US Administration Should Ignore Price Rise Alarmism and Support LNG Development
As Congress finishes the confirmation of key members of President Trump’s cabinet, it’s worth noting that one important issue has so far largely passed with relatively little exploration; the question of how much and how quickly the new Administration will allow natural gas to be shipped overseas.
In one sense the lack of scrutiny is understandable. The Obama Administration supported export as a part of its ‘all of the above’ energy policy, a position Secretary Rick Perry has already endorsed.
However, closer examination would suggest a more complex and concerning picture. A small cadre of Democrat Senators has repeatedly argued that selling US gas overseas will lead to an increase in domestic prices, the latest in an ongoing campaign to slow or completely stop U.S. LNG exports.
The logic of the case seems credible; ‘Increased competition must invariably lead to increased prices, including for consumers’. But the problem with the position is that it relies on a flawed premise for its starting point, that the United States has insufficient natural gas reserves.
A quick look at the numbers shows the exact opposite. According to latest estimates from the Government’s Energy Information Administration, the U.S. has proven reserves of 324.3 trillion cubic feet of natural gas. To put that number in context we produced roughly 28.7 Tcf in 2015, approximately 1.4 Tcf more than we used. By 2040, the EIA predicts we will still only require just over 30Tcf.
The key point that opponents have repeatedly failed to acknowledge is that allowing export will help stimulate further domestic production. And with such a significant resource base, that in effect means we are only considering shipping the United States’ surplus overseas, gas which would not otherwise be used.
The U.S. has in fact been sending natural gas to Mexico and Canada through pipelines for some time and, significantly, there is no evidence to show any correlation with higher domestic prices. An analysis of the data in fact shows that export via pipelines increased from 1.07 Tcf in 2010 to 1.75Tcf in 2015. During that period, Henry Hub natural gas spot prices, the U.S. benchmark for natural gas, decreased by approximately 40 percent.
The Department of Energy has also commissioned several studies exploring the economic impact of shipping different volumes of LNG abroad. And while it did find that export may lead to some marginal prices rises over time, the papers’ primary conclusion was that increases would be more be than offset by a growth in domestic income and wellbeing and that ultimately the “US would experience net economic benefits from increased export.”
It’s worth stressing that the benefits are not insubstantial. Each new export terminal represents billions of dollars of investment into the local economy and will generate nearly $11 million in new tax revenues annually. It’s estimated that the industry could create up to 450,000 jobs by 2035 and that collectively it will generate as much as $86 billion in net benefits to the U.S. economy.
Any further potential delays in approving, building and exporting U.S. will see the benefits outlined above, lost. Global demand for LNG is finite and other countries around the world are also working to develop their own industries. Congress has a renewed opportunity to streamline the permitting process, signaling to potential buyers that the U.S. LNG exports are a long term solution for their energy needs.
Thankfully, plans are already underway to assist the industry’s growth. Senators Lisa Murkowski (R-AK) and John Barrasso (R-WY) have worked for over two years to expedite the approval process for new terminals, attempting to introduce a system which is more efficient, transparent and predictable. Their efforts could be critical in ensuring the future success of the industry. With Secretary Perry now confirmed, we hope that he and the Department of Energy will work with Congress to support the creation of a new industry which has such significant potential for the United States.
Charlie Riedl is the Executive Director for the Center for Liquefied Natural Gas (CLNG). As Executive Director, Riedl works with CLNG member companies, regulators, legislators and other key stakeholders to provide credible and educational information about the economic and environmental benefits of LNG. He will be speaking at LNGgc Americas 2017. The conference will take place from 31 May to 02 June, in Houston Texas and will look at key trends and questions on the USA LNG industry. Including; LNG flexibility, pricing, project FIDs, new markets & shifts to small and mid-scale projects. With over 40 senior speakers, addressing over 50 sessions, offering unrivalled networking opportunities with over 130 leading industry figures LNGgc Americas is the meeting place for the LNG community.