LNG exports may help put US in stronger global position, Jaffe says

Debate over whether the US should authorize more LNG exports has been too narrowly focused on potential domestic impacts, an energy and geopolitical expert told a US House subcommittee. Their greater benefit may lie in their possibly start to change global gas markets and establishing the US as an important and reliable supplier, Amy Myers Jaffe said.

“For the last 3 decades, the United States has promoted free trade and energy investments,” Jaffe said during the Energy and Commerce Committee’s Energy and Power Subcommittee May 7 hearing on energy exports. “Because we don’t want Russia or countries in the Middle East to restrict their energy exports, we shouldn’t restrict ours. If the US doesn’t have an open energy market policy, we can’t advocate for one in other producing countries.”

The best way to protect US industries concerned that exports could push domestic gas prices too high would be to mandate minimum inventories, as Japan and some European nations have done, said Jaffe.

She became executive director of energy and sustainability at the University of California at Davis’s Graduate School of Management and Institute of Transportation Studies in September after 16 years as Energy Forum Director at Rice University’s James A. Baker III Institute for Public Policy.

“There’s so much gas in other places that I believe there wouldn’t be that many US LNG exports at first,” Jaffe said. “But Japan, Korea, and other LNG customers could buy enough to make the US an important supplier. Countries which try to restrict or cut off supplies might decide to think twice. The fact that the US has gas-on-gas prices would also keep them from trying to continue basing their prices on crude oil.”

Markets work best

Other witnesses said the US would benefit overall from exporting more LNG. Noting that it takes 5-7 years and $20 billion, former US Senate Energy and Natural Resources Committee Chairman J. Bennett Johnston said not everyone who applies would actually build an export terminal. “The market is the best mechanism for sorting this out,” he said. “It can react faster than any regulator.”

Byron J. Dorgan, another former Energy and Natural Resources Committee member who now co-chairs the Bipartisan Policy Council, said that group also believes market demand is the most efficient way to decide where and when terminals are built.

“An old Indian chief once said the success of a rain dance depends on timing,” he told the subcommittee. “We are at an interesting time in energy, particularly compared to 6 years ago when there was concern that the world was running out of oil and gas.”

Mike Halleck, president of the Columbiana County board of commissioners in eastern Ohio, said the economy’s traditional manufacturing base has benefited from growing oil and gas development there. “In a few short years, there have been over $7 billion invested in our area,” he testified. “Over 39,000 jobs have been created, with projections of 143,000 by 2020 and 266,000 by 2035.”

He conceded that billions of cubic feet of gas are being produced now, suppressing prices as a result. “While the lower prices are welcome domestically, we should not in my view make the prices so cheap through too much supply that we force the producers to lower production,” Halleck said. “Better yet, why not pursue exportation to countries that we have open trade with? It seems to me that not only would this stabilize prices, but give the US a different standing in the world and make a statement of energy independence.”

‘Demand begets supply’

Several studies show US consumers would not be hurt if more LNG is exported, the two former US senators said. “Demand begets supply,” Johnston observed. “In my home state of Louisiana, the prolific Haynesville shale isn’t being developed because the gas is dry and prices for it are too low.”

The same is true for gas associated with Bakken crude production in North Dakota, Dorgan said. “So much of it is being flared that it looks like a small city when you fly over it at night,” he continued. “With enough pipelines to export terminals, it could be sold to customers overseas instead. It also would be better for the environment.”

A fifth witness, James Bradbury, a senior associate in the World Resources Institute’s Climate and Energy Program, said more US LNG should not be exported without adopting measures to significantly reduce methane emissions during production, transmission, and liquefaction.

“The good news is that many of these technologies are available now and cost-effective,” he said. “The payback periods we’re talking about are up to 3 years. Some are only a few months. But further reliance on fossil fuels without the necessary protections exposes our allies and us to climate change’s disruptive effects. By taking no action, we choose to let climate change run its course.”

The sixth witness, Michael Breen, executive director of the Truman National Security Project, said continued heavy US reliance on oil for transportation fuels poses growing economic and security threats. Asked if he would favor more LNG exports if it would help stimulate natural gas vehicle development and deployment, he said it’s a possibility to be considered, particularly in long-haul truck and rail transportation, as a way to reduce that heavy reliance on oil.

Contact Nick Snow at nicks@pennwell.com.

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