Thursday, November 11, 2010

The United States is the world's largest energy importer, a statistic that has impacted its economy and foreign policy for decades. But is it about to become a major exporter of one type of domestic fuel?
A Houston-based company took a small, tentative step in that direction on Thursday, by saying it was working on a deal to supply liquefied natural gas from Louisiana to one of China's largest independently owned natural gas companies.
There are still hurdles. The exporter, a subsidiary of Cheniere Energy Inc. still needs a government permit to send gas to China. The Energy Department issued it an export permit in September, but it needs to be expanded to include China. And the signed memorandum of understanding with China disclosed Thursday is far from a done deal.
However, Cheniere already has a site in Sabine Pass, La., and support of local officials, though an expensive liquefaction facility still needs to be built. It is also working on a deal with investment banker Morgan Stanley to trade the gas, similar to its deal with a subsidiary of China-based ENN Energy Trading Co. Also on Thursday, Chesapeake Energy Corp. Chief Executive Aubrey McClendon told investors at a conference he has been in talks with Cheniere to supply gas to the proposed facility.
Charif Souki, chairman and chief executive of Cheniere, said the interest from these two companies confirms the global appetite for U.S. natural gas. He said when he announced his intention to create an export facility this summer "all the pundits said you won't do it because you won't get the permits, it is too expensive and there is no market." The deal with the Chinese company, formerly known as XinAo Gas, is proof, he says, there's a ready market.
In recent years, the U.S. has gone from a natural gas shortage to a gas glut. New exploration and drilling technologies have unlocked enormous amounts of gas in Texas, Louisiana, Arkansas, Pennsylvania and elsewhere. The abundance of gas has driven prices down, even as demand for the fuel is predicted to remain flat in the U.S., according to the International Energy Agency.
Meanwhile, demand for gas is surging in Asia as economies there expand. And gas is still bought in most Asian contracts at a price pegged to crude oil. This means that gas bought in Louisiana for $4 per million British thermal units can be resold for three times as much in China. That difference potentially makes it worthwhile to pay for shipping and for the cost of paying Cheniere to liquefy gas, a process of lowering the temperature to 260 degrees below zero Fahrenheit for transport. Once there, the gas would be reheated for use.
The U.S. has exported gas to Japan from Alaska for years. The Cheniere facility would be much larger, capable of exporting up to two billion cubic feet of gas daily—about ten times as much as the Alaska facility.
—Ryan Dezember contributed to this article.
Write to Russell Gold at

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