Ethane monetization: State and local governments should consider
inducements for local processing of the ethane, be they regional crackers or pad-level reactive options (see chapter 12). The compelling economics may be sufficient, but the governments should also take full benefit for local workforce training and the like. Consideration ought also to be given to encouraging research and development centers in the Marcellus/Utica region targeting research related to wet gas. Proximal production would allow easy access to field testing sites.
Export issues: Abetted by a warm winter, abundant shale gas has caused the price in early 2012 to be the lowest in a decade. Even if this is ignored as aberrant, there is little doubt that a lot of cheap gas will become the norm. The temptation to export the gas is high, and this is currently being debated. The box below gives some views on this matter.
LNG export Is Not in the National Interest
We must not export natural gas in any form in favor of producing and exporting a higher value product. The single most valuable such high-volume product is ammonia-based fertilizer. (Carbon black would be higher value but is a smaller market.) Until recently the US imported half the fertilizer consumed. This is because variable and high prices in the early part of the century caused many manufacturers to relocate abroad to areas of cheap gas such as the Middle East. Now with the prospect of cheap and stable shale gas, many of these are returning. No doubt the chemical industry is skittish about LNG export concepts because exports could vitiate the business assumptions of low cost, were the prices to rise due to massive export of gas. One permit recently sought by Cheniere Energy is unlikely to have a big effect, but many such could.
Aside from the pricing issue, another reason to export product rather than gas is simple economics. Take the example of anhydrous ammonia, the basic building block for nitrogen fertilizer manufacture. About 33.3 mcf gas converts to 1 ton of anhydrous ammonia. The gas value, using $4 per mcf, is $134. The value of the anhydrous ammonia is in the vicinity of $800. Also, domestic labor was used to get it to that state. The landed price in Europe of gas as LNG will be about $7.50 with $4 gas. That near-doubling of value added does not contribute much to the domestic economy. Even the ship was probably made in Korea.
Chapter 24. Policy Directions 163 The US will be one of the lowest cost producers of ethane-based ethylene and derivative polymer in the world. This raises the high likelihood of the US being a net exporter of these chemicals. If gas prices stay low, wet gas will be produced almost exclusively. This could cause an ethane glut and lead to exports of ethylene derivatives. This ought to be permitted and encouraged. States proximal to wet gas production but without any of their own, such as North Carolina, ought to consider encouraging chemical production. Wilmington, North Carolina, already has a chemical industry and being a port could be an export site. Prosperity from cheap and abundant gas does not have to be restricted to the producing states.
Oil substitution: Three principal avenues present themselves: electric vehicles, natural gas replacement of gasoline and diesel, and conversion of natural gas to liquids. The potential policy drivers for this could include:
• Decision by Alaska to kill the gas pipeline to the Lower 48 and to encourage the conversion of vast quantities of cheap stranded gas to liquids. The owners of the gas, principally major oil companies with a thorough understanding of GTL technologies, ought to be motivated to do this with no inducement. Absent this the TAPS, the pipeline bringing oil down from the North Slope, is at risk of closure, as discussed in chapter 13.
• Shale gas–producing states should consider requiring a displacement of diesel with DME or methanol for the pressure pumps used in fracturing and cementing, and natural gas or methanol for the vehicles. There will be issues of access to refueling, capital cost of retrofits and the like, and at least the refueling could be addressed by the states. This could be a bit tricky because the fuel of choice for trucks would be LNG, not CNG. • All metropolitan areas ought to consider emulating Delhi and a host of other Indian cities where all public transport switched to CNG. The World Bank evaluated the health benefits as very significant, as noted in chapter 15. But from the standpoint of reducing imported oil, replacing gasoline has a bigger bang and methanol may be the route, as discussed in chapter 16.
• Dimethyl ether (DME) can substitute for diesel up to at least 20 percent with no engine modification, emits zero particulates, and has a very high cetane rating. Cheap natural gas equates to cheap DME. States should consider DME additive to diesel as an alternative to a wholesale
switch to natural gas or as an early step toward that goal. New plants for DME production will be required. Since DME is a single processing step beyond methanol production, methanol and DME strategies can be pursued simultaneously.