SHALE Oil & Gas Business Magazine
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For many Americans, L, N, and G are just three random letters. But these three letters might just stand for three of the most important words in Texas’ energy future: liquefied natural gas.
First, a short course on the technology. On land, natural gas, composed primarily of methane, is transported by pipeline from the gas field to market for use in your home’s furnace and oven. The Railroad Commission of Texas is the regulator that oversees the safety of this transportation in Texas.
But to move natural gas across the globe, to boldly go across oceans, natural gas is cooled and compressed, stored, and shipped as a liquid, or LNG. This process is efficient, and approximately 600 cubic feet of natural gas can be stored and transported under pressure in 1 cubic foot of storage space. To do this, the original natural gas is treated to remove impurities (like water), compressed and frozen to a temperature below 260 degrees Fahrenheit.
On deck a common type of LNG transport ship, you will notice large spherical storage tanks, which look like giant globes. LNG resides within these strong, pressurized and insulated tanks.
At the receiving port, the shipment is re-gasified by warming the LNG so it can “evaporate” back into its original state, as natural gas. It is then ready for another pipeline trip to its end-use customer.
The LNG business is a straightforward flow chart. Natural gas drilling results in producing wells where pipelines collect and transport the gas to an export terminal for shipping the liquefied product overseas. There the process reverses at the import terminal, which sends the re-gasified LNG into pipelines that eventually lead to the end-use consumers. Therefore, there are two types of LNG terminals: an export or liquefying terminal and an import or re-gasification terminal.
Before the shale revolution, natural gas was in limited supply and import terminals in the U.S. were under construction. Thanks to hydrofracturing technology, the U.S. now imports very little natural gas. So how did this affect the old import terminals? American ingenuity and investment have allowed these former import facilities to be re-engineered, so what was planned as an import terminal can now serve as an export terminal. That is a game changer that reflects the market forces and economic potential of LNG trade in an energy-starved world.
Cheniere Energy, a leader in this reverse-engineering effort, is constructing LNG export terminals at one of the existing sites that was previously permitted for a re-gasification terminal. The company is also permitting and building new terminals focused on exports. At the Sabine Pass terminal, Cheniere is shipping LNG to almost two dozen foreign lands. This effort has been noticed in the industry, and permits and planning for new facilities from potential competitors are being submitted and processed by the federal government.
The cities of Corpus Christi and Brownsville along the Texas Coastal Bend have much to boast about, and energy production has long been an economic force in the region. According to data from the U.S. Energy Information Administration (EIA), Texas accounted for more than 27 percent of U.S. marketed natural gas production in 2015, appointing Texas as the leading natural gas producer among the states. Many of these gas plays are located close to the coast or have extensive pipeline infrastructure, making these two cities a striking opportunity for industrial investment.
In February 2016, Cheniere became the first company to ship LNG from the contiguous United States in more than 50 years. Other companies are developing LNG export projects, but they’ve yet to come online. In just over a year, Cheniere has delivered cargoes to 18 countries on five continents. The company is also building a Corpus Christi LNG export terminal that’s expected to start operations in 2019. The first two portions are about 50 percent complete, while a third is in permitting and planning.
Texas LNG has announced plans to construct, own and operate an LNG facility at the Port of Brownsville. In Phase 1, it will reportedly have a planned capacity to produce 2 million tonnes per annum (MTA) permit capacity of LNG from approximately 275 MMcf/d or 0.28 Bcf/d of feed gas derived from the vast U.S. natural gas system. Phase 2, to commence at a later date, will increase capacity by an additional 2 MTA permit capacity.
According to a North Texans for Natural Gas white paper published in April 2017, Texas LNG exports to other countries will produce more than 136,000 jobs in the U.S. and have an economic impact of $145 billion. As well, more than 70,000 of these jobs will be located in Texas, and the state government will receive more than $20 billion in state tax revenue. Historically, these energy salaries are relatively high. The oil and gas fields of Texas demand hard work but are well-paying.
The Federal Energy Regulatory Commission reports that 11 LNG export facilities have been approved for the U.S. and are in various stages of construction and usage. Nine of these will serve the Gulf of Mexico.
Let’s take a brief look at the world’s largest LNG customer: Japan consumes approximately one-third of the global LNG trade. There are many reasons why Japan is focused on LNG: A lack of domestic reserves and resources, a large population, a sophisticated shipping and port system, and even a disastrous tsunami at the Fukushima Daiichi nuclear power plant all play a role. In 2016 the EIA predicted that Japan’s oil and coal consumption would decline, while its natural gas consumption would increase, with its natural gas share of total energy consumption rising from 25 percent in 2020 to 30 percent in 2040.
In Europe, Texas LNG may make the world a safer place. The Russian company Gazprom has long been a primary supplier of natural gas to Eastern Europe. This dependence on Russian gas has obvious geopolitical implications and presents opportunities for Russian economic mischief by manipulation of the supply side of the energy equation. The LNG sold to Europe lessens the dominance of Russia in an area embroiled in strife and political intrigue.
Perhaps the best summary of what the future may hold comes from Harold Hamm, CEO of Continental Resources: “LNG represents America’s future contribution to the world’s cleaner environment with an immediate reduction in CO2 as this abundant resource becomes accessible to all countries. This export combo serves to spawn an entirely new large industrial complex.”
And this industrial complex is growing. It will increase trade, create jobs and enhance our national security. The tide is rising for Texas LNG exports, and a lot of boats will be lifted as we ship our natural resource to an energy-hungry world.
About the author: John Tintera, Executive Vice President of the Texas Alliance of Energy Producers, is a regulatory expert and licensed geologist (Texas #325) with a thorough knowledge of virtually all facets of upstream oil and gas exploration, production and transportation, including conventional and unconventional reservoirs. As a former Executive Director and 22-year veteran of the Railroad Commission of Texas (considered the premier oilfield regulator in the nation), Tintera oversaw the entire regulatory process, including drilling permits, compliance inspections, oil spill response, pollution remediation and pipeline transportation.
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