By Rob Nikolewski │ New Mexico Watchdog
SANTA FE — Deals that could send millions of tons of liquefied natural gas from the United States to Japan are slowly working their way through the Obama administration’s regulatory maze, with New Mexico producers watching carefully on the sidelines.
Should the exports get OK’d, it would not only mean good news for natural gas producers but also more money for the state’s general fund because gas prices would likely increase.
HURRY UP AND WAIT: Japanese await U.S. government approval to import liquefied natural gas — something that could boost New Mexico tax revenue.
A rise in natural gas prices could be a big boon for the New Mexico economy because the state derives millions from its oil and gas severance tax. It’s estimated that even a 10-cent increase in the price per thousand cubic feet of natural gas translates into $10 million extra for New Mexico’s coffers.
“Any gas-producing state, including New Mexico, should be beating the drums in Washington for LNG (liquefied natural gas) exporting,” Bernard Weinstein, associate director of the Maguire Energy Institute at Southern Methodist University, told New Mexico Watchdog. “There are tremendous opportunities here.”
“In general, anything that expands global markets is good for New Mexico,” said Wally Drangmeister, communications director for the New Mexico Oil and Gas Association. “There is some downside for consumers if prices go up slightly, but the benefit for the state of New Mexico (in tax revenue) is huge because we’re such a big producer of natural gas.”
In May, a representative from Japan’s state-run energy corporation met with Lt. Governor John Sanchez and toured natural gas facilities across the state.
“We are searching for liquefied natural gas,” said Hidehiro Muramatsu, general manager of the Washington, D.C., office for the Japan Oil, Gas and Metals National Corporation, at a reception in Albuquerque. “In my opinion, it’s a pragmatic and practical way to transport natural gas from the state of New Mexico.”
In the wake of the 2011 Fukushima disaster, Japan has virtually shut down its nuclear facilities. Muramatsu said only two of the country’s 49 reactors have restarted and Japan has shifted to natural gas to satisfy its energy needs.
Since Japan represents the third-largest economy in the world, the amount of natural gas it’s seeking is tremendous — more than 87 million tons per year.
In May, the Department of Energy gave conditional approval to ship LNG from a port in Texas to Japan, but DOE still has to evaluate individual companies’ bids to actually export their product. Update 8/7: On Wednesday (August 7), the Obama administration gave conditional approval to an LNG terminal in Lake Charles, La. Like the LNG port in Texas — as well as a third LNG terminal approved earlier in Louisiana — final review has to be approved before any gas is shipped.
Newly installed Energy Secretary Ernest Moniz told reporters the Obama administration is “working hard” to evaluate the bids, but three months have passed and natural gas producers are getting impatient.
“Slow-walking permits is troublesome,” said Weinstein, who last week wrote an opinion piece for The Hill, the newspaper that covers Congress, saying, “Now is the time to get serious about entering the global gas market in a big way.”
“Moniz was saying positive things about natural gas,” Weinstein said, “but now he says, ‘we’re going to take our time.’ ”
Supporters say natural gas is much cleaner for the air than oil or coal, but some environmentalists argue against its use because they’re opposed to hydraulic fracturing, or fracking.
“Exporting LNG will lead to more drilling — and more drilling means more fracking, more air and water pollution and more climate fueled weather disasters like last year’s record fires, droughts and superstorms,” said Deb Nardone, director of Sierra Club’s Beyond Natural Gas campaign, after DOE issued its conditional approval for the Freeport export terminal in Texas.
New Mexico gas suppliers envision sending their product to Japan from a West Coast terminal, but getting an LNG terminal built in California, Oregon or Washington is sure to run into opposition from environmental groups.
Weinstein said Tuesday that should DOE finally approve LNG exports to Japan, New Mexico natural gas could just as easily be shipped from Texas or Louisiana and travel by tanker to Japan via the Panama Canal.
“I think the marginal costs will be very small. We’re talking about adding a day or two (to get to Japan), then paying the tolls of getting through the canal, but I don’t think it will affect the delivery price very much,” Weinstein said.
A project to double capacity at the Panama Canal is scheduled to be completed by next year, giving LNG tankers easier access.
“Our gas is so cheap we can ship to both the Pacific — or the Atlantic for that matter — cheaper than anyone else.”
“On a downstream basis, I agree with that,” Drangmeister said, but added that New Mexico natural gas could also go to a proposed LNG terminal on the Sea of Cortez in Mexico before being shipped to Japan.
Right now, the spot price of natural gas in the U.S. is hovering around $3.50 per 1 million British Thermal Units. Japan pays about four times that much, which explains why it’s looking to the U.S. and nations such as Canada, Mexico, Russia and Qatar to meet its energy needs.
“There’s a lot of existing competition,” Weinstein said. “If we don’t get on the stick, we’re going to lose out.”
Two weeks ago at a bilateral meeting in Washington, Japan’s minister of economy, trade and industry pressed Moniz for more approvals of LNG exports to Japan.
Talking to reporters later, Moniz spoke carefully.
“Obviously, a big issue is how do exports drive additional production,” he said. “The cumulative criterion means we have to keep looking at what’s happening in the market.”
Contact Rob Nikolewski at rob@nmwatchdog.org and follow him on Twitter @robnikolewski