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Energy-hungry countries such as Japan are looking to Pennsylvania, which is producing more natural gas than expected from the Marcellus Shale.
While it was once considered a source of energy for other states, drilling companies in Pennsylvania are now planning to export the fossil fuel.
The natural gas is extracted using the controversial technique known as fracking. New York, which also sits on the Marcellus Shale, has banned fracking.
ROBIN YOUNG, HOST:
It's HERE AND NOW. We've reported quite a bit on fracking: injecting fluid into the ground to extract natural gas or oil. It's highly effective, but also controversial, of course, because of environmental concerns. In Pennsylvania, the Democratic State Committee this summer passed a resolution calling for a moratorium on fracking. Other Democrats call the resolution shortsighted. But Pennsylvania's Marcellus Shale is now producing a glut of natural gas, and the U.S. is looking to export instead of import, a reversal from just five years ago. From the HERE AND NOW Contributors Network, Susan Phillips of StateImpact Pennsylvania has more.
SUSAN PHILLIPS, BYLINE: This is a story about how Pennsylvania's Marcellus Shale could end up changing the global market for natural gas. It begins thousands of feet below forests and dairy farms of northeastern Pennsylvania. Here, wedged deep within the subterranean Marcellus Shale rock lies some of the largest newly tapped stores of natural gas. Drillers call this area the sweet spot, and several stories up above this farmland, a giant diamond drill bit cuts through the rock below.
STEVE MACDONALD: All right. Yes. This is what we call our dog house. This is our driller, Mr. Reed, here. He has complete control of the operations of the drilling rig from this spot, to he understands about all this equipment, what's going on downhole.
PHILLIPS: Downhole in places like this well. The Cabot Oil and Gas company has struck gold, so to speak. Cabot's natural gas production volumes and profits soared in 2012, exceeding all expectations. And because of wells like these in Pennsylvania's Marcellus Shale, a glut of natural gas has developed in the U.S. As a result, domestic prices have dropped about one-third since July 2008, before the shale boom took off. But overseas, power companies in countries like Japan and India pay three or four times the price that U.S. utilities now pay for natural gas. So, Marcellus Shale drillers want to ship to ship their gas abroad. And John Felmy, the economist for the American Petroleum Institute, says that makes sense.
JOHN FELMY: Because it's such a vast deposit, and developing it, of course, can be used to supply other states, as we're doing now. But there's likely to be so much of it, that exporting it at a very good price would help in terms of keeping production going.
PHILLIPS: To get that gas overseas, wells across Pennsylvania could be easily connected to an existing interstate pipeline system, which links up to a facility in Maryland that had been built to import natural gas. The plant is located about 320 miles south of that Susquehanna County drill rig, on a spit of land jutting out into the Chesapeake Bay, where large, white cylindrical tanks surround a network of 32-inch pipes.
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PHILLIPS: The Cove Point liquefaction natural gas facility is operated by Dominion Resources, and Dominion also owns and operates a pipeline system that connects these tanks to Pennsylvania's gas fields.
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PHILLIPS: I'm heading down into a tunnel which travels beneath the water to a dock which lies out in the middle of the Chesapeake Bay. Before any Marcellus Shale gas gets shipped overseas, it has to be cooled to the point where it becomes liquid. That's minus-260 degrees Fahrenheit. Export plants that liquefy natural gas cost billions of dollars to build. So what they want to do here at this idled import facility is invest the relatively bargain basement price of $4 billion, converting it to an export terminal. Dominion Resources spokesman Dan Donovan says transforming this facility to export natural gas makes sense.
DAN DONOVAN: We have a world-class dock and pier that you're standing on. We have the storage. We have a pipeline into what is now the second-largest natural gas field in the world.
PHILLIPS: Donovan's point about the pipelines is key. The company's original plan for the pipeline system was to pump imported natural gas to states like New York, New Jersey and Ohio, because that's where the most lucrative markets were. Wolfgang Moehler analyses the global liquefied natural gas market for the firm IHS Global.
WOLFGANG MOEHLER: 2007, 2008, the assumption was that the U.S. would, within the next 10 years, become one of the largest gas importers in the world.
PHILLIPS: But today that assumption has been turned on its head, thanks in part to all those productive Marcellus Shale wells and the March 2011 nuclear disaster in Japan.
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UNIDENTIFIED WOMAN: We begin this hour with the latest from Japan, after an explosion at a nuclear power station today created fears of a meltdown. Japanese officials...
PHILLIPS: Japan's energy situation changed dramatically after the Fukushima accident. Before that, nuclear energy supplied a third of Japan's needs. Where it once had 50 nuclear reactors, today the country is down to just two. Analyst Wolfgang Moehler.
MOEHLER: A significant amount of their electricity production had to be substituted from fossil fuel generation.
PHILLIPS: Japan was already the world's largest importer of natural gas. But since Fukushima, the pace has increased steadily. And Moehler says Japan would love to snag some of that gas coming from Pennsylvania's fields. He says that importing nations like Japan are locked into long-term natural gas contracts tied to the price of oil.
MOEHLER: The emergence of the U.S. opened up competition. They could also go back to their traditional producers and say, well, we have now a different opportunity. We have now a different source. We have to renegotiate the price.
PHILLIPS: This is how good a deal Marcellus gas seems to companies in Japan. One corporation called Sumitomo has agreed to foot the almost $4 billion bill to convert Cove Point natural gas import terminal to a natural gas export terminal. Dominion Resources still faces a number of hurdles before it can start piping in Marcellus gas, liquefying it and shipping it through the Panama Canal to the Pacific Rim.
First, the Department of Energy has to approve any deals with non-free trade countries and determine if they're in the public good. The Federal Energy Regulatory Commission has to weigh in and the state of Maryland has to issue about 30 different permits. And not everyone is thrilled with the idea of exporting natural gas. American manufacturers don't like the plan. They say cheap natural gas has helped domestic factories become more cost-efficient, and they fear exports could raise prices at home.
There are also safety concerns. Liquefied natural gas, also known as LNG, could be a target for terrorists. More importantly, environmentalists say a new export facility will only encourage more fracking for natural gas and increase the potential for groundwater contamination and air pollution. The Sierra Club is challenging the plan in court.
On the other hand, Dominion Resources says converting the Cove Point plant will create thousands of new jobs in Maryland and Pennsylvania. The company expects the Department of Energy to make a decision on its application by the end of the year. For HERE AND NOW, I'm Susan Phillips.
YOUNG: And you are listening to HERE AND NOW. Transcript provided by NPR, Copyright NPR.
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