Heated debate over the impact of liquefied natural gas exports on domestic prices is threatening to derail them at a crucial time for the U.S. industry.
A sudden abundance of natural gas and unprofitably low prices — the result of fracking technology that's opened up previously unreachable shale-gas reserves — has the industry looking for new markets.
But Massachusetts Rep. Edward Markey, a top Democrat on the House Natural Resources Committee, is pulling out the stops to slow exports.
He began worrying about the impact of liquefied natural gas (LNG) exports on U.S. prices, when he saw permit applications piling up at the Department of Energy.
So, Markey and Sen. Ron Wyden, D-Ore., another key voice on U.S. energy policy, introduced bills requesting a timeout on LNG permit approvals until 2025.
“We saw a policy shift to exports without even a debate,” says Jonathan Phillips, a senior policy adviser to Markey on the Democratic staff of the Natural Resources Committee. “Yet all the studies show that exports will increase domestic prices. We’re not going to race ahead, allowing oil and gas companies to reap large profits at a cost to consumers."
Consumer and environmental groups are also dead-set against the export of LNG, which converts natural gas into liquid form through a rapid chilling process for easier transport. The chemical industry has voiced dissent because it depends on cheap natural gas to produce fertilizers and feed stock.
This domestic push-back is slowing the approval process, while other countries are ramping up production to natural gas-hungry customers like Japan, which is trying to compensate for the loss of the Fukushima nuclear power plant in 2011.
As a result, only one U.S. terminal has been given the go-ahead. A dozen-plus others are on hold, any regulatory action delayed until an Energy Department study on the economic impact is completed later this the year.
Cheniere Energywas the lucky one to win federal approval to build the first liquefied natural gas export terminal in decades. The Blackstone Group will supply some $2 billion in financing. When complete in 2015, the Sabine Pass, La., facility will be capable of exporting about three percent of the total U.S. supply.
Cheniere and the seven other energy companies behind the 14 stalled permits for facilities — in states as far-flung as Georgia, Maine and Oregon — all want to export to Japan, Spain and other non-free trade countries, those that have not eliminated trade tariffs and quotas.
The only LNG export terminal currently serving the group of nations is ConocoPhiliips' aging facility in Alaska, where supply is dwindling.
South Korea and Taiwan are also big importers, and demand is rising in India and China, which is building huge import terminals.
The non-free trade block is a highly profitable market for liquefied natural gas. Importers like Japan pay nearly four times the price paid in the U.S. market.
Huge markets aside, the natural gas industry says there's plenty of gas to go around without any negative impact.
“Higher U.S. natural gas prices are an unfounded fear,” says Rocco Canonica, director of energy analysis at BENTEK Energy. “The U.S. will produce more gas over just a few years to make up for exports."
Studies on the effect of exports on prices, however, differ widely.
One by Deloitte found that by 2035, daily exports of 6 billion cubic feet, or about 1 trillion BTUs, will result in an average domestic price increase of 1.7 percent. On the other hand, a study by ICF International concluded that the same number of exports over the same period would increase domestic prices by 11 percent.
Some experts say the regulatory slowdown is almost certain to dampen pricing.
“It isn’t feasible for eight projects to hit the market fast,” says Charles Ebinger, director of the Brookings Institution Energy Security Initiative. “So there is less market impact.”
Guy Caruso, a senior adviser in energy and national security at the nonpartisan Center for Strategic and International Studies, estimates it could take five to 10 more years to achieve even modest amounts of natural gas exports.
Furthermore, most energy experts say LNG exports will ultimately amount to some 10 percent of total U.S. sales at best.
Modest as that may seem, there is formidable competition abroad.
Qatar, Indonesia and Malaysia are already major exporters, but new suppliers like Australia and Nigeria are ramping up production.
“Australia will eventually be a bigger player than Qatar,” predicts Ebinger.
“And Russia has been lobbying against exports,” adds Caruso, noting that Moscow wants to preserve its sizable market share based on a series of pipelines that stretch all the way to Siberia.
For some, the issue seems much ado about nothing in a country that some estimate has a 100-year supply of natural gas ready to be fracked out of shale formations.
"We’ve got to get rid of our supplies somehow,” says Canonica.