May 26, 2022

Philadelphia Inquirer: Why Pennsylvania natural gas might not be poised to come to Europe’s rescue

Why Pennsylvania natural gas might not be poised to come to Europe’s rescue

Europe is clamoring to buy more American natural gas in response to the Russian invasion of Ukraine. As the nation’s second-largest producer of natural gas, Pennsylvania stands to gain, right?

Not necessarily.

Some oil and gas industry experts say that Pennsylvania, even though it is a major producer in the Marcellus and Utica Shale formations, is not well-positioned to feed gas production into export markets to satisfy demand from Europe.

“There has been solid pull for U.S. natural gas exports,” said Dean Foreman, the chief economist of the American Petroleum Institute. “But by and large, producers across Appalachia -- Pennsylvania, Ohio, West Virginia -- do not have a large amount of access to selling their product to international markets.”

Foreman says pipeline capacity is constrained between Appalachian gas production areas and the giant Gulf Coast facilities that produce liquefied natural gas (LNG) for export by ships. The result is that gas production is expected to be static or to fall slightly this year in Appalachia, but production is booming in the Haynesville area of Louisiana and East Texas even though gas is more expensive to extract there than in the Marcellus. Its advantage: more pipelines to the Gulf.

The East Coast has only one large LNG production plant for export, the Cove Point LNG in Lusby, Md., which was built in 1978 to import gas when U.S. production was in decline. The plant reopened as an export facility in 2016 after Dominion Energy invested $3.8 billion to install cryogenic equipment needed to chill natural gas to minus-260 degrees, at which point it turns into liquid. The plant can liquefy up to 770 million cubic feet of gas a day.

Other proposals to build East Coast liquefaction terminals have aroused strong objections from climate advocates, who view LNG as a long-term avenue for expanding greenhouse gas emissions. Gas industry advocates argue that LNG burns cleaner than the carbon-intensive fuels it displaces, like coal and diesel.

The United States only began exporting LNG six years ago after domestic natural gas production increased dramatically with the exploration of shale, the geologic rock formations containing oil and gas that were unlocked with the development of hydraulic fracturing. Most of the large plants that liquefy natural gas for loading into seagoing tankers are located on the Gulf Coast.

The United States can liquefy 11.6 billion cubic feet (Bcf) of gas a day, which is expected to increase to 13.9 Bcf by the end of this year with the completion of several expansion projects, according to the U.S. Energy Information Administration. That would exceed the capacity of the next two largest LNG exporters, Australia and Qatar.

When the $10 billion Golden Pass LNG project in Sabine Pass, Texas, is set to start operations in 2024, peak U.S. export capacity will increase to 16.3 Bcf per day, according to the Energy Department. By comparison, Russia supplied Europe with about 13 Bcf per day of natural gas through pipelines in 2020, according to an EIA analysis.

Regional industry officials believe that if gas from the Marcellus is not directly exported, there are growth opportunities to supplant gas in other parts of the country as more of the nation’s production is sent overseas. “I think Pennsylvania and the Appalachian region certainly has a role to play in this,” said David Callahan, the president of the Marcellus Shale Coalition, the industry trade group.

Drill, baby, drill

The oil and gas industry is rallying its supporters to call for President Joe Biden and Gov. Tom Wolf to lift restrictions on leasing public lands, accelerate approval of permits for new wells, and relax obstacles to fossil-fuel infrastructure development, including pipelines and plants to produce LNG for export.

“‘Drill, baby, drill’ needs to become our commonwealth’s battle cry for maximizing energy independence,” State Rep. Daryl Metcalfe (R-Butler), chairman of Pennsylvania House Environmental Resources and Energy Committee, said last month in advancing a raft of pro-industry legislation, including lifting a moratorium on new leases of state land for gas drilling.

Clean-energy advocates say the industry is using the European crisis to undermine progress that environmentalists have made to restrain fossil-fuel development and greenhouse-gas emissions, particularly related to infrastructure investments. Russia crossed into Ukraine on Feb. 24, triggering sanctions from the West and causing Europe to reconsider its dependence on Russian energy imports.

“The industry knows that they can’t build those facilities and get them operating in a meaningful time when it comes to what is happening now in Ukraine,” said Maya van Rossum, who heads the Delaware Riverkeeper Network. “But they understand that this is a good marketing moment so that they can get committed public funds and approvals to build these facilities that will lock us into fossil fuels for decades.”

In recent years, pipeline operators have thrown in the towel on several major Marcellus Shale projects fiercely opposed by environmentalists, including the Penn East Pipeline from Pennsylvania into New Jersey, the Constitution Pipeline from Pennsylvania into New York state, and the Atlantic Coast Pipeline from West Virginia into North Carolina and Virginia.

Pipeline cancellations have become so commonplace that the U.S. Energy Information Administration this month modeled the effect of not building any more interstate pipelines, which it projects would result in lower gas production and higher energy costs by 2050. (That’s also the year that climate advocates have set as a target to achieve “net-zero” carbon emissions).

An effort to produce LNG in Pennsylvania

In 2018, a New York company called New Fortress Energy applied to build an $800 million LNG plant in Northeastern Pennsylvania. The project was different from most LNG export plants built next to wharves. New Fortress planned to transport output by truck and rail to New Fortress’ Repauno marine terminal in New Jersey, near Philadelphia International Airport, where it would be loaded onto ships. Pennsylvania environmental regulators gave the project permits, and the Trump administration granted special permission to transport the LNG by rail.

New Fortress spent $128 million over the last four years to prepare a 219-acre site along the Susquehanna River near Wyalusing in Bradford County, according to its 2021 annual report. The plant would convert about 350 million cubic feet per day of natural gas to LNG, about 3% of the nation’s LNG export capacity. The plant would have less than half the capacity of the Cove Point facility.

But New Fortress did not start construction. The federal rail permit expired last year. Last month, after three environmental organizations challenged the extension of the plant’s air-emission permits, New Fortress reached an agreement with the green groups to allow those permits to expire this summer.

“This is a very good pause on operations in Wyalusing, but they certainly haven’t packed up shop and left town,” said Jessica R. O’Neill, a senior attorney with PennFuture, which opposed New Fortress’ air permits along with the Clean Air Council and the Sierra Club. New Fortress cannot move ahead with construction without applying for new permits, she said.

New Fortress did not respond to a request for comment, and it’s unclear why its project stalled. Gas markets collapsed in 2020 during the pandemic and investors fled for cover during a wave of oil and gas sector bankruptcies.

The industry blamed its retreat in Pennsylvania on government. “It’s clearly regulatory uncertainty and that’s something that the industry is dealing with in Pennsylvania,” said Callahan, of the Marcellus Shale Coalition.

Supporters of the LNG project aimed their displeasure at the advocacy groups. “Three Pennsylvania environmental groups handed Russian President Vladimir Putin a major victory,” State Sen. Gene Yaw (R., Lycoming) wrote in an op-ed posted on Tuesday.

An offshore solution?

In the last year, New Fortress turned its attention from the Wyalusing project and began promoting a new strategy it calls “Fast LNG” -- a plan to build modular gas liquefiers atop offshore rigs, which can produce LNG and fill oceangoing vessels that moor near the platform.

New Fortress says it aims to build multiple Fast LNG plants, which can be towed into place anywhere there is gas offshore. They can be permitted and built in half the time, at half the cost as a land-based plant, and with “minimal” environmental impact, the company says.

“My simple view is that we don’t really have a gas shortage problem,” Wesley Edens, the chief executive of New Fortress, told investment analysts April 1. “What we really have is a pipeline and infrastructure and regulatory challenge because really, you have significant pipeline constraints.”

About 10 days after signing the agreement with Pennsylvania environmental groups to suspend the Wyalusing project, New Fortress filed an 8,000-page application with the U.S. Maritime Administration to build a Fast LNG operation off the Louisiana coast. Earlier in March, it had announced plans to build a smaller LNG plant off the coast of Congo with Eni S.p.A., an Italian oil producer.

The proposed Louisiana facility could produce up to 2.8 million metric tons of LNG a year, or about the capacity of the sidelined Pennsylvania plant.