Finding the Sweet Spot for Natural Gas Exports

With natural gas exports as its focus, the Senate Committee on Energy and Natural Resources held its first oversight hearing with new chair, Sen. Mary Landrieu (D-La.), at the helm on Mar. 25.

Landrieu began the hearing by pointing out how greatly America’s natural gas situation has changed in less than a decade. She noted that the committee had held numerous meetings while considering the Energy Policy Act of 2005, during which many experts had predicted the U.S. would need to greatly increase imports of liquefied natural gas (LNG) to meet the country’s growing energy demand. Thanks to advances in technology that have resulted in increased supply, the committee was now able to discuss export opportunities for natural gas instead.

Sen. Ron Wyden (D-Ore.) stated, “In my view, yesterday’s decision to approve the Jordan Cove facility in my home state reinforces my view that there is a sensible place between no energy exports and approving every application on offer. Now a year ago, in this room, that was called finding a ‘sweet spot’ where you factor in the needs of our manufacturers and our consumers and environmental questions and national security and my view is there still is a sweet spot recognizing that the geopolitical and national security considerations have certainly changed in the last year.”

But Dr. David Montgomery, senior vice president with NERA Economic Consulting, disputed the idea. “LNG exports provide net economic benefits in all the scenarios we examined, the greater the exports, the greater the benefits. Put another way, there is no ‘sweet spot’ that would justify limiting LNG exports below market determined levels on the basis of their net economic benefits.”

While some try to argue that if the country exports a significant quantity of natural gas there won’t be enough available for domestic use, Montgomery said, “That’s simply a false dichotomy.” He stated, “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. None of it, almost none of it, is taken away from any domestic uses because of higher prices.”

Adam Sieminski, administrator for the U.S. Energy Information Administration (EIA) agreed. “Yes. We do see higher demand [for natural gas], but our supply numbers look even more robust. What that suggests is that there is ample gas for both domestic and exports.”

When asked by Sen. Mark Udall (D-Colo.) whether LNG exports would help stabilize seasonal fluctuations in natural gas prices, Sieminski responded, “It’s certainly possible. The availability of the storage that’s associated with LNG export facilities might—some of that gas—might be available domestically if prices got higher in the domestic markets than what the gas could get in the global markets. That could have been a useful thing, for example, if there had been some way to get LNG quickly into Boston during the polar vortex.”

With coal an important energy resource in his home state, Sen. Joe Manchin (D-W.Va.) asked Sieminski if he was concerned by the switch in fuels that many utilities are making from coal to gas. Sieminski noted that the overall mix of fuels in the U.S. is expected to change somewhat, but that even in 2040 the EIA projects the U.S. will remain very reliant on coal.

Much of the discussion focused on how the U.S. policy on LNG exports would affect world gas prices and Russia’s influence in the energy market. David L. Goldwyn, non-resident senior fellow for the Energy Security Initiative at the Brookings Institution, explained that removing the uncertainty about U.S. LNG export projects would erode Russia’s market power immediately.

Goldwyn said, “When we [the U.S.] signal the availability of Henry Hub LNG pricing, it impacts price formation for the future and erodes the price Russia can get for its gas in Europe and Asia. Reducing Russia’s market share in Europe makes its companies less attractive and investment in its upstream less valuable.”

Landrieu noted that 52% of Russia’s national budget is derived from energy revenues. Montgomery estimated that revenues from natural gas in Russia are probably about 20% of energy revenues—roughly 10% of the Russian budget. He suggested that cutting into Russian profits by exporting LNG would not go unnoticed. Montgomery said, “Somewhere between a 40% and a 60% loss in export revenues from natural gas for Russia through this policy of the U.S. entering the LNG market aggressively—I think that’s a punishment that would mean something.”

Lithuania’s Minister of Energy, Jaroslav Neverovič, also testified before the committee. He noted that Lithuania is completely dependent on a single supplier of natural gas, and as a result, the country is forced to pay 30% more than other European countries.

“I am also here to plead with you and your colleagues to do everything within your power to expedite the release of some of your abundant natural gas resources into the world market, especially to those nations beholden to [a] monopolistic supplier,” said Neverovič.

Lithuania expects to have an LNG import terminal in operation by the end of November. The floating storage and regasification vessel—symbolically named Independence—will be located in Klaipėda.

Sen. John Barrasso (R-Wyo.) pointed out that the meeting on Tuesday was the third committee hearing on LNG exports since November 2011, yet only seven applications to export LNG had been approved while 24 remain pending—13 for over a year.

“Yesterday I filed an amendment to the Ukraine bill, which would expedite LNG exports to Ukraine and to members of the North Atlantic Treaty Organization. These nations are pleading for American natural gas,” Barrasso said.

While Sen. Lisa Murkowski (R-Alaska) suggested that expediting the LNG export permitting process would send a signal to the world, Sen. Debbie Stabenow (D-Mich.) suggested that Congress needed to send a signal to American manufacturers who are looking to bring jobs back to the U.S. because of low energy prices. She referenced a study conducted by Charles River Associates suggesting that using domestic natural gas to increase American manufacturing output is twice as valuable to the overall U.S. economy and creates eight times as many jobs as sending this important American resource overseas.

“I’m not suggesting that we should cap or end exports. What I am advocating for is a thoughtful, balanced approach, as others have said, to make sure we find the sweet spot,” Stabenow said.

Sen. Landrieu noted that the U.S. would always have a price advantage over importers because it is the source of the natural gas. “It is certainly not in this senator’s interest to promote a policy where the prices would skyrocket and put our consumers at a disadvantage,” said Landrieu. “But the facts are—and I think that the case has been made overwhelmingly be a variety of different reports—that opening up export markets helps increase domestic supply, not close it down, increase it.”

As Sen. Udall finished his allotted time for questions during the hearing, he stated what seemed to be the day’s theme: “Let’s find a sweet spot.”

—Aaron Larson, associate editor (@AaronL_Power, @POWERmagazine)