The People of America's Oil and Natural Gas Indusry

Busting the 'Sweet Spot' Myth on LNG Exports

Mark Green

Mark Green
Posted September 24, 2013

New Energy Secretary Ernest Moniz often is asked how quickly his department will consider applications to export liquefied natural gas (LNG) to non-free trade agreement nations, which are pending before his agency. Department approval of an LNG export permit for Dominion’s Cove Point, Md., facility earlier this month probably won’t give Moniz a reprieve from such questions.

64_percent_favor_LNGThat’s because after approving four LNG export applications over the past two and a half years – including three so far this year – there’s some talk that the U.S. has entered an LNG export “sweet spot” – the point where some argue that the cumulative natural gas the approved facilities are authorized to export, about 6 billion cubic feet per day, wouldn’t significantly affect domestic prices. Senate Energy and Natural Resources Committee Chairman Ron Wyden:

“With today's approval, the United States is now squarely in the range that experts are saying is the most likely level of U.S. natural gas exports. If DOE approves exports above that range, the agency has an obligation to use most recent data about U.S. natural gas demand and production and prove to American families and manufacturers that these exports will not have a significant impact on domestic prices, and in turn on energy security, growth and employment."  

Implied is that the federal government – and not the free market – should control supply by choosing which privately funded export projects get Washington’s go-ahead. Many continue waiting. The list currently numbers 21, covering 18 discrete facilities (three of which already have received authorization for some export capacity).

Let’s explore again why, if this LNG export “sweet spot” is the answer, then some in Washington are asking the wrong question.

First, recall that although the United States is now the leading natural gas producer in the world, it does not even appear on the list of leaders in LNG exports – which, given market realities, means the U.S. risks squandering a chance to see a valuable American commodity help the economy and improve our balance of trade accounts.

Indeed, we have seen recent studies detailing broad economic benefits that could come to the U.S. from exporting LNG. ICF projects net job growth of 73,100 to 452,300 between 2016 and 2035 with GDP gains between $15.6 billion and $73.6 billion, depending on how much LNG is exported. NERA Economic Consulting’s study for the Energy Department found major economic benefits over all of the export scenarios it analyzed.

So the question: On an issue with enormous economic and trade implications, why not let markets work? Michael Economides, in a recent guest post on Fuel Fix.com:

The “sweet spot” myth … ignores the numerous variables and discrete steps to build a viable LNG facility. Any LNG export facility, on or offshore, requires a massive amount of capital to the tune of billions of dollars. … It takes years of intense construction, supply from natural gas production, and buyers on the international market to bring natural gas exports online. … Given the economic uncertainty for natural gas producers, the Department would best serve the American economy by quickly approving the remaining 19 applications.  That would allow market, regulatory, construction, labor – to name only a few – forces to come together to see a handful of LNG facilities become reality.  It would also allow the marketplace to determine which facilities would see the light of day, rather than the Department determining that the oldest application in queue becomes reality. 

NERA Senior Vice President David Montgomery put it this way at an LNG export forum this summer:

“In some ways the pursuit of this notion of where is the ‘sweet spot’ is a will-o-the-wisp, and I’ve gone through many efforts to try to figure out why there is so much concern about our exporting too much. … The question is where the government is trying to make something happen that would not happen without the affirmative action of government. … But natural gas exports are not something which are being created by government action. They’re something that will happen. The market itself will determine quite well (the proper balancing point). … In this case all we really need to do is get out of the way.”

Unfortunately, there’s an unwillingness by some in Washington to let free-market principles and trading relationships – hallowed and proved concepts that have helped form the foundation of America’s economic system – play their proper role.

It’s good that DOE has approved four non-FTA export permits. But it should approve the rest, without further delay. It should recognize that there’s a competition shaping up to serve the global LNG market, and that the opportunity for U.S. projects should not be artificially narrowed by the hand of government – picking winners and losers on the basis of a project’s position in a queue or in trying to regulate a mythical LNG “sweet spot.”

API’s Erik Milito, group director of upstream and industry operations, said the Cove Point approval is an important step forward, but that more are needed:

“This demonstrates progress toward an enormous opportunity for the administration to bolster job creation and economic growth. The shale gas revolution has fundamentally changed the energy equation, positioning the United States as an energy superpower that can provide ample, affordable supplies to the domestic and international markets and in a way that has helped reduce carbon dioxide emissions to near 20-year lows. We continue to urge Energy Secretary Moniz to oversee expeditious review and approval of the remaining U.S. LNG export permit applications.”

ABOUT THE AUTHOR

Mark Green joined API after a career in newspaper journalism, including 16 years as national editorial writer for The Oklahoman in the paper’s Washington bureau. Mark also was a reporter, copy editor and sports editor. He earned his journalism degree from the University of Oklahoma and master’s in journalism and public affairs from American University. He and his wife Pamela live in Occoquan, Va., where they enjoy their four grandchildren.