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Foreign money pours into American oil, gas fields

| Sunday, Nov. 13, 2011

Foreign investment poured into American gas and oil shale fields through three quarters of 2011, amounting to $24.5 billion of the total $39.9 billion in deals, according to figures released to the Tribune Review.

And that 61 percent share from overseas money shows little evidence of cooling off, said Steve Haffner, a partner in the Pittsburgh office of PricewaterhouseCoopers LLC. The giant accounting firm only calculated deals worth $50 million or more.

On Nov. 3, Chesapeake Energy Corp. announced a $2.14 billion letter of intent to develop a substantial part of its Utica shale formation holdings in eastern Ohio to an unnamed foreign company.

At the same time foreigners are investing in American shale projects, six U.S. terminal ports are seeking federal approval to begin exporting liquefied natural gas from those locations. One, at Sabine Pass, La., has been approved.

Most of those in the business of plotting long-term U.S. energy policy have been caught flat-footed by the rapid development of fracking and new shale gas being discovered across the country -- including the Marcellus shale in Pennsylvania, said Sen. Lisa Murkowski, R-Alaska, at a hearing last week in Washington.

"Most of them have missed what would turn out to be the most important development of all," she said.

Though Murkowski said she wants market forces to work out the supply-and-demand situation, others fear more American gas will flow overseas where it can be sold at substantially higher prices. They argue that will increase prices at home.

"It is pretty dumb to be exporting natural gas which will create jobs in China," said Paul Cicio, president of Industrial Consumers of America, an organization representing American manufacturers with more than $700 billion in annual sales and 650,000 employees. The organization has contested the export applications, saying they will cost jobs by increasing energy bills.

Natural gas developers and would-be exporters deny exports will seriously impact domestic gas prices. The issue was at the center of Tuesday's hearing before the Senate Committee on Energy and Natural Resources.

So far, the Department of Energy has relied on exporters' own studies to judge the price impact on American consumers and companies.

That's about to end, DOE's Christopher Smith told the senators. The department ordered two studies -- one internal and the other by an outside firm -- of the long-term price and economic impact of the tectonic shift in American energy supplies.

The reports will be presented in the first quarter of 2012, Smith said.

Battle of the titans

Developing American natural gas to help secure the nation's energy independence previously had wide support from both major political parties and was used to sway public support behind the growing number of drilling pads built and planned.

House legislation to support natural gas by giving tax incentives to increase its usage originally had 186 co-sponsors, and was strongly backed by legendary oilman-turned-natural-gas entrepreneur T. Boone Pickens.

But before Pickens and his supporters could get it through, he ran into stiff resistance from another tycoon with just as much -- if not more --- muscle than Pickens: Charles Koch, CEO of Wichita-based Koch Industries Inc., which is heavily involved in petroleum.

Philip Ellender, president and chief operating officer of a Koch subsidiary, wrote to Congress opposing Pickens' tax incentives for natural gas, saying, "We do not believe government should be picking 'winners and losers' in the marketplace based on which industries or products it chooses to subsidize. Government has an abysmal record at doing so -- both here and abroad. History shows that the free market driven by consumer choice is a far better way to allocate resources accurately."

Conservative backers of the "Nat Gas Act," as it was nicknamed, began fading away. One of them, Rep. Glenn Thompson, R-Centre County, withdrew as a bill co-sponsor in May.

Even before he officially dropped his support, Thompson rebelled against Pickens by being one of 16 lawmakers to sign a letter to President Obama urging the United States to allow natural gas exports to non-free-trade countries such as China.

Pickens has opposed such a move. If we do it, he told the Trib in June, "we're truly going to go down as the dumbest generation."

Finding middle ground

Jay Rosser has a unique view of the Koch-Pickens showdown as chief spokesman for Pickens and former director of corporate communications for Koch.

"I know Koch wants the free market to work," Rosser said. "But there is not a free market in OPEC. There is not a free market in China. There's no sense to diminish national security on this premise."

The Nat Gas Act remains stuck in committee, and Hill staffers doubt it will reach the floor this session.

Meanwhile, Congress will await the DOE report on the wisdom of potentially exporting more than 14 percent of America's estimated natural gas production if all six export terminal applications are approved. Industry officials have touted natural gas as America's best way to free itself from dependency on foreign energy sources.

"The implications of increased gas exports for U.S. job creation and balance of payments could be very positive," said Senate Energy Committee Chairman Sen. Jeff Bingaman, D-NM.

Bingaman warned, however, that "understanding how exports might affect domestic prices is also critical."

"Currently, U.S. natural gas prices are considerably lower than prices in most of the rest of the world," he said. "How can we ensure that our export policy is consistent with our continued ability to reap the benefits of our newfound abundance of natural gas?"

While lawmakers and tycoons debate, more foreign companies prepare to move in.

"We want to enter the shale gas area in Canada and America" within two to three years, Zhang Yaocang, vice president of Sinopec Group, China's No 2 energy giant, told Reuters in July. "America now welcomes us to get in there. We'll take the opportunity to make investment there."

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