LNG Exports are Swirling Through Capitol Hill and White House

On the same day as the president’s State of the Union Address, Congress tackled the contentious issue of whether to allow the exportation of U.S. natural gas in its liquefied form, or LNG. The Obama administration has blessed natural gas. But it is uncertain if Congress will erect impediments to limit its sales overseas.

A lot of issues are play, namely whether any exports would lead to higher energy prices at home at a time when the chemical sector here is making key investments. Also, there’s the environmental questions surrounding the development of that natural gas, which would use hydraulic fracturing to capture the shale gas embedded in rocks a mile beneath the earth’s surface. 

President Obama favors the fuel source but he is also advocating a stronger federal role to ensure that it is done safely. His administration has, furthermore, granted one license so far to Cheniere Energy so that it can retrofit its Sabine Pass for purposes of exporting LNG by 2014. 

“The natural gas boom has led to cleaner power and greater energy independence,” says the president, during his address to the nation. “That’s why my Administration will keep cutting red tape and speeding up new oil and gas permits. But I also want to work with this Congress to encourage the research and technology that helps natural gas burn even cleaner and protects our air and water.”

Also on Tuesday, the U.S. Senate Energy and Natural Resources Committee met to discuss the issue. Here, Chairman Ron Wyden, D-Ore., says that he is fearful of not just the environmental degradation from fracking but also from the potentially higher natural gas prices. At the same time, he said that lawmakers could find a middle ground. 

Consider that natural gas prices have comfortably rested at less than $3 per million Btus for an extended period of time. In Europe, those prices are $10 for the same unit while in Asia they are $15. LNG producers, naturally, want to ship their goods to where they can fetch the highest price. Such forces would then increase the value of that product here. 

By how much? That’s the big question. But if the experts are to be believed, the rise would be nominal. Still, any jump would hurt chemical manufacturers, whose processes are used to make all kinds of consumer goods. 

“Instead of a manufacturing renaissance, major gas consumers could find themselves hit hard with energy price hikes and forced to sideline job-creating efforts,” says Wyden, during the hearing. He is advocating finding the “sweet spot,” whereby commerce could easily flow between and among nations with free trade agreements and limiting any exports so that prices don’t skyrocket. 

Manufacturing Rift

The U.S. Department of Energy found in December 2012 that prices could rise as much as $1.11 per million Btus over five years. But it still concluded that the overall benefits to the U.S. economy would outweigh that potential price increase. The losers, it adds, would be the chemical makers like Dow while the winners would be the domestic natural gas producers such as Chesapeake Energy and ExxonMobil. 

Altogether, 11 LNG receiving facilities exist here and 9 of those are asking U.S. regulators if they can be converted to export terminals. 

The subject of whether to allow more LNG exports is causing a rift within the manufacturing community. Dow Chemical testified on Tuesday that American policy ought to be “prudent, responsible and balanced." Higher prices, it says, would prevent all chemical makers from making capital intensive investments. 

But the National Association of Manufacturers disagrees with those positions, noting that increased natural gas production not only leads to more energy jobs but that it also creates new demand for its members’ products. It also said that any denial of export licenses would infringe upon free trade agreements, ultimately hurting domestic businesses that do business abroad. 

The licensing process is both labor intensive and financially trying, says Ross Eisenberg, vice president of energy for the National Association of Manufacturers. That is, by the time a potential exporter finishes petitioning the federal government and paying for retrofits, they will be spent, literally. 

“This means that the export of LNG in any reasonable volume from the U.S. should not have a significant impact on price at the margin,” adds Kenneth Medlock, in a paper he authored for the Baker Institute. “Rather, the analysis herein indicates that international market response will ultimately limit the amount of LNG that the U.S. exports as a matter of commercial rationing.” 

As other nations utilize their own shale gas deposits, the demand for U.S.-produced-and-exported LNG will diminish. In the meantime, the potential sale of that fuel overseas would generate jobs and sustain other businesses while also upholding existing free trade agreements.

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