Total overall energy production in the United States is expected to surpass Saudi Arabia by 2020 due to America’s vast natural gas resources. With the surplus supply comes an emergence of new innovations. As new uses for the excessive and inexpensive supply become operational, the result will be upward price pressure on natural gas and, in turn, electricity.
The boom in shale drilling has significantly reduced the cost of natural gas in the United States and has encouraged many energy/chemical companies, like Sasol & Cheniere Energy, to build plants.
On December 3, 2012, Sasol, a South African energy company, made an announcement that it plans to build a fuel plant in Louisiana with ability to convert natural gas into diesel and jet fuel, as well as other products.
The plant will be similar to smaller plants located in South Africa and Qatar and cost anywhere from 11 to 14 billion dollars to build. Designed to produce 96,000 barrels of fuel a day using gas-to-liquids (G.T.L.) technology, this facility will be the first of its kind in America.
The photograph above is one of Sasol’s gas-to-liquids facilities. Courtesy of EnergeticCity.
David Constable, Chief Executive with Sasol, explained that adding the exclusive G.T.L. technology in the United States’ energy mix will advance the country’s energy independence. More information on the Sasol plant announcement can be found at: http://goo.gl/kVYbQ.
While the Sasol plant’s success depends on natural gas prices remaining lower than other fuel sources, Cheniere Energy’s exporting plant should succeed depending on overseas natural gas demand.
Recently, natural gas drilling has slowed due to the decrease in prices. However, plans for the US to begin exporting the fuel to Asian countries, where natural gas trades three-to-four times American prices, could encourage drilling to rise again. With natural gas eventually being sold on the global market to the highest bidder, it should provide upward pressure on domestic gas rates. Once natural gas prices reach $4.50 – $5.00, coal and other fuel sources can become attractive electricity generation options again – potentially causing electricity rates to rise.
The U.S. Energy Department is considering approving 15 more liquefied natural gas (LNG) terminals with a total export capacity of 26.5 billion cubic feet a day.
Overall, in an analysis performed by NERA Economic Consulting at the request of the U.S. Energy Department, the benefits of exporting natural gas far outweigh the concerns. Exporting has the potential to bring in near $32 billion in annual revenue and thousands of new American jobs.
Exporting almost one-third of the total US consumption and converting a portion of the rest to liquid fuel will change natural gas prices and our total energy portfolio forever. How much will this effect the energy cost to the end user? That remains to be seen.