TransCanada’s (NYSE:TRP) proposed Keystone XL pipeline set off a fervor among both environmentalists and lobbyists alike. Originally planned to carry syncrude and diluted bitumen from Alberta’s oil sands down towards refineries on the Gulf Coast, the project become mired in a deep political battle. It later was rejected by the Obama administration after Congress imposed a 60-day deadline on the approval process.
Overall, President Barack Obama’s reasoning for canceling the project was that the deadline for the decision had “prevented a full assessment of the pipeline’s impact.” Ultimately, TransCanada plans on splitting up the pipeline into three parts and has begun construction on the third leg that will carry oil from storage facilities in Cushing, Okla., to the refineries on the Gulf Coast.
While splitting the Keystone into parts certainly alleviates much of TransCanada’s headaches, another potential political football game in the energy sector is brewing. Given the abundance of natural gas within our borders, this pending battle could change the energy landscape within the United States for the next 15 years.
A Problem With Exports
New drilling technologies have allowed energy firms within the United States to unlock a virtual ocean of natural gas from once-impenetrable shale rock. However, as companies have rushed to tap those resources, they have created some unintended consequences: a glut of natural gas. Prices for the fuel have continued to fall during the past few years and in January touched a decade-low of $2.231 per million BTUs. This has prompted many E&P firms, like Chesapeake (NYSE:CHK), to curtail production.
Given the oversupply of natural gas in the United States and the lack of domestic demand, a variety of producers want to begin shipping the fuel overseas, where prices are higher. To do so, natural gas is cooled under pressure and converted into a liquid for transport by tanker ships to markets not connected by pipelines. The fuel then is converted back to a gas at specialized import terminals. Demand for liquid natural gas continues to grow, especially in Asia, where domestic fuel supplies are not enough to satiate power requirements.
This is where Cheniere Energy’s (AMEX:LNG) proposed $10 billion liquefaction facility comes into play. Through its Cheniere Energy Partners (AMEX:CQP) subsidiary and a healthy $2 billion investment from Blackstone (NYSE:BX), the company plans on adding export capacity to its Sabine Pass importing terminal. Receiving one of the first FERC permits to begin exporting LNG to non-free-trade agreement nations, Cheniere is at the epicenter of transforming the United States into a net energy exporter for the first time in decades.
However, this plan to begin exporting our bounty is where the trouble is brewing. Like the Keystone, the Sabine Pass natural gas plant is being targeted by variety of environmental groups because the project is potentially hazardous to the environment. The facility itself is not so much an issue, but the way natural gas is extracted.
The Sierra Club is arguing that opening America’s natural gas reserves to exports ultimately would lead to increased hydraulic fracturing. At its core, fracking involves injecting vast amounts of water, sand and chemicals called “propellants” into the hard rock at high pressure. This cocktail is then used to “crack” the rock and free the gas. While the EPA has deemed fracking safe, environmentalists have maintained their position that it contaminates underground drinking water.
Cheniere’s facility already has been granted approval, but environmentalists were successful in a last-minute rally to block the Keystone pipeline additions. The real kicker is that the FERC will examine these environmental claims before it issues permits for the remaining seven export facility proposals from firms like utility Southern Co. (NYSE: SO).