LNG Exports: Why Permits to Non-FTA Countries Need Expediting

By: Brody Miles, Notes Editor

Recently, liquefied natural gas (LNG)[1] export permits have been a point of contention. This has become newsworthy since the United States has been extracting natural gas at record levels.[2] By using the method of hydraulic fracturing (fracking), private industries have been able to obtain previously unattainable reservoirs of natural gas.[3] With an abundance of natural gas, domestic prices have gone down[4]—a result that is simultaneously good for consumers and bad for business. To achieve better profitability, private industries now hope to export this resource to foreign customers at higher prices[5] and achieve sustainable business models. Because natural gas can be efficiently distributed globally through the means of LNG,[6] this issue has become increasingly important. In particular, for companies to export LNG to non-free trade agreement (FTA) countries, permits must be obtained from the Department of Energy (DOE).[7] These permits ensure that companies permissibly operate in environmentally protective ways.[8]

The LNG process has substantial impacts on all Americans, including potential price hikes for natural gas, job creation and stability, and environmental impacts.[9] The benefits of LNG exports outweigh its disadvantages. Exports would alleviate the concern of natural gas extractors going out of business due to low domestic prices and high operation costs.[10] And even though some experts suggest this may lead to increased coal consumption,[11] natural gas prices will remain far cheaper than the price of coal even with greater LNG exporting.[12] In addition, this could cut down on coal consumption in other countries, which will help with climate change.[13]

One of the greatest perks, however, is job creation. ICF International recently released a study showing that permitting further expansion of LNG exports could create more than 200,000 American jobs.[14] This promise, especially considering the overall state of the American economy, has persuaded the House of Representatives’ LNG Export Working Group to recommend more LNG permits.[15] This working group, comprised of both Democrats and Republicans, strongly indicates the need to expedite the process of obtaining LNG permits to non-FTA countries.

With countries such as Japan, Pakistan, India, and many others facing energy supply problems,[16] LNG exports is a natural solution benefitting all involved. Industries would be able to sell extracted natural gas at higher prices, thus allowing for sustained profitability. And foreign countries will have greater access to cheaper forms of energy, while simultaneously easing energy shortages. Although natural gas prices may elevate domestically, increases would likely be marginal and would likely occur regardless if such exports were prohibited because many industries could be driven out of business by the low selling price of natural gas.[17]

Significant strides were recently made as the DOE allowed LNG exporting to non-FTA countries.[18] By allowing Freeport LNG, a Texas-based private energy company, to ship LNG to Japan,[19] numerous businesses now might invest in the construction of export terminals to facilitate the trading of this energy resource. Currently, however, there is a long line of businesses waiting for LNG export permits—costing these companies significant sums of money while also leading some foreign countries to shy away from potentially unstable contracts because contracts need to be made before the permit is granted and the DOE might not grant the permit.[20]

To avoid these problems, and to quickly supply other countries with much-needed natural gas, LNG export permits need to be issued at a much faster rate. Many of the industries already in the queue are not likely to receive a response until 2015.[21] And with organizations such as the Sierra Club advocating for a formal rulemaking procedure, which would drastically slow down the process, there is significant opposition to LNG exports even getting off the ground. To ensure significant job creation, the LNG export permit process needs to be expedited. The DOE needs to commit more resources to permitting and refrain from using formal rulemaking to facilitate exporting natural gas.

[1] See NaturalGas.org, Liquefied Natural Gas, http://www.naturalgas.org/lng/lng.asp (last visited July 19, 2013). LNG is natural gas after it has been transformed from a gas particle to a liquid, which is completed by subjecting the gas particle to extremely cold temperatures.
[2] Jake Rubin, U.S. Natural Gas Reserves At Record Levels, American Gas Association, http://www.truebluenaturalgas.org/natural-gas-reserves-record-levels/ (April 5, 2012).
[3] Clean Water Action, Fracking: The Process, http://cleanwater.org/page/fracking-process (last visited July 19, 2013).
[4] David Bird, Natural Gas Settles Down 2.5%, Hits 15-Week Low, Wall Street Journal, http://online.wsj.com/article/BT-CO-20130625-709513.html (June 25, 2013).
[5] Matthew Philips, The Battle Over Who Gets U.S. Natural Gas, Bloomberg Businessweek, http://www.businessweek.com/articles/2013-05-30/natural-gas-exports-have-the-u-dot-s-dot-chemical-industry-steamed (May 30, 2013).
[6] See NaturalGas.org, supra note 1.
[7] Enery.gov, Office of Fossil Energy, How to Obtain Authorization to Import and/or Export Natural Gas and LNG, http://energy.gov/fe/services/natural-gas-regulation/how-obtain-authorization-import-andor-export-natural-gas-and-lng (last visited July 19, 2013).
[8] Id.
[9] Steve Hargreaves, U.S. Steps Up Natural Gas Exports, CNN Money, http://money.cnn.com/2013/06/04/news/economy/natural-gas-exports/index.html (June 4, 2013).
[10] See Robert J. Samuelson, Don’t Kill the Shale-gas Boom, Washington Post, available at http://www.washingtonpost.com/opinions/robert-samuelson-dont-kill-the-shale-gas-boom/2012/12/23/815ceb4c-4b9c-11e2-b709-667035ff9029_story.html (Dec. 23, 2012).
[11] Hargreaves, supra note 9.
[12] Tyler Crowe, Sorry Coal, Natural Gas Exports Won’t Help You, Daily Finance, http://www.dailyfinance.com/2013/01/15/sorry-coal-natural-gas-exports-wont-help-you/ (Jan. 15, 2013).
[13] Andrew Holland, How Shale Gas Can Slow Global Climate Change, Christian Science Monitor, http://www.csmonitor.com/Environment/Energy-Voices/2013/0625/How-shale-gas-can-slow-global-climate-change (June 25, 2013).
[14] Tim Ryan, Congressional LNG Export Working Group Releases Statement on New LNG Export Approval, http://timryan.house.gov/press-release/congressional-lng-export-working-group-releases-statement-new-lng-export-approval (May 20, 2013).
[15] Id.
[16] Navin Khadka, South Asia’s Energy Crisis Demands Collective Action, BBC News, available at http://www.bbc.co.uk/news/business-19107372 (Aug. 12, 2012).
[17] See Samuelson, supra note 10.
[18] Nick Snow, DOE Okays Freeport to Start LNG Exports to Non-FTA Countries, Oil & Gas Journal, http://www.ogj.com/articles/print/volume-111/issue-5c/general-interest/doe-okays-freeport-to-start-lng-exports.html (May 27, 2013).
[19] Patrick Brennan, Obama Administration Approves New Natural-Gas Exports, Another Incremental Free-Trade Victory, National Review Online, http://www.nationalreview.com/corner/348863/obama-administration-approves-new-natural-gas-export-license (May 20, 2013).
[20] Real Clear Energy, The Queue for LNG Export Permits is Long, http://www.realclearenergy.org/charticles/2013/07/08/the_queue_for_lng_export_permits_is_long.html (July 8, 2013).
[21] Id.

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