Conceptual LNG terminal along Gulf Coast

From an Article by James Osborne, Houston Chronicle, November 7, 2019

WASHINGTON – For years, LNG developers have sold investors on multi-billion dollar export projects based on the premise of the world’s insatiable appetite for natural gas.

But three years after Cheniere Energy made history by exporting the first shipment of liquefied natural gas from the continental United States, energy insiders are debating whether an LNG bubble is developing around the vast sweep of projects scheduled to come online over the next 10 years.

From Russia to Qatar, Mozambique to Canada, the oil and gas industry has enough projects in the works to almost double global LNG production by 2030, with much of that growth focused along the Texas and Louisiana Gulf Coast. As analysts crunch the numbers, some do not believe the demand is there to support them all.

“There’s a fairly significant divide about the degree people might be overbuilding,” said Jason Feer, the Houston-based global head of business intelligence at Poten & Partners, a shipping advisory firm. “My take is some people are wildly optimistic about demand. We found this wide range of forecasts, some of them physically impossible.”

Forecasts of LNG’s meteoric rise largely hinge on expectations of rising demand in China, India and developing nations in Southeast Asia, all of which have limited domestic supplies of natural gas. But governments there have been slow to shift from cheap coal — which they have in abundance — to undertake the vast pipeline, storage and terminal buildouts necessary to shift their economies toward gas.

Already, there are signs that Asia’s appetite for LNG might not be as reliable as developers would hope.

Global LNG imports this summer were up 11 percent from last year, but almost two thirds of that additional gas went into storage in Europe and not Asian markets, said Mike Fulwood, a senior research fellow at the Oxford Institute for Energy Studies in the United Kingdom.

That has resulted in storage tanks in Germany and the Netherlands at near capacity – typically they would be at 80 percent at this point in the year – pushing prices there to around $3.30 per million British thermal units, or MMBTUs, well below the point at which it its profitable to import U.S. LNG. At the same time Russia is building new pipelines into Europe and is looking to expand its LNG facility near the Arctic Circle.

“All this surge into LNG into Europe is not because Europe wants or needs LNG. It’s because it has nowhere else to go,” Fulwood said. “The problem is if we get this perfect storm of events, like a mild winter, Russia keeps pumping out pipeline gas and China’s growth is a bit weak. In that scenario, you have LNG pushing a supply gap that no longer exists and then prices crash.”

Half full now and going for broke —

For certain, the LNG pessimists are dwarfed in numbers by the optimists, for whom the boom of fracked gas in the United States makes a perfect match for a warming planet trying to reduce the burning of carbon-intensive coal.

Massive, risk-adverse companies like Exxon Mobil and Royal Dutch Shell, not to mention state-owned operations in Qatar and Russia, are all pumping billions of dollars into developing LNG export projects to have them ready six years from now when forecasters predict existing facilities will be maxed out.

“Everyone wants a piece of this market. They’re saying we’re in danger of losing market share if we don’t start building out capacity,” said Alex Munton, an energy analyst with the consulting firm Wood Mackenzie. “You’ll continue to move through these cycles, like we saw this year, and spot prices have come down in a big way. But gas demand still has a bright future relative to other [fossil fuel] commodities.”

In the early years of the U.S. LNG wave, companies would get 20-year contracts for almost their entire output before beginning construction. If their customers later decided they didn’t want the gas, they could cancel the shipment, but would still be on the hook for a roughly $3 per MMBtu infrastructure fee.

That left those developers virtually no risk – the money they would make on the gas delivery itself was minimal, Munton said.

But with so many LNG developers now competing to sign on customers, companies are having to offer more generous terms and take on more risk themselves. Exxon Mobil and Qatar Petroleum agreed to build the Golden Pass LNG facility in Sabine Pass without announcing any long-term contracts, which analysts have interpreted as a plan to sell most of the LNG on the spot market, betting gas prices will rise or at least hold steady.

The Houston firm Tellurian, which is trying to build an export facility in Louisiana, is offering customers an equity stake in its LNG facility and associated pipeline in exchange for signing on to a long-term contract. And Venture Global, which announced earlier this year it was moving ahead on its Calcasieu Pass facilityin Louisiana, has reduced the infrastructure fee it’s charging customers through a new and cheaper construction model that uses modular equipment built off-site to chill and liquefy natural gas.

At a time gas prices are falling, companies are betting — hoping — the market will turn around by the time their facilities are built.

“LNG takes five to seven years to build, and they’re saying, if I don’t pull the trigger now I won’t have the volumes to sell,” Feer said. “You’ve got all this LNG that’s looking to hit the market in 2023 and 2024 and a lot of that volume is uncommitted.”

But LNG developers say they’re not worried. Tellurian is forecasting the world needs an additional 250 million metric tons of new LNG supply by 2023 — far in excess of Poten & Partners’ forecast of 120 million tons of new demand by 2030.

“LNG is now a commodity and in the commodity business, low cost wins,” Joi Lecznar, a spokeswoman for Tellurian, said in an email.

Too much Liquified Natural Gas (LNG)

But how much risk are investors willing to take on a business that really only came into its own in the last decade?

Some may be starting to get cold feet. After taking years to work their way through the government approval process, some developers such as Tellurian and Texas LNG, a Houston company planning an LNG export complex in Brownsville, have pushed back final construction decisions, a sign they are still trying to sign on more customers, analysts say.

But with larger state-owned and multinational companies, such as Shell and Qatar Petroleum, pressing ahead on LNG projects, there is little sign of the building boom slowing down.

“There’s too much LNG out there already, but industry keeps building more capacity,” said Nikos Tsafos, a senior fellow at the Washington think tank Center for Strategic and International Studies. “The question is whether this market will be there when all this additional supply hits.”

AAAS Science, Issue June 27th

SCIENCE: Special Issue: Volume 344 no. 6191 pp. 1464-1467

From an Introduction by David Malakoff, SCIENCE, June 27, 2014

702—PERCENT INCREASE IN U.S. SHALE GAS PRODUCTION SINCE 2007

40—PERCENT SHALE GAS SHARE OF TOTAL U.S. PRODUCTION

47—PERCENT INCREASE IN U.S. ELECTRICITY GENERATED USING NATURAL GAS SINCE 2005

15,000,000—LITERS OF WATER AND CHEMICALS PUMPED INTO A TYPICAL FRACKING WELL

Nearly 70 years ago, a small group of engineers and geologists gathered at a dusty gas drilling site in southwestern Kansas to try an experiment. They pumped nearly 4000 liters of gelled gasoline and sand some 700 meters down a borehole into a thick bed of limestone, in hopes that the pressurized gunk would fracture the rock and release more natural gas. The “hydraulic fracturing” test failed. But success ultimately followed: Today, fracking, as it is known, is revolutionizing the energy industry, enabling firms to extract natural gas from a source once considered unpromising—vast deposits of shale, which is too dense for gas to flow freely (Science, 25 June 2010, p. 1624). By penetrating the shale with boreholes that bend horizontally, and then pumping in millions of liters of fluids and sand under high pressure, drillers can force open minute cracks that release valuable streams of gas.

Extensive shale gas deposits—or “plays” as they are known in the industry—are found around the world (see map). So far, however, the shale gas boom is largely confined to the United States, where over the past decade companies have drilled thousands of fracking wells into once obscure geological formations, including the Marcellus Shale in Pennsylvania, the Barnett in Texas, and the Haynesville in Louisiana. (In other shale plays, such as the Bakken in North Dakota, fracking is primarily used to produce oil.)

The resulting surge in natural gas is remaking U.S. energy markets—and causing economic ripple effects globally. Shale gas has made the United States the world’s leading natural gas producer and now accounts for about 40% of U.S. production, up from less than 2% in 2001. The share is projected to grow to 53% by 2040, and natural gas prices have tumbled as abundance grows (see graphs). That’s helped accelerate a shift away from coal to natural gas for generating electricity and prompted energy-intensive manufacturing firms to shift production from overseas factories to the United States, creating hundreds of thousands of jobs. The United States is also boosting natural gas exports to other nations—reversing its traditional role as an energy importer.

The shale gas shake-up has been accompanied by plenty of controversy—and new research—as the stories in this special section illustrate. Scientists are debating fracking’s impact on water quality (see p. 1468) and whether the shale gas boom will help or hurt efforts to curb climate change (see p. 1472). They are also exploring potential links to human-caused earthquakes (Science, 23 March 2012, p. 1436), air pollution, and habitat fragmentation.

Basic researchers are also sizing up this new resource. They are searching for life deep in shale deposits (p. 1470) and potentially transformative ways to convert the methane in natural gas into liquid fuels and other chemicals (p. 1474). Some are examining the origins of shale gas, trying to determine whether it is primarily the product of methane-producing microbes or thermal breakdown of organic matter (see p. 1500). And analysts continue to debate just how much shale gas is really out there—and how quickly the current boom could turn bust.

For the moment, any downturn seems distant. Canada, which already gets 15% of its natural gas from shale, is ramping up production. China, Europe, and Russia are eyeing their essentially untapped shale deposits. Public opposition to fracking is growing in some nations, however, and drilling technologies that have performed well in the United States may not work well overseas, where the shale can have very different properties. One thing is clear: The shale gas revolution is still in its infancy, with plenty of growing pains ahead.

Further reading

R. D. Vidic, S. L. Brantley, J. M. Vandenbossche, D. Yoxtheimer, J. D. Abad, Impact of shale gas development on regional water quality. Science 340, 1235009 (2013).

W. L. Ellsworth. Injection-induced earthquakes. Science 341, 1225942 (2013).

R. J. Conrado, R. Gonzalez, Envisioning the bioconversion of methane to liquid fuels. Science 343, 621–623 (2014).

A. R. Brandt et al., Methane leaks from North American natural gas systems. Science 343, 733–735 (2014).

B. G. Hashiguchi et al., Main-group compounds selectively oxidize mixtures of methane, ethane, and propane to alcohol esters. Science 343, 1232–1237 (2014).

X. Guo et al., Direct, nonoxidative conversion of methane to ethylene, aromatics, and hydrogen. Science 344, 616–619 (2014).

D. A. Stolper et al., Formation temperatures of thermogenic and biogenic methane. Science 344, 1500–1503 (2014).

The “Bridge to Nowhere” & Pressures on the Shale Gas Industry

Commentary by S. Tom Bond, Resident Farmer in Lewis County, WV

In the world of shale gas advertising “Natural gas is the bridge to the future” seems to be drifting off into a well-deserved oblivion. The phrase first appeared a few years ago along with the notion that shale gas would give the nation military security and that shale drilling was simply a continuation of older drilling technology.

A new era has arrived. The companies have “leased like crazy,” sopped up a generous portion of the loose change floating around the investment sphere and by now have painted themselves into a corner. That corner is oversupply, and consequent a low price for their product. The investment blast has been an unmitigated success for the firms who find investors and provide funds, and for a few top people in the drilling corporations.

Both groups “take theirs off the top,” before passing the rest to the people who do the planning. The bankers and the Aubrey McClendons can retire at any time. The next-level executives must clean up the messes. They are the ones who must work out how to hold things together in the price squeeze.

The Energy Information Administration is predicting usage (consumption) of 69.84 billion cubic feet per day in 2013 and 69.54 in 2014, compared with the 69.19 actual use in 2012. Predicted use is “steady as you go,” as they say in the navy. “Through 2014, EIA expects prices will gradually rise but still remain relatively low.” the report says. The graph “U. S. Natural Gas Prices” both residential and “Henry Hub” (industry standard) prices show virtually no change from year to year to January 2015.

At least one corporation has a forward contract or a future contract to “lock in” a future price. These are arrangements to deliver a certain amount of gas to someone else at a given price at some future time. The locked in price is above operating cost so the company can go ahead and produce with a minimum profit. If gas is above the guaranteed price at the time of delivery, the driller doesn’t get the premium, it goes to the gambling investor. If it is below at the time of delivery, the gambling investor has to make up the difference. In either case the drilling company goes ahead drilling.

This gives that driller a “leg up” on the rest of the industry as far as survival is concerned, but at the expense of the other drilling firms, because only so much gas can be sold. Another way some companies are getting around low price is previously signed long term agreements with a distributing company to accept the gas at a price set when it was higher. This allows them to drill, but again doesn’t help the industry, since only so much gas will be sold. This arrangement does hurt the consumer, since he/she must pay the distributor a higher price than if the distributer paid day-to-day prices.

All those wells drilled and capped-in without production and all the wells that are being drilled now will help to keep the price of gas low in the immediate future, because there will continue to be an oversupply, certainly for a few years. So there is a whole lot of scrambling going on in the drilling industry, but still expansion. The gas is being flared in the Bakken and right after drilling elsewhere to get the natural gas liquids. Gas is not valuable enough to merit conservation.

A few more observations. One way to increase sales is exporting liquid natural gas (LNG) overseas. This is only viable in markets with a price significantly above the U. S. price. Huge capital requirements, to liquefy, transport and re-gasify, mitigate against the project. Another way to sell more gas is to increase use at home. Several possibilities present themselves. Using methane for certain kinds of steel production and the manufacture of nitrogen fertilizer, both of which have been largely moved offshore, have been suggested and at least one steel company is making plans to return in Louisiana. Also, there is a lot of talk about converting diesel and gasoline vehicles to use natural gas. All of this is very capital intensive, too.

Even gas liquids seem to be in over supply. But there is much talk of building “cracker plants” to turn ethane in to ethylene, a principal starting material for plastics, and then the plastics plants would have to be built, and that is another capital intensive move! And the economy is down, not only in the U. S. but all over the world, so who will provide the extra demand for the new plastics products?

The national defense argument which was so important in the leasing era is shot down by the rush to export. The idea that shale drilling uses an extension of older technology with little change is fading fast. Figures about volumes of chemicals along with their toxicity, and pictures of the surface changes are changing that. Even the often recited global warming advantage they claim for gas is in doubt. Utilities are slow to adopt gas for new electrical generating plants, because knowledgeable people know the reserves may not hold out to keep gas cheap for 50 to 60 years, the period new power plants are expected to last.

Jobs have always been a principal argument, but shale gas extraction is surely not a game changer in the areas where it occurs nor for the nation. A few local businessmen benefit and a few truck drivers and a few office people. A lot of other people deserve jobs, too. Thin as it is, the economic argument is all the industry has now. To survive, the industry must get past the next few years to get better prices, then reserves must hold up after they have emptied the “sweet spots,” the high production areas which are always taken out first. If natural gas is a bridge to the future, some other energy source had better come along soon.

Gas Field Workers Cited in Pennsylvania Hospital’s Losses

See AP Article, Wilkes-Barre Times-Leader, December 24th

JERSEY SHORE, Pa. – The first operating loss in about five years at a north-central Pennsylvania hospital is a sign of the influx of natural gas field workers without health insurance, the facility’s CEO said.

Jersey Shore Hospital president and CEO Carey Plummer told the Sun-Gazette of Williamsport that many subcontractors attracted to the area’s Marcellus Shale drilling boom do not cover employees.

That has brought a growing number of uninsured people to the community-owned, nonprofit hospital, Plummer said.

“We had a loss,” Plummer said. “I don’t think it’s a sign of the economy. I think it’s the influx of the gas, industry and those who lack insurance.”

The hospital reported an operating loss of $770,000 while providing more than $3 million in care to people unable to pay in its most recent fiscal year. The uncompensated care figure is the highest it has ever seen.

Other significant factors contributing to the hospital’s losses include cuts in Medicaid reimbursements, employee salary increases and higher pension costs, Plummer said.

Jersey Shore is about 65 miles north of Pennsylvania’s capital of Harrisburg. The hospital says its service area covers about 45,000 people in Clinton and Lycoming counties. It reported 3,260 acute care days, 67,691 outpatient visits and 14, 835 emergency room visits in the most recent fiscal year.

With about 660 wells, Lycoming County is the fourth most heavily drilled county in the Marcellus Shale rush that began in earnest in 2008, according to state records. The footprint in Clinton County is smaller, with just under 100 since then. The state’s two most heavily drilled counties, Tioga and Bradford, are neighbors of Lycoming County.