Allowing American natural gas producers to more easily ship Liquefied Natural Gas (LNG) all over the world would take America’s shale revolution to new heights. Luckily, today the U.S. House of Representatives will vote on legislation by Rep. Cory Gardner (R-Colo.) that would do just that. Due to our domestic marriage of hydraulic fracturing and horizontal drilling, the United States is now the largest natural gas producer in the world.
This accolade has led to an enviable problem: the U.S. has so much natural gas that we don’t know what to do with it. Cheap prices and heavy-handed government policies have led utilities to burn increasing amounts of natural gas. Foreign companies that use natural gas as a feedstock are building billion dollar American facilities. The U.S.’s supply input of the supply-demand equation is so overpowering that even with the above trends, domestic prices of natural gas are a fourth of what they are in prospective markets. Heck, the price of natural gas is so low here that it is often cheaper for oil producers to just burn off (flare) natural gas than it is to capture and use the commodity.
Low natural gas prices mean that some amount of hydraulic fracturing rigs remain idle. Idleness isn’t good for the American economy or our unemployment rate. The solution to this problem is simple: allow American companies to sell natural gas to foreign nations. Doing so would create additional natural gas demand which would impel more domestic natural gas production. Foreign induced natural gas production means that those unemployed American workers now find themselves employed. LNG exports also likely result in increased natural gas production, which is important, as it ensures that domestic natural gas prices remain low for consumers.
A report by Deloitte explains the above chain reaction this way:
If exports can be anticipated, and clearly they can with the public application process and long lead time required to construct a LNG liquefaction plant, then producers, midstream players, and consumers can act to mitigate the price impact. Producers will bring more supplies online, flows will be adjusted, and consumers will react to price change resulting from LNG exports.
This win-win scenario is well understood by the Department of Energy (DOE), which is why the agency concluded that, “the U.S. would experience net economic benefits from increased LNG exports.” Put simply, DOE writes that, “net result [of exports] is an increase in U.S. households’ real income and welfare.”
What DOE, Deloitte, and any number of analysts are saying is that we can have our cake and eat it too, that the U.S. can increase LNG exports and domestic employment while controlling natural gas prices here at home. The below graph shows that the U.S. natural gas resource base dwarfs projections for total consumption and exports over the next twenty years:
All in all, a study by
So what’s holding the United States back from selling LNG to foreign countries? For starters, it is important to understand that natural gas, like oil, is treated differently than nearly every other export. Unsurprisingly, this has led to extensive delays leaving most LNG export facility applications in limbo. The LNG backlog at DOE is extensive – only six LNG facilities have received approval while 24 await DOE action.
Looking to remedy many of the impediments to exporting LNG, Rep. Gardner’s H.R. 6 would streamline the approval process for LNG export terminals. H.R. 6 would remove the additional layer of bureaucracy required for countries the U.S. does not have free trade agreements with. This means that U.S. would be able to more quickly sell LNG to World Trade Organization (WTO) allies like Japan that are switching their electricity generation from nuclear to natural gas. It means that the U.S. could sell LNG to Ukraine, the Czech Republic, and other European countries weary of Russian dependence. H.R. 6 also gives DOE strict deadlines to meet when reviewing applications and expedites the judicial review process.
Speaking about the domestic and international benefits of H.R. 6, Gardner said:
“Natural gas means jobs in Colorado and energy independence for America. It also serves our national security interests as an aggressive Russian regime looks to expand power in former Soviet Union countries. This legislation helps our allies in the region and across the globe while creating jobs and economic opportunity here in Colorado.”
Foreign natural gas companies, many of which are state-owned, and American producers are jockeying for lucrative, long-term contracts with countries looking to import LNG. The faster the U.S. government approves LNG terminals, the better chance American companies have at securing advantageous deals with friendly trading partners. Congress should act in haste, pass H.R. 6, and allow American natural gas producers to maximize the shale boom.
