Cheniere Energy CEO: Shale Gas Industry ‘Very Early in the Learning Curve’

The U.S. natural gas industry is still in the initial stages of developing and understanding the technology that can be used to extract natural gas from shale rock formations, according to Charif Souki, chairman and CEO of Cheniere Energy Inc., an LNG import company that is seeking regulatory authority to convert its terminals into export facilities.

“We’re very early in the learning curve and we’re going to be able to find this resource more easily, faster and cheaper over a long period of time,” Souki said in an interview with E&E TV that originally aired March 19. “Our drill bits are getting better, so we know how to manage them and get them to the right place faster and better with less intrusion.”

Oil and gas industry officials routinely argue that hydraulic fracturing is a technology with a long history, going back 60 years. But the technology used 60 years ago is completely different than what the industry is trying to get its hands around today. The vast differences in technology are why Souki says the industry is still “very early in the learning curve.”

In his E&E TV interview, Souki explained that technology is emerging that will allow the shale gas industry to reduce the amount of water used in the hydraulic fracturing process by 80% over the next few years. “This is going to become a better and better process,” he said.

In 2010, the U.S. Environmental Protection Agency estimated that 70 billion to 140 billion gallons of water were used to fracture 35,000 wells in the U.S. each year. This is about the annual water consumption of 40 to 80 cities each with a population of 50,000, according to environmental group Earthworks. Horizontal shale wells can use anywhere from 2 million to 10 million gallons of water to fracture a single well. So, even if water usage by shale gas drillers drops by 80%, the industry will still need billions of gallons of water to extract natural gas.

Souki highlighted the “learning curve” facing natural gas drillers as a way to defend his company’s applications to convert LNG import terminals into LNG export terminals. The facilities will be capable of exporting billions of cubic feet of natural gas each year. If the natural gas industry is awash in natural gas, even though it has yet to fully grasp the technology it is using to extract the fossil fuel, imagine how much natural gas the industry could produce once it gets fully up to speed on hydraulic fracturing and other upstream technologies. There will be enough natural gas to keep prices low for U.S. consumers and allow companies such as Cheniere Energy to earn handsome returns for its investors by exporting huge amounts of LNG. That’s the story Souki and other LNG export supporters want us to believe.

But many analysts, including the U.S. Energy Information Administration, have said that exporting natural gas from the United States could lead to domestic price increases. And others have argued that allowing LNG exports will only encourage natural gas producers to drill even larger numbers of wells, creating more toxic industrial zones across the country.

Last May, the U.S. Department of Energy gave Cheniere Energy permission to export 16 million metric tons per year of domestically produced LNG, equivalent to 2.2 Bcf/d of gas, from its Sabine Pass LNG terminal in Louisiana. Cheniere Energy also must get approval from the Federal Energy Regulatory Commission to build the liquefaction facilities at the Sabine Pass terminal, which was originally built to import LNG.

On March 7, Souki sent FERC Chairman Jon Wellinghoff a letter urging the commission to approve Cheniere Energy’s application to build the LNG export facilities at Sabine Pass by March 15. FERC has yet to issue an order granting approval to Cheniere Energy’s application, but few people believe the commission will reject the application.

Prior to issuing a final order on Cheniere Energy’s request, FERC was required to conduct an environmental review of the proposal. In an environmental assessment released in December 2011, FERC refused to analyze the impact of increased LNG exports as part of its review of Cheniere Energy’s application. Instead, FERC focused only on the environmental impact of the facilities themselves, not on how the facilities will create greater demand for natural gas production in the United States, with large amounts of that increased production heading overseas in the form of LNG. In its final conclusion, FERC determined that Sabine Pass’ export facilities “would not constitute a major federal action significantly affecting the quality of the human environment.”

In its application, Cheniere Energy stated that the proposed liquefaction facilities and “subsequent exportation” of domestic natural gas to the global market “would provide a market solution to allow the further development of unconventional (particularly shale gas-bearing formation) sources in the United States.” FERC staff highlighted this acknowledgement by Sabine Pass in its environmental assessment of the project.

And yet, as noted by the Sierra Club, “despite this explicit recognition that the project will encourage additional shale gas extraction, the [environmental assessment] contains no analysis of the impacts of such extraction.” Refusing to address the impact of the shale gas extraction violates the National Environmental Policy Act’s “command to consider both direct and indirect impacts of the proposed action,” the Sierra Club said.

Aside from highlighting potential advancements in the use of water for fracking, Souki did not address the adverse environmental effects of the shale gas revolution. Souki and other industry insiders tend to dismiss concerns about the environment and only focus on the money-making aspects of resource extraction. Never do you hear industry officials or their enablers in policymaking positions argue that the nation should cut back on natural gas production. Producers may decide to shut-in gas production because low gas prices make it uneconomical to extract the gas. But never do you hear them calling for a moratorium to give the environment a chance to recover or until the risks of hydraulic fracturing have been fully examined. And never do you hear them saying that we should produce only what we need until we develop a system based on sustainability that allows humans to live in balance with nature.

Instead, Souki and other industry officials are giddy with excitement about the vast reserves of natural gas in shale plays across North America. They believe they must find new markets around the globe in order to make as much money as quickly as possible off this natural resource.

“We are very fortunate to be sitting on an enormous resource, but abundance comes with some drawbacks,” Souki told E&E TV. “We need to find new demand for the natural gas that we can now produce. We are, in fact, producing it with drilling a lot of wells and there’s more gas than we know what to do with. … There’s a number of wells that have not been connected because there’s no place to send the gas, so sometimes too much of a good thing is too much.”

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