Riding the Fracking Wave All the Way to China

A liquefied natural gas (LNG) tanker arrives at a gas storage station at Sodegaura city in Chiba prefecture, east of Tokyo on April 6, 2009 for the first shipment of LNG from Sakhalin-2 natural gas development project in Sakhalin, Russia. AFP PHOTO / JIJI PRESS (Photo credit should read STR/AFP/Getty Images) (National Journal)

The race is on to make America the Saudi Arabia of natural gas, but not everyone is in love with the idea of the U.S. becoming a major exporter of the increasingly abundant energy source.

Flush with new production thanks to the fracking revolution, the natural gas industry is hoping to send some of its supplies overseas, and bring back some cash back to America's shores in the process. But if the industry is to move exports beyond the current trickle, it will have to overcome some formidable political and regulatory hurdles — and do it quickly.

As global energy demand continues to surge there is growing competition to become major exporters of gas and other fossil fuels. If the U.S. doesn't fill the gap, other energy-rich countries will be happy to do it for them.

"There's a window of opportunity, because there are competitors," said Chris McGill, vice president of policy analysis at the American Gas Association. "It's not a 20-year window; it's something that's definable as over the next decade."

After that, foreign competitors such as Australia, Indonesia, and above all, Russia will have the market cornered, McGill said.

But getting natural gas from Pennsylvania to the Pacific Rim is no easy trick. To be moved overseas, it has to be converted to a liquid form and loaded onto oceangoing tankers. That process requires building liquefied-natural-gas terminals that are expensive, controversial, and difficult to get approved.

Constructing an export facility costs about $5 billion, McGill said, and it requires navigating a complicated permitting process. To get approval for a terminal, a company needs permission from a pair of formidable federal bodies: the Energy Department and Federal Energy Regulatory Commission.

The hurdles and the hurry, however, have not been enough to scare the natural gas industry away from trying. Four export terminals have already been permitted in the U.S. that would export a combined 6 billion cubic feet of gas per day. And that's just the beginning: If all proposed terminals were to win approval, they would add close to 30 billion cubic feet per day in export capacity, according to the American Gas Association.

The potential for exports on a grand scale is clear, but why is the industry willing to wade into this regulatory thicket?

The allure of high foreign prices is simply too much to resist. Unlike with oil, the complications of liquefying, shipping, and re-gasifying natural gas mean there are large global discrepancies in price.

In the U.S., producers sold gas for an average of $2.66 per thousand cubic feet in 2012, a two-thirds price drop from 2008. In Europe, natural gas is typically three times as expensive. And in Asia — where China is consuming more energy but attempting to cut back on coal, while Japan is searching for substitutes for nuclear power plants — natural gas routinely sells for five to six times the U.S. price.

That's a price gap that U.S. politicians, backed by a powerful coalition of domestic natural gas customers, are keen to keep — but they fear prices at home will rise dramatically if supplies go overseas.

Leading that coalition is Sen. Edward Markey, a Massachusetts Democrat, who in 2012 introduced legislation to ban exports of natural gas taken from federal lands and to freeze the approval of any new export terminals through 2025. Markey argues that by allowing exports, the U.S. would be voluntarily surrendering a cost advantage for domestic industries.

How much domestic prices would rise is a matter of contention. Export opponents say it could largely erase the gap between domestic and foreign markets, but a May report from the Bipartisan Policy Center said the effects on domestic costs would be minimal.