D. Dowd Muska


Who’s Afraid of LNG Exports?

July 03, 2014

America’s budding export boom can be traced to a meatpacking mogul’s scheme to ship liquefied natural gas (LNG) up the Mississippi River.

In 1951, W. Wood Prince, of Chicago’s Union Stock Yard & Transit Co., had a vision. His facility needed cheap energy, and the natural gas down in Louisiana wasn’t pricey. He commissioned a cryogenic engineer to build a prototype barge. But Prince’s effort failed. Technical glitches and the American Bureau of Shipping’s refusal to sign off on the vessel’s safety blocked the plan to use the Father of Waters to move natural gas to the Windy City’s stockyards.

Experimenters on both sides of the Atlantic forged ahead. In 1959, a converted World War II freighter successfully conducted a proof-of-concept delivery of supercooled natural gas to England. And in 1964, the Energy Information Administration (EIA) recently noted, the “world’s first purpose-built [LNG] carrier, the Methane Princess, entered service.” (Prince and his wife were present for the launching.)

Fifty years later, hundreds of LNG tankers are at sea. They collect their cargo at terminals where natural gas is chilled to -260° F. Now in liquid form, it is brought to a destination, then condensed back to its normal state.

While the LNG marketplace is global, until a few years ago, America had little connection to it. We didn’t buy much. The Lower 48 didn’t sell any. Then came fracking.

When horizontal drilling teamed up with hydraulic fracturing, the nation’s natural-gas renaissance was born. Despite the economic calamities of the Bush and Obama administrations, production soared by 28.6 percent between 2005 and 2013. Boosted supply brought impressive savings. In 2013, the residential price of natural gas was 25.6 percent lower than in had been five years earlier. Commercial (33.5 percent) and industrial (51.7 percent) customers fared even better.

Technological advances ensure that the more we use, the more there seems to be. When it comes to U.S. natural-gas reserves, the core’s the limit. Last year the Potential Gas Committee revised its estimate of the “technically recoverable resource base” upward, again. The new best guess, 2,384 trillion cubic feet, is “the highest resource evaluation in the Committee’s 48-year history.”

The domestic hydrocarbon industry sees an opportunity for exports. Along with foreign partners, it’s getting into the LNG business, bigtime. America could become the dominant player, if politicians and bureaucrats let it.

At the federal level, the Department of Energy’s Office of Fossil Energy can’t stop an otherwise-permitted export terminal from shipping natural gas to a nation with which the U.S. has a free-trade agreement (FTA). But excluding the Republic of Korea, the pre-approved list is bereft of major LNG purchasers. Special authorization is needed from the Secretary of Energy to supply major and/or growing buyers such as China, India, Japan, France, Germany, and the United Kingdom. The exports, according to statute, must be “consistent with the public interest.” That loophole, in addition to providing a maddening example of congressional abdication of its rulemaking authority to the executive branch, has left room for plenty of mischief.

So far, only seven of the 33 projects seeking to export to non-FTA customers have been okayed. The pro-LNG team is right to smell a rat. The yoga-and-Prius community opposes any policy that might spur more fracking, and its opposition to LNG exports borders on the deranged. Little wonder why the Obama administration is dragging its feet on approvals.

“Environmentalists” have been joined by another deep-pocketed lobby in their quest to thwart LNG exports. Warning that “we should not take chances and gamble with this critical strategic resource,” Dow, Alcoa, Nucor, and other big-name manufacturers have organized “America’s Energy Advantage.” Economist Mark J. Perry has a better name for the coalition: “America’s Energy Advantage for Some Big Chemical, Steel, and Aluminum Companies Using Other Companies’ Cheap Natural Gas.”

Anti-trade forces have enlisted powerful allies, such as Sen. Ron Wyden (D-OR), who demands proof that LNG “exports will not have a significant impact on domestic prices, and in turn on energy security, growth and employment.”

The American Petroleum Association’s Mark Green counters with Econ 101: “When a domestic commodity -- whether natural gas, wheat, machinery or computer products -- can find available markets, the demand helps stimulate more domestic production.”

U.S. firms will export LNG. It’s a certainty. But the industry won’t reach its potential unless key decisionmakers at the federal, state, and local levels ignore the braying of rent seekers and professional alarmists.

America’s got gas, and plenty of it. It’s clean and safe. Let’s sell as much as possible.

D. Dowd Muska (www.dowdmuska.com) writes about government, economics, and technology. Follow him on Twitter @dowdmuska.

# # # # #