US Natural Gas Exports Hit Series of Roadblocks

US Natural Gas Exports Hit Series of Roadblocks

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This week that the Department of Energy (DOE) tentatively approved a fourth non-FTA permit to export liquefied natural gas (LNG).  Secretary Moniz is credited with improving the speed with which his Department has moved on exports, having approved three permits in his short tenure compared to one under his predecessor. The Department of Energy’s approval of non-FTA permits is just the first step in the process of bringing U.S. natural gas to the world market, so a lot is riding on its approval stamp.  Without the DOE’s approval, U.S. natural gas exports – and the important economic benefits – will be artificially hamstrung.

Unfortunately, there are still 20 applications under review by the Department.  The recently approved Cove Point LLC had been awaiting a decision for more than 600 days.  It would take about 31 years for the Department to make it down its list at this current rate.  More worrying is the suggestion by some like Senator Ed Markey of Massachusetts that the Department, having approved these applications, should somehow slow down and wait on further approvals because America has hit a “sweet spot” for natural gas exports.  Senator Wyden defined this term in February as “some exports but not so much that the price goes up dramatically on American consumers and American manufacturers.”  This so-called “sweet spot” has been loosely defined, but is largely reflective of the argument that too many exports would undermine domestic manufacturing.

The suggestion that too many LNG exports will hurt domestic consumers could not be further from economic reality. In reviewing this issue, the Department of Energy concluded the economic benefits from LNG exports outweigh the costs in all export scenarios. Furthermore, the net gains associated with LNG exports would be substantial. According to ICF International ICFI -0.41%, natural gas exports could create more than 450,000 net new jobs.  And, according to NERA Economic Consulting, it would also add economic growth of as much as $73.6 billion per year.

The “sweet spot” myth also ignores the numerous variables and discrete steps to build a viable LNG facility. Any LNG export facility, on or offshore, requires a massive amount of capital to the tune of billions of dollars.  It also requires coordination of construction, contractors, and other regulatory approvals, primarily of the Federal Energy Regulatory Commission (FERC).  It takes years of intense construction, supply from natural gas production, and buyers on the international market to bring natural gas exports online. Furthermore, no major natural gas importer – save Korea – has have an FTA with the United States, so  throwing an artificial wrench in natural gas exports could put the United States in a sticky position with its international trading partners.

Given the economic uncertainty for natural gas producers, the Department would best serve the American economy by quickly approving the remaining 19 applications.  That would allow market, regulatory, construction, labor – to name only a few – forces to come together to see a handful of LNG facilities become reality.  It would also allow the marketplace to determine which facilities would see the light of day, rather than the Department determining that the oldest application in queue becomes reality.  The Brookings Institute recently stated that “a balanced approach is one that does not increase the cost of exporting but accurately reflects the cost of building a facility at the beginning of the process.”  Approving the remaining applications is an important first step to capitalize upon the ongoing domestic natural gas production renaissance and allow US natural gas to reach the world market.

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