SandRidge Energy Inc. (SD), Chesapeake Energy Corporation (CHK): Don’t Export More LNG Exports Anytime Soon

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On Tuesday, the Department of Energy’s (DOE) assistant secretary for fossil energy, Christopher Smith, testified before a congressional committee on liquefied natural gas, or LNG, exports. While he acknowledged the opportunities natural gas provides, he said that the DOE would not rush to any decisions on exporting natural gas.

SandRidge (SD)

Natural gas boom
Natural gas is a massive opportunity for the United States. However the opportunity is being curtailed as low prices have caused companies to stop drilling for natural gas and switch their focus to oil. SandRidge Energy Inc. (NYSE:SD) was one of the first natural gas drillers to switch its focus from natural gas to oil back in 2008. The rest of the industry has been following the shift with even natural gas leader Chesapeake Energy Corporation (NYSE:CHK) now concentrating on drilling for oil. The natural gas production boom has only lasted because drilling for oil yields some associated natural gas which has kept the level of natural gas production in the U.S. stable.

While natural gas prices are low in the U.S., they are two to four times higher around the world. Natural gas companies would like to take advantage of the price disparity, but currently the U.S. does not have the capacity to export LNG. Chenierre Energy got permission from the DOE in 2011 to export LNG to countries that are not members of the free trade agreement; however, after approving the proposal the DOE decided to hold off on approving any more until studies could be completed on the macroeconomic effects of LNG exports and to make sure that LNG exports did not “subsequently lead to a reduction in the supply of natural gas needed to meet essential domestic needs.”

Natural gas companies would like to export as soon as possible as they are losing money on natural gas. Opposing natural gas exports are The Dow Chemical Company (NYSE:DOW) and other manufacturers that use significant amounts of natural gas, for exports will raise the price they must pay for natural gas.

Yesterday, the DOE’s Smith testified that the department is committed to the publicly transparent process it has set out for export application reviews. In his statement, Smith emphasized that “DOE is committed to moving this process forward as expeditiously as possible. DOE understands the significance of this issue — as well as the importance of getting it right.”

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