Natural Gas Glut Pushes Exports .

Energy companies are racing to export natural gas from the U.S. as they search for more-profitable markets amid a continent-wide gas glut that has depressed prices to the lowest levels in a decade.

A consortium including Exxon Mobil Corp., XOM +0.57% ConocoPhillips Co. COP +1.11% and BP BP.LN -1.10% PLC said late Wednesday it is moving forward with plans to export natural gas from Alaska's North Slope in a project that could cost as much as $65 billion.

The long-awaited effort is expected to have a significant impact not just on Alaska and its economy, but also on U.S. construction and manufacturing companies that would supply steel and other materials for an 800-mile pipeline and the plant that would convert the gas into liquid for export on tankers.

The Alaska project is the latest sign of the transformation of the U.S. from a heavy energy importer into a major producer and likely exporter. American companies have led the world in discovering how to coax gas and oil from shale rock formations from Ohio to Texas, sending U.S. natural-gas production up 28% between 2005 and 2011, according to U.S. government figures.

The new supply of domestic energy rendered an earlier industry plan to move Alaskan gas via pipeline to the continental U.S. unnecessary, according to experts and the companies involved.

The Alaskan export project would compete with more than a dozen proposed plants in the U.S. that hope to get federal approval to sell liquefied natural gas to energy-hungry countries, notably in Asia, where gas sells for several times the U.S. price. U.S. prices sank to as low as $1.91 per million British thermal units in April. Though the price has rebounded to about $3.50, the highest since December, it remains far below the $13 natural gas fetched just a few years ago.

Many of these projects—proposed by companies including Sempra Energy, SRE +0.50% Freeport LNG Development LP and Cheniere Energy Inc. LNG +0.19% —are clustered around the U.S. Gulf Coast, and are finding export partners in Britain and Spain, Korea, India and Japan. Others, including the Alaska project and several in Oregon, are focused specifically on selling to Japan, Korea and, eventually, China and India. Rival plants are also on the drawing board in Canada; Apache Corp., APA +0.02% EOG Resources Inc. EOG +0.31% and Encana Corp. ECA.T -1.67% have proposed a project in Kitimat, in British Columbia, where Royal Dutch Shell RDSB.LN -1.10% PLC has also proposed a plant.

"All of this is because of what's happened on the shale front," said Ken Medlock, a professor at Rice University's Baker Energy Institute. "I can't think of anything more seismic in terms of this shift in any industrial sector."

But the proposals to export U.S. gas present complicated policy questions. Exports would benefit producers slammed by the glut of natural gas and resulting low prices. Those have prompted them to cut gas drilling in the U.S. to the lowest level since 1999, according to data from Baker Hughes Inc., BHI +1.15% an oil-field-services company.

The low prices, however, have benefited consumers who rely on the fuel for heat and electricity, and have helped spark a revival in manufacturing, where gas is used in products ranging from fertilizer to steel. Many big consumers of natural gas are worried currently proposed projects, which could export more than a third of daily production in the continental U.S., would raise natural-gas prices.

"Do you grow the U.S. economy, or do you send the gas over to other economies and help them grow?" said George Biltz, vice president for energy and climate change at Dow Chemical Co., DOW +1.64% a consumer of natural gas. He says the company doesn't oppose all exports but wants to protect the competitive advantage that cheap gas brings.

 He has been arguing for months in Washington that natural gas used as feedstock for petrochemical plants or to fuel domestic manufacturing can bring many times the benefit for the economy compared with exporting it.

Gas exports don't need additional approvals if they go to the 17 countries, from Australia to Singapore, which have a free-trade agreement with the U.S. But exports to other countries do, and the Department of Energy says it won't rule on any of the pending applications until the release, likely before year-end, of a twice-delayed report on the cumulative economic impact of greater natural-gas exports.

For politicians, "It's an issue with two wrong sides," said Kevin Book, managing director at ClearView Energy Partners LLC, a research firm in Washington, D.C. If they support exports, "they may be blamed for higher prices," he said. For those who oppose it, "they may be criticized for killing jobs."

Because the Department of Energy has to study the cumulative effect of multiple export terminals, it could determine that some, but not all, of the proposed terminals would be acceptable. Or it could decide that exporting natural gas doesn't harm the U.S. public interest, regardless of the amount.

A study from the U.S. Energy Information Administration earlier this year predicted prices could rise by more than 50% due to gas exports, but assumes a relatively large volume of exports, of between 9% and 18% of daily U.S. production.

Studies by the Brookings Institution and Rice University, however, estimate export would only modestly increase domestic prices.

None of the proposed facilities to export gas are a sure bet for energy companies. They face opposition by environmental groups concerned that exporting will result in more gas-drilling.

It takes years and costs billions of dollars to build such plants, and they would be competing with other such projects in Australia, Russia and Africa for a growing, but not unlimited, demand for gas around the globe.

"It's a race," said Majed Limam, a consultant at Poten & Partners, a global energy broker. "There will be winners and losers."

If built, the Alaska project would be among the costliest gas-export projects in the world—between seven and 10 times more expensive than the Gulf Coast facility proposed by Cheniere Energy.

In a letter to Alaska Governor Sean Parnell made public Wednesday, the companies and TransCanada Corp. TRP.T +0.31% said they have cleared a number of hurdles to the project—but it may not be ready for a decade or more given the scale of construction and the many remaining technical, legal, political and financial barriers.

Source : online.wsj.com