Trump’s Plan For LNG Exports To Europe May Not Have Much Impact In Pennsylvania

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STATE IMPACT PENNSYLVANIA – President Trump wants more natural gas exported to Europe. Liquified natural gas plays a significant role in the trade deal with the European Union, and the president wants Europe to buy less from Russia.  StateImpact Pennsylvania’s Susan Phillips spoke to Bob Ineson, managing director of North American natural gas with IHS Markit, an information and analysis provider to businesses and governments.

Q: What does this trade deal actually say about natural gas?

The Trump administration really desires to change the physical balance of trade, and the thing that we have in abundance that we can export is natural gas. And so it’s a natural thing to focus on.

Transfer pipes carry liquified natural gas to and from a holding tank, seen in background, at Dominion Energy’s Cove Point LNG Terminal in Lusby, Md., Thursday, June 12, 2014. Dominion Energy recently began exporting liquefied natural gas from its Cove Point terminal on the Chesapeake Bay in Maryland to India and Japan.

Q: What are the odds that that’s going to happen, that we’re actually going to export more natural gas to Europe?

Well, it’s been coming for a while. If you look at the shale boom, the consequence of it is that U.S. gas production is up on the order of 60 percent since 2008. The thing that is limiting U.S. gas production is available markets. So it’s natural for the market to be trying to reach out and get back into the broader global market where gas is less plentiful than it is here.

Q: They’re trying to reach out not just internationally but also domestically, right? That’s why we have so many pipeline projects right now in the country.

The reason we have so many projects is the growth in supply has occurred in areas that were different than [where it was] traditionally, where the pipeline system had been designed to move gas from the Gulf Coast and then later from the Rocky Mountains into the northeast. Now you have the Marcellus Shale and the Utica Shale and it’s changed the center of gravity of production. So you have to redesign, reconfigure the pipeline system to accommodate it.

If you look at the Marcellus in 2008, its production level was essentially zero, and today it’s over 20 billion cubic feet per day. By itself that’s more than a quarter of U.S. production.

Q: Is this new push by President Trump to export the LNG going to change where the Marcellus is going, whether it’s for domestic or international consumption? For example, a new LNG export terminal in Cove Point, Maryland is shipping Marcellus Shale gas from Northeast Pennsylvania to India and Japan now.

A: Well, for the next several years it won’t change much of anything simply because LNG projects have a long construction cycle. And so anything that’s going to be on stream in the next couple of years is something that’s already under construction. The Cove Point export terminal in Maryland can accommodate only a small portion of the Marcellus, production capacity [at the export terminal] is about 700 million cubic feet per day on a sustained basis. I think it peaked higher than that but compared to the 20 plus billion cubic feet per day of the Marcellus Shale production, the export terminal is a fraction of the output. For the Marcellus to reach the LNG projects that are coming on stream now, the large growth capacity, that’s going to be on the Gulf Coast.

Q: And I guess one question I think that everyone may have is, of course right now the price of natural gas is really cheap in part because of the Marcellus Shale selling for under three dollars per btu, but if these exports increase, if Trump’s goal is met in terms of Europe buying more natural gas from the U.S. rather than Russia, what does that mean to us here? Will we start paying more on our gas bills?

We don’t think so. The resource base is really quite large and in our outlook we have some pretty strong growth from where we are in U.S. LNG exports. The resource base that we estimate is available for under four dollars [will] last beyond the end of our forecast horizon, which is 2040.

Q: And so what does that mean for Pennsylvania? I know we have a number of pipeline projects in the works right now. Do you see more building happening?

We do but we expect the pace to slow. The Marcellus has gotten so big and its footprint on the continent has gotten so big in terms of the area that it serves that the pipeline capacity that’s needed is getting to be progressively longer in distance. And we’re rapidly approaching a point where you may need to build capacity out of the Marcellus all the way to the Gulf Coast and that’s an expensive proposition. But there is nothing in this picture that points to, say, a reversal anytime soon. You wouldn’t expect Marcellus production to fall.

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