Natural Gas Prices - Up?

Lou Kilzer of the Pittsburgh Tribune-Review wrote this story "Natural gas prices set to jump with exports" taking issue with plans to export LNG from the lower 48. In the story he quotes Boone Pickens as saying "we're truly going to go down as the dumbest generation." referring to plans to export LNG.

He also details more LNG export plans, specifically:

Freeport LNG Expansion LP, together with Liquefaction LLC, applied on Dec. 17 to export 1.4 billion cubic feet of natural gas per day from a terminal port near Freeport, Texas. Lake Charles Exports LLC, a subsidiary of British-based BG Group and Houston-based Southern Union Company, applied to DOE on May 6 to export 2.0 billion cubic feet a day from its Lake Charles, La., facility.

If the DOE approves those requests, combined with the Sabine permit, the total 5.2 billion cubic feet a day proposed for export would represent 8.4 percent of U.S. production, a Tribune-Review analysis determined.

The story also bemoans the fact that the US imports 10% of our gas needs. According to the Energy Information Agency (EAI) gas imports in 2010 averaged 10.4 BCFD. For comparison the proposed Alaska Gas Pipeline will export 4.5 BCFD of gas to Canada, offsetting about half of our natural gas imports.

In summary, according to the article, exporting LNG is a bad idea according to the author because:

1. LNG exports will drive up gas prices
2. We would export clean energy and import dirty oil
3. We are dumb

Let's examine these outcomes and fill in the blanks;

1. Exporting LNG will drive up natural gas prices - GOOD. Current pricing in the $4/MMBTU range will not support job growth in America. $6/MMBTU gas puts Americans to work - building LNG plants, building pipelines, and building petrochem plants. Maybe even building the Alaska Gas Pipeline. I don't see a problem with that. For once we can export a product to Asia and keep the jobs at home.
2. Importing "dirty" oil sounds just awful doesn't it? The fact is that high sulfur, thick crudes are less expensive and our technological leadership in refining allow us to use the materials. American know how, cheaper products - can't beat that.
3. Are we dumb? I don't think in those terms. Markets are pretty smart at figuring out how to maximize returns. The Pickens Plan seeks to convert our trucking fleets over to compressed natural gas. I'd call that a pretty good idea, it would be even better if Boone was spending his money instead of reaching out for my tax dollars to fund the plan. Of course increased domestic use of gas for transportation will drive up price which is OK with me since that will spur development and build domestic employment.
   

I can offer a few ideas, and I think these will build a better America:

1. Support the conversion of LNG import terminals into export terminals. Conversion of these facilities is the most cost effective way to get into the LNG export market.
2. Let's get serious about Gas To Liquids. Our cheap natural gas and coal can be used to make clean liquid hydrocarbon fuels. Fuels that will burn in our existing cars trucks and trains without all the taxpayer funded investment required by the Picken's Plan. Domestic GTL will help protect us from overseas supply disruptions.
   
3. Let's build facilities in this country instead of building overseas. Let's build LNG export terminals, new petrochem plants, and new pipelines including the Alaska Gas Pipeline. Building here equals jobs here.
   

Perspective

How does the Alaska natural gas pipeline fit into the overall domestic energy demand picture? The image below is a Sankey diagram of US energy flows based on the 2009 Energy Information Agency Annual Energy Review.

I like this diagram because it shows the relative contribution of various energy sources and puts the Alaska natural gas pipeline into perspective.

The proposed Alaska gas line will deliver 4.5 billion cubic feet per day. In units of "Quads" that equals 1.67 Quads per year. That equals 7% of the current total natural gas demand or 1.7% of the total energy used. If consumed for electrical power it would equal 4.4% of the total energy input for electrical power. Now 2% of all energy or 4.4% of fuel for electricity may not sound like much, but we're talking about a single project.

Compared to Coal: One thing the diagram does not show is the relative efficiency of fuels. Natural gas can be burned for power generation in a combined cycle power plant at efficiencies of 55-60%, an average coal plant converts BTUs to kW at an efficiency of around 33%. On an efficiency basis, new high efficiency gas fired plants can be expected to replace aging coal fired plants.

Compared to Nuclear: Again gas fired combined plants are thermally more efficient than nuclear power plants. Unlike nuclear fuel, natural gas plants don't require cooling water utilities for years after shutdown. Gas fired plants are extremely less expensive to build.

Compared to Oil: Today, with our current infrastructure you can't beat the ease of fueling your vehicle with a petroleum product (gasoline or diesel) and jumping back on the road. On a cost per BTU basis it makes less and less sense to use gasoline or diesel instead of natural gas. You can't beat the concept of switching our motoring paradigm from imported oil to domestic gas. Projects like the Alaska gas pipeline can help make that switch possible. Gas can even be used to produce ultra clean grades of diesel fuel via gas to liquids (GTL) technologies. Gas can also fuel the projects in Canada that recover heavy oil and oil from bituminous sands. Sooner or later natural gas or products of natural gas will fuel your engine.