Pennsylvania’s LNG export boom heads to Japan

At the busy Port of Yokohama, near Tokyo, large oceangoing vessels carry new cars from Japanese factories to a global market. But one product the Japanese have always had to import is energy, and it’s clear from the port traffic how much energy the country needs. Tankers full of coal, liquefied petroleum gas, and liquefied natural gas, or LNG, sail into the harbor from all over the world, including Pennsylvania.

Since spring 2018, shale gas from Pennsylvania has been shipped out of an export terminal on the Chesapeake Bay to 20 different countries. Most of those ships went to Japan. Right now, natural gas on the global market is fetching almost $6 per mmBtu, or million British thermal units – about triple the price Pennsylvania producers get selling to the domestic market.

Speaking at a recent Chamber of Commerce event in Philadelphia, American Gas Association president Karen Harbert extolled the benefits of exports.

“We’ve got the cheapest gas in the world,” said Harbert. “And we’re trading all over the world. Every molecule that we can export that supplants the mullahs of Iran is a good day for America.”

The abundant drilling of Pennsylvania’s Marcellus and Utica Shale has created a glut of natural gas and driven down prices. In the past 12 years, shale gas producers drilled more than 12,000 fracked gas wells in northeastern, central, and southwestern Pennsylvania. The price of that overproduction means Pennsylvania’s gas is now selling at about $2.30 per mmBtu. In 2008, before the shale gas boom, natural gas prices averaged almost $9/mmBtu.

Producers eager to find new markets now ship gas overseas, aided by newly built pipelines and export terminals.

Ira Joseph, head of gas and power analytics of S&P Global Platts, said there’s been an “unprecedented surge” in new supplies of LNG in 2019.

“In the case of the Northeast, the Marcellus and Utica, it’s a constant fight to support price,” said Joseph. “Production has gone up so much that to push gas out of the region, it’s been a constant battle to create new pipeline capacity, and reverse existing pipeline capacity to create demand for the gas.”

Exports won’t necessarily force the price back up to 2008 levels, Joseph said, but they will prevent further dips. Five new LNG export terminals have come online since 2016. Another 16 have been approved and eight are pending approval by the Federal Energy Regulatory Commission, or FERC.

The United States is now the third largest LNG exporter, behind Qatar and Australia.

A nuclear disaster, shale gas to the rescue

Japan is the world’s largest importer of LNG. In March 2011, its energy needs were suddenly transformed when the massive Tohoku earthquake and subsequent tsunami led to a meltdown at the Fukushima Daiichi nuclear power plant. Residents fled the radiation; some never returned to their homes.

Japan shut down its nuclear power plants in the wake of that disaster. Increased imports helped make up for the loss. And the newly abundant U.S. shale gas wells provided a solution.

Ken Koyama is the chief economist and managing director at the Institute of Energy Economics in Japan.

“After 2010, everybody, including the Japanese government and industry, realized the significance of the shale revolution in the United States,” he said.

Energy security is key for Japan — the country is still dependent on Middle East oil.

“That’s a critical challenge,” said Koyama. “LNG is an important source of diversification for us.”

Since the shutdown of all 54 nuclear reactors in 2011, nine reactors at five plants have come back online. But Koyama said that, as long as the price remains competitive, he thinks LNG imports from the U.S. will continue to increase.

Tokyo Gas led the way with LNG back in 1969, when it began importing fuel from Alaska to help fight air pollution in Japan’s industrialized cities. Takuro Yamamoto, deputy general manager of gas resources for Tokyo Gas, said demand for LNG has grown worldwide over the past five or six years.

“The U.S. is [now] a very important market in terms of LNG,” Yamamoto said. “The U.S. market is just gigantic.”

The company imported 14.2 million tons of LNG in 2017, mostly from Australia and Malaysia, but also from Qatar, Brunei and Russia. Now, Pennsylvania shale gas travelling through Dominion Energy’s Cove Point plant in Lusby, Maryland has been added to that list.

A regasification plant owned and operated by Tokyo Gas in Yokohama uses ocean water to warm up the LNG and converts the fuel back into methane gas — the same form it was in when it came out of a well in northeastern Pennsylvania.

Tokyo Gas helped finance the transformation of Cove Point from an import facility to an export terminal. Pennsylvania’s gas is so abundant and cheap, it makes sense to ship it through the Panama Canal to the Asian market. Yamamoto said Tokyo Gas has also invested in an export facility in Texas and a natural-gas power plant in Pennsylvania, in Birdsboro, Berks County.

“This is our overall strategy,” he said. “It’s very simple. What we’re trying to do is diversify.”

Another advantage of importing U.S. gas is the more flexible contracts that allow importers to resell the gas on the international market.

“So now we can swap around the cargo, this is a very important thing,” said Yamamoto. “We can make a profit [if it’s bought at] a higher price point.”

Through farmlands, backyards and forests

Gas producers, exporters, small leaseholders, and pipeline builders and operators could benefit from selling gas on the global market.

But not everyone is happy about the pipelines that feed those exports.

Before it gets to Japan, the gas has to travel through forests, backyards and farmlands, like Deborah and John Swanson’s cornfield in Conestoga, Lancaster County.

The newly built Atlantic Sunrise pipeline starts in Susquehanna County — site of some of the most productive gas wells in the state. In Lancaster County, it meets up with an existing interstate pipeline that can carry the gas to an export terminal.

Like a lot of landowners along pipeline paths, the Swansons didn’t want to sell their land, but they quickly learned they had no choice.

“We took it to court in Philadelphia, and we fought it as long as we could,” said John Swanson. “But you don’t fight the federal government and win.”

FERC gave the pipeline company Williams eminent domain power. Williams says the Atlantic Sunrise pipeline is a utility because it serves the domestic market. But it was also built to help Pennsylvania gas flow to a burgeoning export market.

Sumitomo Corp., a Japanese trading company, and its U.S. affiliate Pacific Summit Energy helped foot the almost $4 billion bill to convert Cove Point to a natural-gas export terminal. Cabot Oil & Gas, a Texas company that has wells in northeast Pennsylvania, contracted with Sumitomo, Tokyo Gas, and Kansai Electric to sell 350,000 million British thermal units of Marcellus Shale gas per day for 20 years. The plant, owned and operated by Dominion Energy, has a yearly capacity of 5.25 mtpa (million tons per annum), which is about 1% of the nation’s current natural-gas production.

The U.S. affiliate of India’s GAIL Ltd. also has signed 20-year service agreements to purchase natural gas that flows through the Cove Point plant.

Because of the flexible contracts, the gas that has run through the Atlantic Sunrise pipeline since it came into service last spring could very well have ended up in Europe or South America.

The path of the pipeline beneath the Swanson’s land is easy to spot — the soil is compacted and light brown, the corn that grows on top of it is shorter than all the rest.

“We don’t like it running beneath our feet, no matter what,” said John Swanson.

The Swansons say they heard a rumor that the gas flowing beneath the land they were forced to sell was headed for export.

“That was really downplayed because they wanted to make sure that they got their eminent domain deal through,” said Swanson.

To make matters worse, the Swansons say, they didn’t get the true market value for the land they were forced to sell.

“You learn an awful lot by the time you’ve gone through it. And one of the things you really learn is the government does not look out for its people,” he said.

The gas eventually ends up at the Cove Point export terminal, about 135 miles south of the Swansons’ land in Conestoga.

Dominion’s Cove Point liquefaction plant and export terminal sits on a spit of land jutting out into the Chesapeake Bay. A nearby lighthouse built in 1828 sits along the beach nearby. A network of 32-inch pipes surrounds large white cylindrical tanks. It’s here that the gas is cooled to minus-260 degrees Fahrenheit — the point at which it becomes a liquid so it can be loaded onto a ship.

More than a year since Pennsylvania’s shale gas first shipped to Japan, U.S. shale gas exports have more than doubled. American natural gas now supplies 35 different countries.

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Reporting for the story was made possible by a grant from the International Center for Journalists.