Dow, ConocoPhillips Spar Over LNG Exports

Manufacturers need five years to ramp up domestic plants being built to take advantage of America's glut of cheap shale gas, according to a Dow Chemical executive, and the country should be careful not to undercut them by depleting that supply with exports.
But exports are necessary, according to a ConocoPhillips economist, to keep the shale gas revolution going. The executives politely disagreed Thursday before about 150 people at a forumhosted by The Chicago Council on Global Affairs.
"I think it's a false choice to say we either use the gas here or we export it. I think we can do both," said Marianne Kah, the chief economist for ConocoPhillips. "And the truth is if we don't have a market for that gas it won't be produced. You won't get to have your gas. It'll simply be in the ground because it will be uneconomic to produce. Which is what's happening today. We've stopped drilling for dry gas today because there isn't a market for it."
That glut, according to Dow executive Brian J.M. Ames, derives from manufacturers waiting to see whether the shale gas supply, which ballooned with the proliferation of lateral drilling and hydraulic fracturing at the turn of the decade, would prove reliable.
"Today there is an excess of supply of gas because we needed the producers to prove the gas is available. So that's what's gone on here. Today now we know the gas is available, so companies like ours are making investments to use the gas. But it's going to take a period of about five years until the demand can really respond to the supply."
Manufacturers who have invested in new plants—Ames says 123 are under construction—are vulnerable to loss should gas prices rebound. Dow plans to invest $4 billion in Gulf Coast ethylene and propylene plants, which use natural gas as a resource.
"Now that the supply side is really proving itself, it's allowing the industries that really consume gas to make investment decisions, and that process is evolving, but this balance between supply and demand can be fragile in this industry," said Ames, Dow's business president for olefins, aromatics and alternatives.
"We've seen it before where the supply didn't come as well as we thought it would, and the demand was already stimulated, and prices went up and become extremely volatile and it became a problem for the manufacturers in this country."
The Department of Energy has received a number of applications for liquified natural gas (LNG) export terminals, which new DOE chief Ernest Moniz has said will be processed this year.
According to Kah, studies have shown LNG exports would increase domestic gas prices by at most $1 per million BTU, keeping the price for American shale gas under $6. That price would spur more drilling, she said, while American shale gas would remain the cheapest in the world.
"Exports improve the balance of trade and create jobs and income here," said said. "We also can help reduce greenhouse gas emissions internationally if we export gas to developing countries in particular that might be using coal. And I think we're going to have to export crude simply because all of these shale liquids are very very light oil. So we're producing very light oil, which really does not match the refinery system of the united states. It matches other systems better. So what we do need to do is import heavy oil, which does match our refining system, and export lighter oil."
Dow scouts the world for the least expensive raw materials, according to Ames, and has concluded those materials are now in the U.S.
"We've looked long enough now around the world that we've come back to the US because of this outlook and the outlook is good. That's why we're coming here."
Ames estimates the coming manufacturing boom will increase demand for natural gas by at least 50 percent, so the U.S. should be cautious with its supply.
"Dow is not against LNG exports, but we do think you should be careful with short-sighted policies because this is a long-term opportunity," Ames said. "And so what we want to do is really understand the demand side, see if (exports) have an impact on supply, and see if this can be an opportunity that can really last."
CORRECTED: This story originally paraphrased Kah saying LNG exports would increase domestic gas prices by only about $1 per million BTU. She said, specifically, "at most" $1, and the story has been corrected to reflect that nuance.

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