Why the fight over natural gas exports might be overblown

February 11, 2013

One of the big energy issues Congress will face in the coming year is what to do about the glut of cheap natural gas in the United States. Should we start exporting some of that gas abroad and earn a tidy profit? Or keep it here at home?


Okay, it's out of the ground. What next? (Spencer Platt/Getty Images)

Since the Department of Energy would need to approve any new export terminals, politicians get to weigh in here. And so far, lawmakers have been split. Some Republicans insist that the United States should expedite natural-gas exports to allies such as Japan. Many Democrats are skeptical, worrying that too many exports could drive up the price of natural gas. Better to hoard the stuff at home and keep prices low for domestic use.

Is there a middle ground here? Perhaps. As more and more analysts study the issue, they're slowly converging on the view that the overseas market for U.S. natural gas might not be that big after all. If that's true, then it might prove much easier for policymakers to find some common ground. This, at least, seems to be the view of Sen. Ron Wyden (D-Ore.), who heads the Senate Energy Committee.

In a policy memo written last week, energy committee staffers pointed out that many analysts now believe U.S. natural-gas exports will peak at around 5 to 8 billion cubic feet per day in the coming decade. “I doubt we’ll see more than 6 billion,” said Kenneth Medlock, a professor at Rice University who has studied the issue. For context that would be about 9 percent of current domestic natural-gas consumption.*

And that figure appears to be amenable to many on both sides of the debate — including some petrochemical companies who have long worried that natural-gas exports could drive up the price of a crucial feedstock. "That is a range that I think will maintain a competitive advantage for the United States,” George Biltz, a vice president for energy and climate told the New York Times.

If that's true, the committee memo notes, Wyden will try to push for an export policy that will enable exports to reach that "sweet spot" — around 5-8 billion cubic feet per day — that could placate all sides:

Senator Wyden has been advocating for the last year that we need to ensure our regulatory framework will guide natural gas exports to “the sweet spot” described by the multiple commenters above. The potential economic benefit of a properly balanced export policy is massive and therefore worthy of serious discussion as to whether the guidelines currently in place at DOE for approving export applications are what they need to be.

That still leaves plenty of issues to debate. For one, Wyden would like to ensure that the Energy Department doesn't approve far more terminals than are necessary, as happened during the 1970s and 1980s when the industry spent billions on import terminals that were never used. What's more, there are also environmental questions to consider — public-health groups have raised concerns about air pollution from LNG export terminals.

And, of course, if the natural gas export market proves far bigger than expected, then the Energy Department will face far tougher choices, with manufacturers and chemical companies calling for harder limits and more intervention.

Still, it's entirely possible that the natural gas market will evolve in such a way as to make much of the debate about exports far less fractious than commonly believed. The Senate Energy Committee will hold hearings on the topic this Tuesday.

* Correction: Bad math on my part. Six billion cubic feet per day would be about 9 percent of current consumption, not 6 percent. Thanks to Chris Nelder for pointing out the error.

Further reading:

— Here's a more detailed look at why U.S. natural gas exports could remain a small part of the market for years to come. Transport costs are high. And other countries are developing their own sources of natural gas.

— U.S. gas companies are lining up to ink long-term contracts with buyers abroad. And at least seven new export terminals are awaiting approval. (Back in January, the Department of Energy approved Cheniere Energy’s Sabine Pass Liquefaction terminal in Cameron Parish, La., which could ship up to 2 billion cubic feet of gas per day by 2015.)

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