Exporting Natural Gas Risky Business for U.S
Andrew Conte; Lou Kilzer, Tribune-Review/Pittsburgh Tribune-Review
Sitting with about 100 landowners inside the Wysox fire hall, Carolyn Knapp listened to a gas company landman discuss the money that would come from the energy trapped in the Marcellus shale a mile beneath her husband's farmland in Rome, Bradford County.
Raising her hand, she shouted out a question: Could the company guarantee that natural gas from their 200 acres would stay in America? Knapp hoped for a big payday, but she also wanted the country to benefit.
"When they wouldn't give (a guarantee) to me?" she asked. "I should have realized there was something up."
Today, Knapp is paid a one-eighth royalty on the wholesale price of about $2.50 per million British thermal units (MMBtu) for her gas, the so-called wellhead price.
In Japan, that unit of gas would bring about $17.
The difference has spurred a modern-day gold rush to send natural gas from the United States abroad. Companies have asked the government for permission to construct at least 20 export terminals to use to ship overseas an amount of gas equal to 40 percent of what Americans used last year.
Knapp knows her family and other gas-rights owners will not pocket the difference.
A Tribune-Review investigation shows U.S. coffers could be shortchanged, too.
Among the Trib's findings:
- There is no guarantee that all or even most of the profit from gas sold would remain in America. Companies instead could use transfer pricing, in which a foreign subsidiary buys the gas at lower domestic prices and sells it abroad for higher prices, keeping the profit in an offshore financial haven with little or no tax.
- In an attempt to garner more profit, companies could seek to tie the cost of natural gas to petroleum, an international price determined by the Organization of the Petroleum Exporting Countries, not free market forces.
- Most gas exports are destined for countries such as China that do not have free-trade agreements with the United States.
The United States is being asked to export its natural resources under free-trade, without duties or trade concessions in return.
Figures don't seem
to favor United States
With abundant gas, the United States' energy situation is far better than it was a few years ago. Instead of worrying about how to keep energy prices down to save consumers money, debate has shifted to how to keep prices up to preserve the drilling industry and benefit mineral rights owners.
But a recent study commissioned by the Department of Energy that supported unlimited gas exports didn't consider some of the concerns the Trib raised above and made some assumptions that experts dispute.
The only export terminal deal to win DOE approval so far displays potential pitfalls of U.S. exports, a Trib analysis shows.
Louisiana's Sabine Pass -- a Cheniere Energy project part-owned by the national fund of Singapore and financed by creditors from New York to Tokyo -- signed deals to sell about 2 billion cubic feet of gas per day to companies based in South Korea, India, Spain and Britain.
Worth nearly $300 billion over 20 years, the deals are structured so most of that money goes overseas. The company plans to buy American gas at market index rate -- about $3.60 per million Btus -- and add 15 percent. Once it gets to the terminal, the gas is cooled or liquefied to minus-260 degrees Fahrenheit and shipped aboard tankers.
The cooling process costs the buyer about $2.76 per million Btus, according to company figures. In all, foreign buyers would pay about $7 for gas that could then be sold in Japan for $17. Even factoring in shipping cost of $1.25 to $3 per million Btu, the margin the foreign companies would make far exceeds those generated in the United States.
Multinational corporations and foreign governments -- Exxon, GE, Qatar and BG Group among them -- have applied to open 19 terminals like Sabine Pass.
Pricing model matters
A DOE report by NERA Economic Consulting advocates for unlimited exports, assuming the ports would follow Sabine's formula. …