as high as $2,500 per ton of an L.N.G. plant’s annual capacity, Mr. Welch said. Those cost levels make America look very attractive. L.N.G. plants on the drawing board in the United States are likely to cost about $700 per ton.
Besides construction costs, domestic natural gas prices in the United States of about $4 per million British thermal units are low enough that L.N.G. from America would cost a small fraction of the $15 to $20 per million B.T.U.’s that Asian buyers now pay. These advantages are creating interest among Asian buyers including Mitsui, Sumitomo, Korea Gas, India’s GAIL Global and Osaka Gas. With Europe’s economy stagnant and the United States in oversupply, more gas is heading to Asia. The U.S. push is changing the business model for L.N.G. For years, shipping the fuel was a simple point-to-point operation with tankers carrying liquefied gas to a specific terminal.
Contracts are becoming complex and flexible. “We’re finally seeing the L.N.G. market break out of that linear trading pattern,” said Bill Cooper, president of the Washington-based Center for Liquefied Natural Gas. Instead of being tied to specific gas fields, terminals in America are just facilities to which gas can be sent through the extensive U.S. pipeline system. The facility owner takes a toll for liquefaction and shipping. Customers line up the gas and take it to where it is needed, Mr. Cooper said. This way of doing business helps free the terminal operator from the vagaries of volatile natural gas prices and allows for easier project financing. By using this concept at Cove Point, Dominion, the terminal operator, has had an easier time finding financing and already has contracts with Japan’s Pacific Summit Energy and India’s GAIL-Global.
Despite the favorable economics, U.S. export facilities still face domestic opposition. Environmental groups like the Sierra Club argue that exporting U.S. gas will only increase the practice of hydraulic fracturing, which they say is ecologically dangerous and will raise domestic prices to the detriment of customers. “L.N.G. export is nothing but a giveaway to the dirty fossil-fuel industry at the expense of everyday Americans,” said Deb Nardone, director of a Sierra Club effort to halt the exports. In the Pacific Northwest, resistance to L.N.G. exports is so strong that “there will be nothing built there,” said Mr. Welch of Energy Transfer. Most of the export facilities will be in Gulf states and at Cove Point, where final approval for its project is expected by early next year.
Some U.S. manufacturers have also joined the opposition to L.N.G. exports, saying they will eventually drive up domestic prices. The chief executive of Dow Chemical, Andrew Liveris, has argued that it is better to keep gas at home to use it as feedstock for producing chemicals and other refined products with a higher added value. “We’re all for exporting natural gas,” Mr. Liveris said — for example, in the form of the plastic pellets that are used to make anything from toys to lawn furniture, a Dow specialty.