Kill jobs in the gas industry or kill jobs in manufacturing, which one should a politician choose?
That’s the potential dilemma facing both Republicans and Democrats this presidential election season in the United States when it comes to LNG exports.
Ample supply has driven US gas prices below $3 per million Btu, to less than 20% of Asian LNG prices. Only one US site outside Alaska is authorised to export LNG worldwide, and its liquifaction unit will not be operational before 2015. There are (at the last count) 17 requests for full export authority pending at the US Department of Energy (DOE) for 27 billion cubic feet per day (765 million cubic metres per day: MMcm/d), of which nearly 566 MMcm/d is for exports to nations without US Free Trade Agreements (FTAs).
The US consumes about 1.98 billion cubic metres of gas per day, almost all of which is produced domestically. One-third is used for power generation, and another third by industry as feedstock and fuel.
Approvals for exports to FTA nations are routine, but South Korea is the only significant LNG importer among FTA countries, so the non-FTA authorisations are critical to LNG project economics.
However, with export requests exceeding 25% of domestic production, the Obama administration has put all non-FTA applications on hold while it studies the potential effect of exports on domestic prices. That study was scheduled to conclude last spring, but it has been quietly delayed and is now not expected before the presidential election.
The US experience with world oil prices makes exposure to global gas markets a political issue. No politician or party wants to shoulder the blame if gas prices to consumers go up, although everyone knows the current low price is unsustainable in the long term. For now, consumers, petrochemical manufacturers and electricity generators are getting a great price break.
What is especially difficult for the Republicans is that two of their traditional business constituencies are pitted against each other on this issue: the gas industry and manufacturing.
Expansion plans, such as Royal Dutch Shell’s, for a petrochemical complex in Pennsylvania’s Marcellus shale are dependent on abundant, cheap gas. Manufacturing industry leaders want federal limits to LNG exports to keep domestic gas prices low and to increase the competitiveness of US manufactured goods, which they say are higher-value exports than LNG.
Environmentalists, a traditional Democrat constituency, want to block exports to discourage hydraulic fracturing. Other Democrats argue that gas exports, like crude oil exports, should be barred on national security grounds, and the resource kept in the US.
Local and state officials of both parties are divided over whether LNG exports or manufacturing will bring them more jobs and revenue.
Silence on the stump
Neither Republican presidential nominee Mitt Romney nor Democratic incumbent Barack Obama have addressed LNG exports on the stump. Romney argues for increased exports of manufactured goods. The Democratic platform has said “cheap, abundant natural gas is helping to bring jobs and industry back” to the US.
David Bloom, a lawyer with Mayer Brown’s energy practice, said the Obama administration “doesn’t want this as a front-burner issue whatever way they decide it,” and neither does Romney because of the manufacturing controversy.
Voices across the political spectrum say politicians need only step back and let the free market decide. A study from the liberal-leaning Brookings Institution in May urged approving all export applications, as does Jack Gerard, president and chief executive of the conservative-leaning US Chamber of Commerce.
Exports may not even raise domestic prices, Gerard said, though they will undoubtedly decrease downward price pressure.
Many economists, noting proposals equal two-thirds of the international LNG market, have said most terminals will never be built. LNG plants cost $1-2 billion per bcf/d of capacity, making them high-stakes bets in a fast-changing global market.
LNG export authorisation requests (MMcm/d)
|Applicant||FTA (a)||Non-FTA||Total (b)|
|Approved, FTA and non-FTA|
|Sabine Pass Liquefaction, LLC||62.3||62.3||62.3|
|FTA approved, non-FTA pending|
|Freeport LNG expansion, LP/FLNG liquefaction, LLC||39.65||39.65||39.65|
|Lake Charles exports, LLC||56.64||56.64||56.64|
|Carib Energy (USA) LLC||0.85||0.28||0.85|
|Dominion Cove Point LNG, LP||28.32||28.32||28.32|
|Jordan Cove Energy project, LP||33.98||22.66||33.98|
|Cameron LNG, LLC||48.14||48.14||48.14|
|Freeport LNG expansion, LP/FLNG liquefaction, LLC*||39.65||39.65||39.65|
|Gulf LNG Liquefaction Co., LLC||42.48||42.48||42.48|
|LNG Development Co., LLC (d/b/a Oregon LNG)||35.4||35.4||35.4|
|SB Power Solutions||1.98||0||1.98|
|Southern LNG Co., LLC||14.16||14.16||14.16|
|Excelerate Liquefaction Solutions I, LLC||39.08||-||39.08|
|All requests pending|
|Gulf Coast LNG export, LLC||79.3||79.3||79.3|
|Golden Pass products LLC||73.63||-||73.63|
|Cheniere Marketing, LLC||59.47||59.47||59.47|
|Main Pass Energy Hub, LLC||91.19||-||91.19|
|CE FLNG, LLC||30.3||30.3||30.3|
|Total export authorisation requested||776.53||558.75||776.53|
|Total export authorisation approved||442.64||62.3||442.64|
*CQ, additional request; (a) Exports to nations with which the US has Free Trade Agreements. FTA exports are; (b) Maximum export allowed. FTA and non-FTA authorizations are not additive. Source: US Dept. of Energy, Office of Fossil Energy, as of 21 Sep 2012.
Rice University’s Kenneth Medlock said LNG suppliers elsewhere are already gearing up for US competition. His models conclude there would be no market for LNG beyond what the one approved project, Cheniere Energy’s Sabine Pass, could export by itself.
The chief issues before the DOE – no matter who wins the election – are whether approving exports beyond a foreseeable limit would drastically increase domestic prices and, if so, how to decide which proposals should get to export under that limit.
Washington analysts ClearView Energy Partners said that situation gives urgency to the steps beyond the DOE: getting Federal Energy Regulatory Commission permits to build liquefaction plants, and the state and local governments buy-in. ClearView’s analysis concluded the projects clearing all regulatory hurdles and getting LNG to market first are the ones likely to survive.