I say “yes,” but Loren Steffy of the Houston Chronicle seems to incline toward “no.”
Energy Seesaw is mighty uncomfortable
Our energy conundrum is on display at the Texas-Louisiana border.
That’s where Houston-based Cheniere Energy operates its Sabine Pass liquefied natural gas plant, although “operates” implies a little more activity than it’s had since opening two years ago. The facility has struggled because weak natural gas prices have undercut the market for imports.
Thanks largely to the boom of extracting natural gas from shale formations, the U.S. finds itself awash in natural gas, even as international demand for the fuel grows.
Quite simply, companies like Cheniere can make more money selling gas overseas than they can selling it here. So Cheniere applied for permits to build an export plant at Sabine Pass, a request the Department of Energy granted a few weeks ago.
“The U.S. has an opportunity to become a significant supplier in the global energy markets,” Cheniere CEO Charif Souki said in a statement last month.
In the short term, that’s good for Cheniere and its shareholders, but there’s also a frustrating irony in exporting gas even as we import almost three-fourths of our oil.
“You’re exporting clean domestics for dirty imports,” T. Boone Pickens, the Dallas oilman and investor who’s become a leading proponent of natural gas, told me this week. “We’re going to need all the natural gas we can get.”
Pickens is quick to point out he’s not criticizing Cheniere’s decision. He knows all too well the pain of betting a company’s future on the natural gas market.
“I’ve been in the same spot those guys are in,” he said. “When your back’s against the wall, you do what you have to do.”
Other requests as well
Natural gas is expected to stay under $6 per million British thermal units for years, and Cheniere isn’t alone in looking at exports. The Department of Energy is reviewing at least two other requests for LNG exports in Texas and Louisiana.
If more companies follow Cheniere’s lead, though, prices could rise, which would undercut exports.
“If there were more of this, you’d probably have higher domestic prices, which would then make you want to sell it in the domestic market,” said William Arnold, a professor of energy management at Rice University.
We are, of course, all too familiar with this seesaw between price and supply, and we know where it gets us. Without a long-term strategy, we respond to the economics of the moment. We’ll worry about the consequences later. Case in point: No sooner did oil slip below $100 a barrel than sales of large vehicles picked up again, according to Edmunds.com, which tracks auto sales.
Locked in the present
Exporting natural gas feeds our long-term energy dilemma. How do we build the energy infrastructure of the future if we remain bound by the economics of today?
Not surprisingly, Pickens believes that answer lies in converting more vehicles — especially trucks – to run on natural gas. He’s championing a bill in Congress that would offer tax incentives for companies that buy natural gas-powered trucks. The tax breaks would expire in five years, which would be long enough to establish natural gas trucks as part of the infrastructure.
Pickens owns part of a company that fuels such trucks, so he has a vested interest in the outcome, but everyone in this battle talks their book, as they say on Wall Street. The big oil companies that oppose the measure stand to make money if oil demand remains high and natural gas prices stay low.
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{ 7 comments… read them below or add one }
Iran has four times as much natural gas as the United States.
Russia has seven times.
And the response is —
so what?
Individual companies can benefit immensely from all their available marketing opportunities–including foreign sales–and use
some of that profit to explore for and develop future fields and resources. Foreign prices have a tendency to better reflect energy equivalency with crude oil ($/million Btu basis)–something that goes over like a pork roast at a Passover Sader here.
Iran and Russia have been exaggerating natural gas resources since the 1980’s–the former to convince Europe to kiss its ass to protect supplies, and the latter to, well, to do the same. No matter. The more gas in trade, the less natural gas is flared at the wellhead and that is always a welcome occurrence.
Gee I thought Iran needed to develope nuclear power to cover up for energy shortfalls. Who knew they had so much natural gas?
I wonder what the real reason is behind their push for nuclear technology?
Nobody cares about what Iran does anymore, Spad.
It’s Arab Spring!
Sadly, there is no Persian Spring.
I pay an arm and a leg for natural gas. PLEASE give the native sons a break!
By Houston Chronicle standards, Loren Steffy is some kind of capitalist. The fact is, though, that he’s really uncomfortable with the law of supply and demand. (Otherwise why would he make his living there?) Look at this statement: “We are, of course, all too familiar with this seesaw between price and supply, and we know where it gets us. Without a long-term strategy, we respond to the economics of the moment.”
One place “the seesaw between price and supply” gets us is that people who extract natural gas can stay in business. When domestic customers finally realize that buying natural gas is in their best interests. this supplier will still be around. You know where the answer assuredly isn’t? It isn’t with tax incentives for natural-gas-using devices.