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U.S. LNG Exports Take Center Stage at House, Senate Hearings

Lawmakers in both houses of Congress took up the issue of liquefied natural gas (LNG) exports from the United States in separate hearings on Tuesday, and aired discussion of a House bill that could fundamentally change the way the Department of Energy (DOE) grants approval to export to non-free trade agreement (FTA) countries.

Speaking at her first meeting as chair, Sen. Mary Landrieu (D-LA) told the Senate Committee on Energy and Natural Resources that LNG exports are "a powerful geopolitical tool, particularly in light of Russia's illegal aggression in the Ukraine.

"The events in the Ukraine have shown that Russian President [Vladimir] Putin is intent on using his monopoly on energy supplies to pressure our allies in Europe to advance his economic and philosophical agenda. The last thing Putin and his cronies want is competition from the United States of America in the energy race."

David Montgomery, senior vice president for NERA Economic Consulting, testified that a new study commissioned by Cheniere Energy Inc. (see Daily GPI, March 11) looked at various scenarios for LNG exports, including a scenario where DOE put no restrictions on exports.

"We again found that LNG exports provide net economic benefits in all the scenarios we examined," Montgomery said. "The greater the exports, the greater the benefits. Put another way, there's no 'sweet spot' that would justify limiting LNG exports below market-determined levels on the basis of their net economic benefits."

Montgomery blasted the suggestion that LNG exports would take resources away from the domestic manufacturing sector.

"That's simply a false dichotomy," Montgomery said. "There is ample gas for both, and we find that in fact in our scenarios the increased demand for exports is almost all satisfied by increased production. Almost none of it is taken away from any domestic uses because of higher prices."

According to Montgomery, NERA calculates that up to 45,000 jobs would be created between now and 2018 "by the entire LNG export enterprise," including up to 30,000 construction jobs.

He added that LNG exports are "the most credible promise of punishment" against Russia for its actions in Ukraine, provided the U.S. doesn't place a cap on LNG exports and it continued to encourage domestic natural gas production.

"We could see Russia's exports dropping by up to 5 Tcf/year in 2038 due to this competition from the U.S.," Montgomery said. "That's what would happen if Russia does not meet the prices of the U.S. and other competitive producers. We would take away a huge amount of their market. And if they do meet the competition, they're going to have to sell at lower prices. That adds up to somewhere between a 40% and 60% loss in export revenues from natural gas for Russia.

"I think that's a punishment that would mean something."

David Goldwyn, nonresident senior fellow for the Energy Security Initiative at the Brookings Institution, testified that "every credible estimate of our future energy supply suggests we will have exportable surpluses of natural gas for decades to come.

"This bounty could enhance our national power by positioning our nation as the reliable supplier of natural gas to regions of the world that suffer from intimidation from their suppliers, or simply the economy crushing burden of oil-linked prices."

Goldwyn said the Natural Gas Act had inadvertently put non-FTA allies of the U.S. "at the back of the line" in the regulatory approval process.

"The process and tempo for reviewing these exports to [non-FTA] countries is potentially out of sync with commercial realities," Goldwyn said. "The crisis in Ukraine should cause us to think anew on this process and see if we can leverage our natural gas bounty to help our allies by accelerating the consideration of export applications."

But Goldwyn added that European Union (EU) countries also have a lot of work to do. Specifically, he said, the union's 28 member states needed to make strides toward further integrating its gas markets; promote internal market reforms, making them more attractive for investment; and develop further infrastructure to support alternative gas supply interconnections.

According to Goldywn, LNG import projects are currently on hold in Croatia, Estonia, Lithuania, Poland and Ukraine. He said there were also plans for interconnections to move gas among Poland, Latvia and Finland.

"While it's no panacea -- and I don't profess that it is -- removing the uncertainty as to whether and when U.S. LNG export projects that contract with European buyers can get approval will accelerate both the financing of U.S. LNG export projects and European import projects," Goldwyn said. "Those who dismiss the utility of accelerating these approvals underestimate the impact it can have in eroding Russia's market power now."

Edward Chow, senior fellow for the Energy and National Security Program at the Center for Strategic International Studies, concurred that Europe "plays the crucial role" in reducing Russia's influence.

"Russia is more dependent on Europe, as the destination of its exports, than Europe is reliant on Russia for supply," Chow said. "Europe would do well to focus on developing indigenous energy resources in order to be less import dependent and fully integrating its gas and electricity networks so that supply can flow more easily to countries vulnerable to cutoffs."

Chow added that U.S. LNG exports were not a "silver bullet" for Europe, pointing out LNG imports to the continent have declined significantly over the last years, thanks to more favorable pricing terms offered by traditional pipeline suppliers, such as Norway and Russia.

"Some argue that hastening approval of crude oil and LNG exports by the United States would have a deterrent effect on hostile actions by Russia," Chow said. "Unfortunately, this is unlikely to have much immediate effect. Russia produces more than 10 million b/d of oil and exports about 7 million b/d in crude and petroleum products. No amount of increases in U.S. exports can begin to replace such large volumes. Russian exports of natural gas are more than twice the combined capacity of DOE-approved U.S. LNG export projects so far.

"Inflating the rhetoric on exports could actually embolden Russia, since it recognizes this is irrelevant in the short run. More importantly, it can distract us from the critical task of shoring [up] Ukraine economically."

Lithuania's energy minister, Jaroslav Neverovic, testified that his country imports 100% of its natural gas from Russia, and as a consequence pays a price 30% higher than other European countries. But he said Lithuania was taking steps to achieve energy independence, and was 250 days from the opening of Independence, a floating LNG import terminal based in Klaipeda.

Neverovic said there were currently 22 operating LNG import facilities in the EU, with a total combined capacity of 6.7 Tcf/year. Another six import terminals under construction would add another 1.0 Tcf/year. But he cautioned that LNG imports had fallen by nearly half between 2010 and 2013.

"Because LNG prices are generally pegged to the global price of oil, current prices are just too high to supplant natural gas produced in Russia and elsewhere on the continent," Neverovic said. "As a consequence, LNG terminals across Europe are functioning near their minimum technical capacities. However, America's entry into the global natural gas market can change this situation completely."

Neverovic called DOE's public interest review for applications to export LNG to non-FTA countries "a sticking point" and said it was an obstacle for the U.S. to be a key player in the global LNG marketplace.

"We understand that the U.S. president has the authority to deem all of the pending applications to export LNG to non-FTA nations to be in the public interest," Neverovic said. "We hope that this administration will do just that. But if they don't act in a timely way, we urge Congress to step in and amend the law."

Senate Subcommittee Discusses HR 6

Just hours later, Neverovic's suggestion was precisely the subject of debate before the House Energy and Commerce Committee's Subcommittee on Energy and Power. A bill before the House -- HR 6, also known as the Domestic Prosperity and Global Freedom Act -- calls for granting immediate approval to all pending LNG export applications that had a notice published in the Federal Register (see Daily GPI, March 18).

According to testimony submitted by Paula Gant, deputy assistant secretary for oil and natural gas at DOE, last December the agency compared projections from the EIA's Annual Energy Outlook (AEO) 2014 Early Release Overview and its AEO 2013 reference case (see Daily GPI, Dec. 16, 2013).

"The projections indicate that market conditions would continue to accommodate increased exports of natural gas," Gant said. "We also note that EIA's projection in the AEO 2014 Early Release Overview reflects domestic prices of natural gas that rise due to both increased domestic demand and exports, but that these price increases will be followed by '[a] sustained increase in production...leading to slower price growth over the rest of the projection period.'"

Gant added that while the Obama administration has "taken no position on HR 6," she said it was DOE's understanding that should the bill be enacted, LNG exports would be permitted to all 159 member nations of the World Trade Organization, compared to the 18 countries with which the United States has free trade agreements.

"The practical effect of this change would be to eliminate the need for applicants to seek...authorizations which require DOE's public interest review," Gant said. "These changes would have the effect of increasing the approved LNG export volume from 9.27 Bcf/d to 35.86 Bcf/d without further public participation or consideration by DOE of public interest factors such as economic impacts, security of natural gas supply, and environmental impacts."

During questioning, Rep. Bobby Rush (D-IL), ranking member of the subcommittee, asked Gant what the earliest impact would be on Russia if HR 6 were to pass. She responded that it would be 3Q2015, "regardless of what happens with a change in legislation."

Only one project, Cheniere's Sabine Pass facility, has received authorization from DOE to export LNG to non-FTA countries, but the agency has granted seven conditional non-FTA export approvals (see Daily GPI, Feb. 11; July 30, 2012). The latest approval was awarded to Jordan Cove Energy Project LP on Monday (see Daily GPI, March 24).

Gant said there were many other things the United States could do to help its allies in the near term, including reversing pipeline flows and increasing domestic production, the latter of which would divert LNG cargoes to other nations, not the U.S.

Rep. Joe Barton (R-TX) said that although there were currently about 30 proposals to build LNG export terminals, not all of them would be built. He said a large amount of capital would be needed to build such facilities, and global prices were sure to change after the first few terminals were built -- affecting prices not only in Europe, but in Asia as well.

Rep. Henry Waxman (D-CA) added that he was concerned that passage of HR 6 -- sponsored by U.S. Rep. Cory Gardner (R-CO) -- would amount to "rubber stamping" LNG export facilities, and that the bill could have "serious unintended consequences."

Dave Schryver, executive vice president for the American Public Gas Association (APGA), hammered on that point as well. He said LNG exports would increase domestic natural gas prices, threaten the United States from switching from coal to natural gas, and would increase U.S. dependence on foreign oil. He also said the EIA underestimated the domestic demand for natural gas.

"The simple economics of supply and demand, along with every study that has been conducted on the subject, whether done by the federal government or by private consulting companies, all reach one conclusion: exports will increase the price of domestic natural gas," Schryver said. "How adverse that upward pressure on price will be, no one knows. Based on past experience though, APGA believes the experts who supported the export of propane would not have predicted the significant adverse prices homeowners paid this winter for their propane."

The House Committee on Foreign Affairs will discuss the geopolitical potential of U.S. energy resources at a hearing on Wednesday.

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