By Kevin Horn
The U.S. energy market has undergone big changes, highlighted by a reversal in policy late last year that lifted a four-decade-old ban on crude oil exports. It resulted in the first U.S. exports of crude oil in February from Texas followed by the first liquefied natural gas (LNG) exports. So, what are the long-term implications of these new markets for the barge industry?
The direct affect of oil and natural gas energy exports on the barge sector are minimal. These products will move by pipeline to ocean terminals. However, there may be positive indirect impacts on other competitive energy sectors such as coal, which is often moved by barge. Boosting coal would require large quantities of energy exports, particularly natural gas, to absorb enough excess U.S. LNG capacity to raise domestic prices.
U.S. natural gas is currently trading near record lows at about $1.79 per million British thermal unit (MMBtu). There is nearly four trillion cubic feet in storage and annual production is about 30 trillion cubic feet. A typical LNG export vessel carries three billion cubic feet or about one ten-thousandth of annual production. Thus, a huge volume of LNG vessel exports would be required to affect the domestic natural gas glut and depressed prices.
U.S. LNG exports will substantially rise because of big savings for major markets like Europe, which is largely dependent on imports from Russia by pipeline. The immediate problem is that LNG export terminals are very expensive long-term capital investments that need time to develop.
The U.S. Energy Information Administration projects that six domestic LNG export facilities, including five currently under construction, will have the capability to export 9.2 billion cubic feet per day (Bcf/d).
This is about 13% of current domestic natural gas production when fully developed by 2019.
Consequently, low natural gas prices will continue to adversely affect any recovery of coal. Barge coal volumes came in under 11 million tons in December 2015 and January 2016, mark-ing the lowest volumes for the four-year period beginning in 2012. Overall, barge coal movements are about 20% to 25% less in 2015 and 2016 (year to date) compared to 2012.
Kevin Horn is a senior manager with GEC Inc., Delaplane, Va.
The views and opinions expressed in this blog are the author's and not necessarily those of WorkBoat.