Battle Brewing over LNG in Washington

There is a new battle about to happen in Washington that will pit some of the biggest names in Washington politics, including some of the giants of American industry, against each other.

 

It's not about taxes or the debt ceiling, or immigration or gun control; it involves natural gas, the now carbon-based fuel of choice. Strangely, it does not involve what we think of natural gas that powers heaters, stoves, mammoth generators and factories. It is the kind of gas that is liquid or LNG and there are big players in Washington and in Corporate American who think it is worth arguing about

Expanded production of LNG could have adverse effects on many industrial and manufacturing companies that directly and indirectly use enormous amount natural gas in their business. This means production of steel, fertilizer, chemicals, cement, aluminum, metal smelting, glass and paper, for example. If over the next few years, enough gas is liquefied for export, gas prices could rise, erasing the benefits of current low prices.

Over the past five years, natural gas has suddenly become plentiful due to enhanced exploration and engineering techniques. Its price has dramatically declined and some would describe the natural gas market as glutted. Prices low, storage full, huge reserves.  

 One way to alleviate the problem of natural gas oversupply in North America is to increase its export. The most economical way to export natural gas is to liquefy it into LNG, which is transported in specially designed transport ships. There are currently over 100 production, export and storage facilities in the U.S and a number of companies have submitted applications with the U.S. Department of Energy to begin LNG export.

With the onset of the interest in natural gas exports, the U.S. must reverse the current use of its liquefied natural gas facilities. Just a few short years ago natural gas was selling for more than four times what it is now. It made sense to import cheaper LNG as demand was outpacing supply. However, with the wide spread use of “hydraulic fracking” and other advancements in horizontal drilling, the U.S. supply of natural gas has greatly increased.

Here is the political catch. The Department of Energy must approve the projects, although there are also a number of other legal hurdles and laws applicable before most exports can begin.

DOE recently released a study in December of the effects of exporting LNG. It attracted many comments and different sides are lining up. The Department has been evasive about plans to consider the 15 applications submitted but eventually must address the matter.

A new coalition has sprung up to take on the issue called the America's Energy Advantage. It is made up according to press reports of Dow Chemical Co., American Public Gas Association, Eastman Chemical Co., Celanese Corp. and Nucor Corp and undoubtedly will attract others.

Interestingly, the National Association of Manufacturers, a major and powerful interest group, had a public and notable squabble with its member Dow Chemical over NAM support for LNG exports. The chemical company announced it would leave the Association over their policy disagreement, that is how important the issue is to Dow. Environmental groups such as the Sierra Cub have also been involved in opposing LNG exports.

Opponents believe exports will raise the costs of fuel for industrial and residential natural gas users. A major beneficiary in recent years of more abundant U.S. natural gas has been the industrial sector. The sector currently consumes roughly 32 percent of total natural gas demand, 85 percent of which is consumed in manufacturing. .

The industrial sector is highly price-sensitive with respect to energy inputs. Because natural gas is a primary feedstock for many industrial consumers, large users of natural gas as a raw material or fuel source have enjoyed a revival and competitive edge. Natural gas is also being used more and more for electricity generation. High gas prices, high electricity costs.  Naturally, they do not want to give this up.

Proponents counter that LNG exports will provide economic growth and job creation. According to the American Petroleum Institute "Allowing the export of LNG is a win for the U.S. economy” Would not expect the oil and gas industry to say anything different.

The latest volley between the parties is the study released by DOE, which concluded there is a net benefit for the domestic economy from LNG exports. Of course, when one does not agree with the conclusions of any study it is best to attack its underlying assumptions. America's Energy Advantage believes the study is deficient, among other things, because it relied on 2-year-old data and the economic value of exporting manufactured goods rather than raw materials. Good points to be sure. It is best to get it right but understand the motivation.

Lawmakers are getting involved as expected. Over one hundred Democrat and Republican members of the House wrote to the DOE in favor of exports. In the Senate, new Energy and Natural Resources Chairman Ron Wyden (D-Ore.) a long time skeptic and opponent of LNG exports, criticized the DOE report and said it did not provide the basis for approving export applications.

On the other hand, U.S. Senators John Barrasso (R-WY) along with a mixed group of oil-state Senators have introduced legislation to give North Atlantic Treaty Organization (NATO) member nations, Japan, and others the same preferential treatment as our free trade partners with respect to exports of liquefied natural gas.

The export proposals could eventually cover nearly 25 billion cubic feet of gas per day, not that much in the overall amount of yearly consumption. However, apparently for some enough to be concerned and concerned in a vociferous manner.

This one is worth watching as the giants of American industry- in a classic consumer versus producer conflict- go after one another on a matter that could affect their bottom line.  

Comments

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