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September 2008

Vol. 13, No. 37 Week of September 14, 2008

Oregon senator wants Nikiski LNG exports to Japan ended

Wyden wants Alaska liquefied natural gas sent to Mexican terminal to add to U.S. supply

Allen Baker

For Petroleum News

Oregon’s U.S. Sen. Ron Wyden has asked the U.S. Department of Energy to revoke its approval of an export license for the Nikiski LNG plant in Alaska to send its product to Japan, arguing that the gas is needed in the Lower 48 — even though it amounts to just two-tenths of one percent of U.S. consumption.

In a Sept. 2 letter to Energy Secretary Samuel W. Bodman, Wyden wrote that the current administration is “arguing that we need to drill everywhere because we don’t have adequate energy supplies, while finding that we have so much energy that big oil companies can export it overseas and keep prices here at home higher than they would otherwise be.”

The Oregon Democrat suggests the Alaska liquefied natural gas could be sent to the new Sempra Energy import terminal in Mexico, then shipped back north into the West Coast market.

Mexican revolving door?

What the senator doesn’t mention is that the U.S. now sends more than twice as much natural gas the other way — from California to Mexico.

In 2006, deliveries to Mexico just from the state of California totaled 101 billion cubic feet, according to the Energy Information Administration. Nikiski LNG exports are 46 billion cubic feet annually. As for the total U.S. exports to Mexico — they’re about seven times the amount of natural gas the Alaska LNG plant sends to Japan.

The Alaska LNG export flow is so tiny in the overall scheme of things that it was exceeded last year by U.S. LNG imports from four countries — Egypt, Nigeria, and Algeria among them. That’s aside from Trinidad, which moved nearly ten times as much LNG to U.S. ports last year as the Nikiski plant sent to Asia.

Coming supply glut?

Meanwhile, natural gas production is surging in the Lower 48 as companies such as Chesapeake, XTO and Anadarko are unlocking supplies from the Barnett shale in Texas, plus unconventional wells in the Rocky Mountain region and elsewhere.

The Rocky Mountain states, particularly Wyoming, are the big suppliers for the West Coast, which consumes 2,778 billion cubic feet of natural gas annually, about 12 percent of the total U.S. consumption of 23.1 trillion cubic feet.

Wyoming’s production alone increased 12 percent in the first six months of this year, compared to the same period in 2007, while Texas gas wells gained 16 percent, according to the EIA.

All this has led to a major decline in natural gas prices in the Lower 48, with the Henry Hub price at $7.265 per thousand cubic feet Sept. 9, down from more than $13 just a couple months ago. Even gas for delivery in December is just $8.25 on the same date on the Nymex.

Meanwhile, vintage oilman T. Boone Pickens and Chesapeake Energy CEO Aubrey McClendon are suggesting domestic natural gas is so abundant the U.S. auto fleet should be converted to the cleaner-burning fuel.

McClendon made his case in a two-page ad in the Sept. 9 Wall Street Journal that says: “A new landmark study shows North American natural gas supply far exceeds industry forecasts. With 22 U.S. gas-rich shale basins that 21st-century technologies have made productive, long-term abundance is assured.”

Ron Wyden probably missed that ad.






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