How is industry reacting to the Department of Energy's macroeconomic study on the impacts of LNG exports? During today's OnPoint, Bruce McKay, managing director of federal affairs at Dominion Resources, explains how the study, which concluded that LNG exports would have net positive impacts on the United States' economy, is influencing Dominion's operations as it tries to move forward with its Cove Point, Md., export facility.
Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Bruce McKay, managing director of federal affairs at Dominion Resources. Bruce, thanks for coming on the show.
Bruce McKay: Monica, it's great to be with you.
Monica Trauzzi: Bruce, after a long wait period, the Department of Energy finally released its LNG exports macroeconomic study, long-awaited, it seemed. It was ...
Bruce McKay: I told a friend of mine at DOE that there were babies conceived and birthed in the time that it took to get the report out, and it's a beautiful baby. That's the thing. The delivery was successful, and we're happy with it.
Monica Trauzzi: Right, because it was largely seen as a positive study for the economy, net impact. What is Dominion's response, and specifically, what do you believe the impact of the study is on your Cove Point Project?
Bruce McKay: Well, first of all, generally speaking, we looked at the report and we said, "Well, that pretty much confirms what we and others have been saying, and let's add this report to the top of a stack of other reports that have all concluded the same thing, that the net economics impacts are positive across the economic spectrum in the United States. So, you know, once again, we have the same report out. So what does it mean for Cove Point? This now sets a path forward on how the Energy Department will deal with the applications that are sitting on the desk. We're happy to be third in line, according to the list that they put out, so we think that puts us in a good position to have rather rapid approval when the new year comes around.
Monica Trauzzi: So you're third in line. Has there been a rush within the industry following the release of this report to start ironing out some of the conversations with international partners that you may hook up with in order to export LNG?
Bruce McKay: We have been rushing those discussions all along the way, and I think that most observers figured that at the end of the day, the U.S. would get to where it is today. The election slowed the process down. We understood that. Might this have a quickening effect on those discussions? Perhaps, because now you can really kind of see an end point where comment period, comment period, decisionmaking.
Monica Trauzzi: How much of a material impact does this study actually have? I mean, this is not a policy decision. We could see policy come out next year against LNG exports. So are you sort of trying to manage expectations a bit about how big this actually is?
Bruce McKay: Well, happily, the policy is set. The law is set. We don't need anything else to be done. That is written in law. So now the Department just needs to follow the statutory authority that it has. Now will there be more policy discussion around it? Absolutely. Might there be a hearing or two on the Hill? Absolutely. And there's nothing wrong with that. We think that the case is so sound in this report and others that have been done that to go up and explain this to policy makers, all these benefits that are laying before us if we just grab the opportunity, that benefits from that type of policy discussion.
Monica Trauzzi: So you don't think it'll go beyond a few hearings on the Hill?
Bruce McKay: I don't think so, and I hope it doesn't, and it shouldn't.
Monica Trauzzi: Senator Wyden has said that he's going to continue to call on DOE to examine the impacts exports could have on certain industries, like the chemical industry. This is a big one. And in fact, the report said that industries like that could be negatively impacted economically. So how concerned are you about those types of political plays?
Bruce McKay: Well, Senator Wyden has asked all the right questions for the last year, very fair. He has said he doesn't want to ban the export. He wants to make sure that it's thoroughly assessed. Well, DOE did that. They took a yearlong time out. It was almost exactly one year from when they announced they were going to do the study. So he's asked the right questions. Now this report has really brought forward some good answers. Now you mentioned some industries that could find a small, you know, price impact. This report said that those dislocations would be very minor, and that's they said what happens when do you economic trade. And again, by far the benefits outweigh any impacts there.
Monica Trauzzi: Based on the study's results, do you believe that there's a possibility that DOE would move to limit the amount of LNG that's allowed to be exported?
Bruce McKay: We don't see any limit implied in what they've been, what they put out. Could that be the impact at the end of the day? Sure. Perhaps. Our guess is that the market will provide some type of limit. There's only so much out there, and there won't be the, all 15 projects approved, by no means. There's a market for much less, you know, for the demand, the financing, and the contracts, and all that. So if there's going to be a limiter, it'll be the market, we believe.
Monica Trauzzi: When we talk about exports, what's the price that Dominion considers profitable?
Bruce McKay: Well, recall what we're doing, we'll have I believe it's a 20-year contract with Sumitomo Corporation for half of our project. We will not buy and sell them gas. We will provide a service. They will arrange for gas to be brought to the terminal. We will liquefy it, put it on the ship, and they will take it overseas. They'll source it, they'll deliver it. It'll be priced according to a formula.
Monica Trauzzi: So job creation estimates for your company specifically if these non-FTA exports are allowed?
Bruce McKay: Well, we had two different firms do an economic analysis on what our project would mean economically. On site, hundreds of jobs, labor construction jobs, multi-year. About 7,000 jobs regionally for those that will be making equipment that go in there, all of the support aspects that support a project of this magnitude, and then long-term, ICF International, a firm that did some work for us, estimated about 14,600 jobs would be supported nationally just by our one project, which is moderate in size compared to a couple of the bigger ones down in the Gulf.
Monica Trauzzi: There are calls within the environmental community for more reviews to be done on the impacts of LNG exports and also fracking, which would be used to collect this natural gas. How much potential is there for these calls to put the brakes on your project and others?
Bruce McKay: Well, it's hard to do much this way in terms of development and big projects without running into some type of opposition along the way. These projects are very thoroughly analyzed from an environmental perspective today. Ours will be. When we've expanded it in the past, it will be. The companies that are drilling and producing the gas, they have very thorough environmental analysis being done by the state. So we think that it's quite adequate. We'll have a very broad environmental assessment done on Cove Point, and at the end of the day, we think that all the concerns will be answered and addressed.
Monica Trauzzi: All right. We'll end it right there. Thank you for coming on the show. Nice to see you.
Bruce McKay: Thank you.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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