Wednesday, October 12, 2011

Go East, Young...Gas

Dominion Resources announced last week that it has applied to the Department of Energy for permission to export liquefied natural gas from its Cove Point facility on the Chesapeake Bay in Lusby, MD.  The facility is intended to operate as an import and export hub, but I am sure the main activity at the facility would be export in the years to come. Construction on the export infrastructure would begin in 2014 with an estimated completion in 2016.

The company had already applied for permission to export to any country with which the U.S. has a free trade agreement, but that is a preliminary step towards a wider permission, since those countries do not represent much of an LNG market.  The current application is for permission to export up to 1 Bcf/day to any country with which the U.S. does not prohibit trade.

The approval process still has a ways to go, but it is another example of progress being made towards creating a more liquid (pardon the pun) market for natural gas in the U.S.  As a completely domestic product, there is little recourse for gas producers when supply and demand are off kilter.  With an export outlet, the gas market should become a little more stable, although 1 Bcf/day is not really enough to move the needle significantly.

This is a good project for a number of reasons.  First, the facility already exists, so most of the heavy lifting in terms of permitting and infrastructure has been done.  Second, Cove Point is close to the Marcellus and Utica Shales and has existing pipeline infrastructure.  On top of that, construction of the facility would be a big job creator and export of the gas would be a step in the right direction to help the U.S. repair its trade imbalance.  Successfully creating an export mechanism is would be a huge benefit to the natural gas industry.

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