Exporting Natural Gas, The Dilemma Persists, Part 1

Robert is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

There’s been a long debate about whether to export American natural gas or not.  There is no right answer, but I think both sides of the debate advance ideas and issues worthy of a thoughtful look.  In this two part series, we’ll look at this natural gas dilemma facing the country and how the US should manage this valuable asset for the long term good.

Don’t export, we need the cheap energy

This has been the main point of those advocating not exporting natural gas.  This hits home on several fronts.  In this economy, everyday Americans need all the help they can get, including cheap natural gas to heat their homes.  Some calculate every American spends less on energy and other products thanks to shale gas.  Small businesses that use natural gas also don’t mind saving a few bucks, either. Inexpensive ethane, a component of natural gas and a common feedstock for the chemical industry, may contribute to the creation of 400,000 jobs in the chemical industry.  The US Energy Information Administration reports air quality in the country has improved since utility companies began switching en masse to natural gas for power generation.

Big companies, like Dow (NYSE: DOW), that use natural gas as a raw material for such products as plastics and synthetic rubber also benefit from the current low prices.  In fact, Dow recently blasted a recent US Department of Energy report that concluded the country would be better off exporting natural gas rather than using it domestically.  Dow contends natural gas gives America a competitive edge that would be lost if exports drove up the price. Certainly, Dow stockholders would like to see their company’s fortunes improve, along with their dividends.  Dow could use some help.  This past October, Dow announced lay-offs and plant closings courtesy of the slow economy.

Another jobs related benefit of inexpensive natural gas comes in the form of oil.  Turns out, natural gas makes a great feedstock for making oil via the Fischer-Tropsch technique.  Both Sasol (NYSE: SSL) and Royal Dutch Shell have announced plans to perform feasibility studies off the Louisiana coast to build large scale gas to oil plants.  The availability and low cost of the natural gas makes this possible.  The Sasol plant will likely employ 850 people.  No estimates found regarding jobs created during construction, but these plants are huge multi-billion dollar facilities that aren’t built overnight.  My bet is plenty of jobs will be created if these plants go through. This Fischer-Tropsch stuff is no exotic experimental technology either.  Two Fischer Tropsch plants in Qatar will eventually crank out over 170,000 bpd.  One is operated by Sasol, the other by Shell.  Hopefully lessons learned in Qatar will bring the US plants online sooner than later.

Lastly, Nucor (NYSE: NUE) and other steel manufacturers plan on opening plants in the US specifically because of cheap natural gas.  Using so called Direct Reduced Iron, natural gas, not coal, is used in the first part of the steelmaking process.  With US natural gas so cheap, this results in a 20% price advantage over traditional blast furnaces.  The Nucor plant is slated to open in Louisiana in the summer of 2013. US Steel (NYSE: X) hopes to boost steel exports by converting steel mills to natural gas.  Given the anemic domestic demand for steel, exports have become important to US Steel’s bottom line.  Ohio looks to open a new steel mill courtesy of BlueScope Steel of Australia.  These and other new steel mills depend on cheap natural gas to stay economically feasible.

What about vehicles?

Using natural gas as a vehicle fuel marks a holy grail of the natural gas industry.  While I certainly won’t object to using American produced natural gas and further reducing our dependence on foreign oil, using natural gas to run cars, trucks and buses seems only a distant dream at the moment.  While the number of natural gas burning vehicles climbs, the sheer numbers are small.  Westport Innovations (NASDAQ: WPRT), the leading designer of natural gas burning engines, has yet to turn a profit.  Westport is still signing deals with automakers and its revenues keep climbing, but so do its losses.  While I’m emotionally pulling for Westport and the natural gas vehicle industry as a whole, financially I’m waiting for better news on the earnings front before investing.

Final Foolish Thoughts

Cheap natural gas currently gives substantial economic and environmental benefits to many Americans.  If the gas stays cheap, the future promises even more benefits.  Exporting natural gas risks driving its price up and hurting the US economy.  Which is not to say there aren’t economic benefits to exporting the stuff; that we’ll look at in Part 2 of this series.

 


dylan588 has no position in any stocks mentioned. The Motley Fool recommends Nucor, Sasol, and Westport Innovations. The Motley Fool owns shares of Westport Innovations. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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