How can the federal government influence the development of shale gas to ensure price stability in the future? During today's OnPoint, Josh Freed, vice president for clean energy at Third Way, discusses a new report on the role policies and regulations can play in shaping the future of natural gas in the United States. He weighs in on the impact of liquefied natural gas on price spikes and outlines how he believes the Department of Energy and Federal Energy Regulatory Commission should approach LNG export permitting.
Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Josh Freed, vice president for clean energy at Third Way. Josh, thanks for coming back on the show.
Joshua Freed: Thanks for having me.
Monica Trauzzi: Josh, you've just coauthored a report on the role of government in shale gas development. What would you consider the biggest risk to shale development at this point? What do you think could derail the future of shale?
Joshua Freed: Well, we're not sure if it's going to derail the future of shale, but we looked at how much shale gas has really transformed the energy landscape in the last four years, and recognized that we've had enormous benefits that we need to keep going. Emissions have decreased significantly as coal has been displaced by natural gas. We've seen prices for energy remain very stable because of the low price of natural gas at the moment. And we've actually seen not only enormous numbers of jobs being created in the natural gas sector, but manufacturing is coming back to the United States in a way that we haven't seen in decades. So the question we asked was is that something that will continue to move forward if there is no change in policy? Our concern was that if you look over the last 20 years, the price of natural gas has not always been stable. There's been, there was a lot of volatility in the late 1990s and early 2000s, and we've started to see some states roll back access to the shale gas deposits we need to maintain an equilibrium price that is stable, that utilities, manufacturers, and others can rely upon for a long time to make the investments in this country that they need.
Monica Trauzzi: And so one of the things that's been suggested is LNG exports, to sort of ramp up production and get some of this fuel elsewhere. What's your view on that? Because there are concerns that that will drive up prices and cause some manufacturers, such as those in the chemical industry, to ship jobs overseas.
Joshua Freed: Well, I think those are all good questions, and we at Third Way are supportive of free trade, and we're looking at if there's an opportunity to balance the understandable concerns about unlimited exports increasing the price versus the reality that there is significant demand overseas that producers should be able to take advantage of. And our recommendation was that around six billion cubic feet of exports made sense both from what we realistically could expect to product, get to export terminals, and ship overseas, but also not have a significant impact on the price of natural gas here at home. And the other reality is it is expensive to build an LNG export terminal. There are ten permits roughly under consideration. It may only be one or two that in the near future get built and get online. And so it's an issue that we need to start thinking about longer term so that unintended consequences don't hit us when we're not prepared for them, but I think over the short to medium term, both in terms of price and also accessibility, we are in pretty good shape.
Monica Trauzzi: So what does that specifically mean for what DOE and FERC should be doing in terms of permitting of these facilities?
Joshua Freed: DOE needs, DOE and FERC both need to take into account the price impact that continued exports of natural gas will have, and be able to coordinate their permitting process so that we don't have, we don't have a situation where we find ourselves either with more pressure to export than we need, or with a process that's not coordinated, so we don't, we end up with no ability to get gas to the open market, or to the broader market. But the other point is that for the most part, natural gas prices are determined in the country where they originate. And so even if there is limited export of natural gas overseas, the price in the US will be determined by production in the US, so we do not run a significant risk of seeing a global price for natural gas in the way that we do see a global price for oil.
Monica Trauzzi: So on shale and fracking, there's this huge debate over the regulatory influence of the federal government ...
Joshua Freed: Yeah.
Monica Trauzzi: ... in the development of natural gas. How far should the reach be for the government?
Joshua Freed: Well, I think that industry has a real opportunity to regulate itself. A great example that we point out in our report is what the nuclear industry did in the wake up the accident at Three Mile Island. They created an organization that sets standards for the entire industry that the utilities and others agreed to and they self-policed. They were extremely, extremely effective at setting high standards, and providing information to companies that did not meet them, and a path to make sure that they came back into compliance quickly. I think the natural gas industry needs to take similar steps to make sure that the communities in which they may be developing gas see a clear path to production that's safe, and that it's able to reassure some of the states and local governments where there are concerns about the process for developing the gas and shipping it that need to be addressed if the industry in the US are able to benefit from the access that we currently have.
Monica Trauzzi: What do you make of what we've seen happening in New York State, where the Governor has in a sense sort of drawn out the process? There's some more analysis happening there right now.
Joshua Freed: Yeah.
Monica Trauzzi: Are those necessary steps, and should we take our time with this?
Joshua Freed: Well, look, I don't want to get into the specifics of any action on the state level, but I think it is a real reflection of the concerns and questions that remain out there, particularly amongst states like New York, up until recently Pennsylvania, and New Jersey, that really don't have a long history in developing natural resources the way a state like Colorado does, and where the regulatory infrastructure at the state level and the interaction between industry and state regulators and local communities is much richer, and they've had real opportunities to develop the processes.
Monica Trauzzi: What do you consider the sweet spot in terms of pricing and at what level should things sort of even out?
Joshua Freed: Well, we've determined from our analysis that the sweet spot should be around the $4.00 to $6.00 range. It's likely over the next two, three, four years, the price will continue to gradually rise to that level. Our recommendations for federal government steps are that you can take some small actions that would help get natural gas gradually to that price, and then hopefully level off there, so we do not see the spikes up to $8, $9, or beyond that are unlikely, but if they happened, because commodities are unpredictable, could cause real challenges for the economy.
Monica Trauzzi: All right. We'll end it right there. Thank you for coming on the show. Nice to see you.
Joshua Freed: Thank you very much.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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