Cheniere Energy’s Charif Souki intends to turn the US natural gas boom into a new American export. Chemical company CEOs have allied with Washington regulators to hamper his cause. So much for free markets
If you want to see what the natural gas revolution in America has wrought, there’s no better place than the Sabine Pass liquefied natural gas port in coastal Louisiana. There you can peer into five massive storage tanks, each almost big enough to contain Madison Square Garden. Taken together, they can hold the liquefied equivalent of 17 billion cubic feet of natural gas—a quarter of what the United States uses in a day.
They’re empty.
Built in 2008 by Houston-based Cheniere Energy when it appeared certain that the US would soon run short on natural gas and need imports to make ends meet, they ran headlong into the Great American Gas Boom. Drillers in recent years have unlocked so much gas from tight rock that America now enjoys record gas supplies and prices that are just one-quarter of what buyers in Europe and Asia pay. Projections are that the annual US gas supply could grow a further 25 percent by 2035.
Rather than let those tanks rust as relics, though, an army of construction workers is turning an import terminal into an export terminal. By 2016, a processing plant will be ready to ship out 500 million cubic feet of gas a day. In the three years after that, Cheniere expects to build five more identical systems. The $12 billion investment should in turn be able to export about 4 percent of America’s current natural gas output, a remarkable turnaround for Cheniere and for Chief Executive Charif Souki. “It’s a revolutionary thing, absolutely astonishing, that America will be an exporter of hydrocarbons,” he says.
But just as astonishing as the idea of the US joining the likes of Qatar and Saudi Arabia are the hurdles this new push faces. In a remarkable oddity of 21st-century commerce, other companies—led by chemical giants from Dow and Huntsman to Alcoa and Nucor Steel—are fighting to block gas exports. Their self-interested argument: It’s against America’s economic interests to allow the cheap gas to flow outside its borders—and away from their hungry plants. “I’m not saying companies shouldn’t be able to export,” says Peter Huntsman, chief executive of Huntsman Corp. “But the question is, how much? Let’s not export an economic advantage that American consumers have today.”
In a bizarre coupling, the chemical companies have allied with environmentalists, including Congressman Ed Markey and Senator Ron Wyden. Markey has introduced two bills to block natural gas exports. One would prevent the Department of Energy, which uses ‘energy security’ as a filter on its approval process, from issuing permits.
All of which angers Souki, 60, a Lebanese-born former investment banker and son of a Newsweek correspondent. While he maintains that he’ll triumph over the odd consortium poised to stop him, he sees the effort as corporate welfare, masked under multiple politically expedient cloaks. “Unless we want to become the next USSR and have a centrally planned economy,” he says, “there is no debate and no choice.”
Shipping liquid natural gas is a tricky enterprise. Pipelines do the trick when you traverse a landmass. But while crude oil can be easily pumped out of the earth and dumped into a tanker ship, natural gas is generally too voluminous to be cost-effectively shipped via sea. The only way to solve this riddle is to chill the gas to –260o F, shrinking it into a concentrate 1/600 of its natural state—a process Souki’s plants are being built to accomplish.
A decade ago, natural gas prices were climbing and fears of scarcity had big oil and gas companies convinced that domestic supplies couldn’t keep up with demand. Souki, who had founded Cheniere as a small offshore exploration company, spent three years scouring the American coastline for viable spots to build a terminal. He settled on three sites in Louisiana and Texas, and made deals with landowners, addressed civic concerns and drew up plans for submission to state and federal agencies. Eventually he focussed entirely on Sabine Pass, situated just over the border from Texas. To help secure financing, he convinced Chevron and Total to sign 20-year contracts for the option (but not the obligation) to import natural gas—for which the companies agreed to pay $250 million a year. It looked smart at the time; in 2005, energy eggheads predicted that US gas imports would surpass 8 billion cubic feet per day by 2010, surpassing even Japan. Exxon Mobil and Qatar Petroleum started building their own import facility nearby, called Golden Pass.
The Energy Department has issued more than 20 export approvals to Free Trade countries (as required by law) but has been slow on non-FTA approvals, citing delays in studying whether approving more such exports would be in the public interest. In January, a group of senators introduced a bill that would specifically allow exports to NATO allies and Japan as well as any non-FTA country that the Administration wants to allow. But as it now stands, it will be at least the end of the decade before there are more than two operating plants exporting natural gas.
(This story appears in the 31 May, 2013 issue of Forbes India. To visit our Archives, click here.)