LNG:

Prospect of export boom vexes both political parties, but in different ways

In Washington, high gasoline prices are a political minefield of risk and reward for both parties. But the same can increasingly be said of natural gas, which now costs more than 10 times less in real terms.

The Obama administration's go-ahead for the first liquefied natural gas (LNG) export terminal in the lower 48 states is driving a wedge among Democrats. Some warn of rising electricity costs and lost jobs if the United States begins fueling a world market for natural gas, while others take a more wait-and-see approach to an energy boom that promises to cut the U.S. trade deficit.

Even within the GOP, where more domestic fossil-fuel production and free trade are articles of faith, the field of seven more companies hoping to build LNG export terminals presents a messaging test of sorts. As Republicans celebrate the promise of increased exports, they weigh it against the benefits of keeping natural gas cheap for Americans.

"I support production in America, and if we have surplus and we can export it, I'm all for that," Rep. Ed Whitfield (R-Ky.) said of the coming export rush. Asked if his party is united in pressing for more LNG to be exported, the top Energy and Commerce Committee lieutenant qualified his enthusiasm: "I wouldn't say we think it should be. We are saying if the supply is there, they should be able to export it."

Mike McKenna, a GOP strategist who often advises party leaders on energy issues, acknowledged that lawmakers of all stripes must walk a fine line as they weigh the home-front upside of the nation's technology-fueled gas boom against the global benefits of bringing the fuel to high-demand markets in Europe and Asia.

"Republicans have a pretty strong bias toward being really careful on this point," McKenna said in an interview. "They have a very strong preference for exporting the cost advantage of natural gas in finished products rather than raw commodity form. That's going to contest with their aversion to using government to mandate outcomes -- that's a bit of a jam."

But his party's bind over LNG exports "is a modest little problem compared to the Democrats," McKenna added, pointing to what he dubbed a "narrative of scarcity" built up by environmentalists that is belied by the promise of a new natural gas surge driven by hydraulic fracturing and horizontal drilling techniques.

Green groups opposed to LNG export plants such as Sabine Pass, the Louisiana project from Cheniere Energy Inc. that won Federal Energy Regulatory Commission approval last month, speak not of scarce resources but of the government's still-incomplete look at the health and safety impacts of hydraulic fracturing.

On Capitol Hill, Democrats who strongly align with environmentalists on fracking do not all agree that stopping LNG exports is a good idea.

Rep. Ed Markey, for one, is at the forefront of Democrats' anti-export wing for fossil fuels (E&E Daily, April 16). The Massachusetts lawmaker has proposed legislation that would block FERC from greenlighting any LNG shipping terminals until 2025 and another bill, the "Keep American Natural Gas Here Act," that would require the secretary of the Interior to ensure that all natural gas produced on federal lands be offered for sale only in the United States.

Markey's partner in authoring the House's 2009 comprehensive climate change bill, however, does not share his distaste for LNG exports.

"I feel uneasy about blocking exports or imports, and keeping markets from working," Rep. Henry Waxman (D-Calif.) said in an interview. "As a practical matter, we're not going to see a lot of exports of natural gas for quite a while. I'm watching it carefully, but I don't think that it's something that's imminent."

Walking a fine line

Members of Congress may be treading lightly because of the disparate opinions within the manufacturing sector about how exports would affect domestic gas prices in the United States.

"People don't know how the natural gas issue is going to shake out in the next two to three years in terms of price fluctuations. There's recognition that there needs to be more demand to sop up the spare capacity," Joshua Freed, vice president for clean energy at the centrist think tank Third Way, said in an interview.

"We're still in the first inning of this debate; there's so much shifting of the ground on natural gas use, development and demand," Freed said.

While environmentalists have taken a rigid stance in opposing LNG exports over increased use of hydrofracking, industry groups have subtly shifted their positions over time.

Disagreement is gripping members of the Industrial Energy Consumers of America, a group of energy-intensive consumers of gas and electricity. Paul Cicio, the group's president, acknowledged that some members strongly oppose exports while others support the proposal.

The group intervened in the Sabine Pass Project's Department of Energy application for an export permit, arguing that it was not in the public interest to grant permission (EnergyWire, May 14). But the group has since softened its opposition, while calling for a national energy policy that emphasizes domestic consumption and job creation.

One X factor driving the political wariness, mentioned by both Waxman and Cicio, is the potential for LNG exports to link domestic natural gas prices to the same type of global market volatility that has taken oil costs on a roller-coaster ride in recent years.

"Our long-term concern regarding exports is that domestic prices could be [linked to] international demand like crude is today and lose our competitive advantage," Cicio said, adding that domestic consumption of cheap natural gas could enhance that advantage by creating new manufacturing jobs and expanding the U.S. supply chain.

At the American Chemistry Council, cautious acceptance of LNG exports is also the order of the day. Calvin Dooley, the council's president, told E&ETV in February that while U.S. manufacturers -- such as his members who rely on natural gas as a feedstock -- should be able to "capitalize on domestic energy resources," he could not embrace "government getting in and regulating either demand or regulating the flow of resources, either domestically or internationally."

A slimmer majority of industry groups maintains stiff opposition to LNG exports, but it may be dwindling in numbers.

Dave Schryver, executive vice president of the American Public Gas Association (APGA), said he is not sure why more industry groups are not joining him in standing against LNG exports. "We just haven't seen as much concern in other groups as we'd expect," he said.

Schryver said APGA, which consists of not-for-profit gas companies, is concerned that allowing exports will cause domestic prices to spike and believes the gas should be used domestically to support natural gas vehicles. Schryver said his group is also pushing a "go slow" approach because it is unclear whether state and federal officials will more heavily regulate natural gas production and hydraulic fracturing in the coming years.

"We see this as a long fight going forward, both at the regulatory level as well as the legislative level," he said.

'Certainly not opposed'

Recent public- and private-sector reports on the exports debate have offered few definitive signals on how Cheniere's and other new LNG terminals would affect prices. An Energy Information Administration analysis released in January projected that increased LNG exports would push natural gas prices upward of 50 percent higher, with a resulting average increase to consumers' bills of up to 9 percent between 2015 and 2035.

A Brookings Institution study earlier this month agreed that exports would have a "modest upward impact" on domestic natural gas prices but balanced that against projected national-security and long-term economic benefits of overseas LNG sales. The study also warned of "unintended consequences" if policymakers attempted to limit overseas LNG sales (E&ENews PM, May 2).

DOE, for its part, is at work on a broader report -- slated to come out this summer -- that it plans to use to inform further decisions on LNG export projects beyond Cheniere's Sabine Pass terminal. At an American Petroleum Institute hydrofracking event yesterday, White House energy adviser Heather Zichal told reporters that "as a general rule of thumb, we are certainly not opposed" to sending natural gas abroad.

"Our goal here is to make sure we're producing this, but also protecting American consumers and making sure we're sending the right signal to industry and the manufacturing sector," Zichal said.

Regional differences

While the issue marinates at DOE, members of Congress are making their positions known publicly -- and those opinions usually vary regionally.

In Louisiana, Sen. Mary Landrieu (D) has offered strong backing for Cheniere's export terminal along her state's Gulf Coast despite warnings from environmentalists about the project's potential impacts. Landrieu has said her state stands to pull in $6 billion from the project (E&E Daily, April 17).

Rep. Charles Boustany (R-La.), whose district houses the Cheniere project, said he is "bullish on the prospects" of how many jobs the facility will create for his state. "With the abundance of natural gas, we think that this is a great opportunity to improve our trade balance, and I think this is a geopolitical game changer in terms of driving a more open energy market globally," Boustany said.

Boustany also said that Markey's "position is not based on any facts" and is not in the nation's best interest. "If you look realistically at the amount of natural gas that will be exports, it's not going to affect prices much here at all, in the U.S., and it's certainly going to help our trade balance," he said.

But the Gulf Coast enthusiasm contrasts sharply to opposition on the East and West coasts.

Sen. Ron Wyden (D-Ore.) floated language in March 2010 that would give states -- and not FERC -- the ability to determine the need and location of LNG terminals. Sens. Maria Cantwell (D-Wash.), Barbara Mikulski (D-Md.), Ben Cardin (D-Md.) and Jeff Merkley (D-Ore.) co-signed the measure.

The lawmakers' concern stems from LNG export projects proposed for each of their states that have triggered alarm among environmental groups, namely the Sierra Club. Wyden has also repeatedly said exporting domestic natural gas could cause prices to spike at home (Greenwire, Dec. 8, 2011).

Rep. Peter DeFazio (D-Ore.), whose district includes a proposed Jordan Cove LNG terminal near Coos Bay, also dropped language earlier this year that would protect private property from potential eminent domain proceedings on a pipeline designed to export LNG.

But the widespread concern, APGA's Schryver said, is that Congress is likely to do little in such a divisive political climate and during an election year.

"In the current climate, it's difficult to get anything done," he said, "especially on an issue like this where you have strong opinions on both sides."

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