Changing Global Energy Landscape with US Shale Gas – Part II

In mid- 2012, Kinder Morgan’s acquisition of El Paso for $38 billion,  resulted in a combined company called Kinder Morgan, Inc which is the largest operator of natural gas pipelines in the U.S. with 22% of the U.S. natural gas pipeline network,  connecting almost every gas field and consuming market in the U.S. The expanded pipeline network resulting from the Kinder Morgan-El Paso deal is expected to be especially significant in supplying gas to higher-priced electricity markets such as New York and Florida. The expanded pipeline network will permit the natural gas “bubble” to move downstream, in enough abundance to stimulate new products and locations.

This deal was a game changer because thousands of wells drilled to produce the record-setting “bubble” now have a record-setting pipeline network to get to market. This transaction affirms the potential of the shale gas discoveries, while countering apprehensions regarding stability of the natural gas market.

Sasol has announced a $10-billion facility in Louisiana to manufacture diesel fuel from natural gas, thus creating a new market for Haynesville Shale gas. That’s not all. Dow has announced plans to build shale gas downstream capacities based on ethane and propane on the Gulf Coast, and Shell has also made known of their plans to build an ethylene cracker in Appalachia near the Marcellus Shale.

There are domestic and export implications for liquefied natural gas (LNG) as well. Last year, Cheniere Energy was the first company in 35 years to receive export approval for LNG from its Sabine Pass liquefaction facility and has signed an $8-billion contract with BG for supplying LNFG and another one with Spain’s Gas Natural Fenosa for a total 7 million tons/year of LNG over 20 years.

The LNG exports are likely to be directed primarily to Asia, where in addition to the strong demand for LNG, the prices being paid for LNG are four times as high as the prices in the U.S. This demand for LNG in Asia is dominated by Japan and South Korea . These two countries together imported 64 percent of global LNG. Japan is replacing nuclear electricity generation capacity lost as a result of the earthquake and tsunami with LNG. Additional demand comes from China and India. China’s import of LNG has increased considerably, driven by demand for electricity generation and air quality concerns. The oil companies of India &China have made significant investment in U.S. shale plays in an attempt to bring in supply to their own markets.

The tide has turned — the U.S. is on its way to being not only the supplier of the world’s LNG, but other fuels as well. The U.S. is already on course this year to be a net exporter of gasoline, diesel and other fuels for the first time since the post-World War II economy of 1949 — a prospect that was unimaginable even a few years ago.

-Guest Post

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