Last week, President Obama said that the U.S. would likely become a net exporter of natural gas by the close of this decade, hinting that his administration will support U.S. exports of liquefied natural gas, or LNG.
The debate over U.S. gas exports comes amid a massive domestic glut of the commodity, which built up steadily over the past few years as energy companies used advanced drilling techniques, such as hydraulic fracturing and horizontal drilling, to tap an undiscovered bounty of shale gas.
With domestic gas production still hovering near record highs, the Obama administration is reconsidering how the domestic shale gas boom could provide the U.S. with greater energy security and diplomatic leverage.
LNG opponents and advocates
Companies such as Dow Chemical (NYSE: DOW ) and Alcoa (NYSE: AA ) , both of which have energy-intensive operations and have benefited from cheap domestic gas, are actively urging the Obama administration to reject further LNG exports, which, they argue, would lead to higher domestic gas prices, eroding their newfound competitive advantage.
On the other hand, federal officials find it hard to justify rejecting LNG exports on the grounds that it would send a contradicting message to other nations about U.S. support for free trade, according to the Financial Times.
U.S. natural gas producers, many of which have languished over the past few years due to depressed gas prices, are also pushing for more LNG export projects to be approved because it would provide them with new and lucrative foreign outlets for their product. For instance, exporting gas to Japan – where the fuel fetches about four times its price in the U.S. – stands out as one of the most profitable opportunities for U.S. firms.
Other major U.S. corporations have also voiced their support for LNG exports. For instance, General Electric's (NYSE: GE ) vice chairman, John Rice, has said that, though the company would benefit from cheap domestic natural gas, it backs gas exports because "in the long run we think it's in our interest and every other competitive company on a global scale to have a level playing field."
LNG export projects
But despite the enthusiasm, only one U.S. LNG export project – Cheniere Energy's (NYSEMKT: LNG ) Sabine Pass terminal in Louisiana – has thus far received the green light to export natural gas to countries that don't have a free trade agreement with the U.S., a group that includes China, India, and Japan, as well as members of the European Union.
Currently, 19 applications for LNG exports have been filed with the U.S. Department of Energy, with companies such as Sempra Energy (NYSE: SRE ) and Dominion Resources (NYSE: D ) anxiously awaiting decisions on their requests. As the Energy Department assesses new applications, the Freeport LNG export terminal in Texas stands out as the next project slated for approval.
If more LNG export projects are approved, as looks likely, many believe that domestic natural gas prices could rise sharply. As the nation's second-largest natural gas producer, Chesapeake Energy would be a major beneficiary of higher gas prices. While debt-related challenges continue to cast a dark cloud of uncertainty over the company's future, few would question the superb quality of Chesapeake's remaining oil and gas assets. For many investors, the important question is whether Chesapeake's current share price reflects the true value of its assets. To answer that question and to learn more about Chesapeake and its enormous potential, you're invited to check out The Motley Fool's brand-new premium report on the company. Simply click here now to access your copy, and as an added bonus, you'll receive a full year of key updates and expert guidance as news continues to develop.
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