Liquefied natural gas: Transforming US into global energy hub

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This week, the 2013 Pacific Energy Summit will be held in Vancouver, British Columbia, from April 2-4. The Summit provides a forum for leaders across the world to discuss and collaborate on topics revolving around energy security and climate change. This year’s theme, “Forging Trans-Pacific Cooperation for a New Energy Era,” focuses on realizing the potential for energy trade and investment between Asia and North America. As an attendee of this year’s discussion, I seek to highlight and promote the exportation of liquefied natural gas (LNG) and the subsequent transformation of the United States into a global energy hub.

In 2009, the United States surpassed Russia in becoming the world’s largest producer of natural gas. Due to recent technological advancements, large deposits of natural gas resources, mainly shale gas, are now being harvested. Through the use of hydraulic fracturing or “fracking” and horizontal drilling, previously inaccessible hydrocarbons are now seeing the light of day. Combined with the nation’s abundant supply and consequential low domestic price for natural gas, the United States now has a surplus of this vital resource.
 
In its annual energy report for 2012, the U.S. Energy Information Administration projected overall natural gas production to grow by 28 percent between 2010 and 2035. With such projections, natural gas producers across the country are seeking new markets in which to sell their product. The congressional district I represent is the location of a key natural gas pricing center, Henry Hub, and the first LNG export facility in the continental United States. Low prices during the last two years have delayed full scale development, but positive signs indicate the economic opportunities for our nation by exporting LNG.
 
The United States is no stranger to LNG exportation. Due to the glut of natural gas, our nation finds itself in a unique position to grow its exports of LNG. In liquid form, LNG is safe, non-corrosive, non-toxic, and non-flammable. Risks are minimal in transportation of LNG. The Kanai LNG export terminal in Alaska has been doing it since 1969. By permitting LNG export facilities in Louisiana, already-existing infrastructure, such as major natural gas pipelines serving 2/3 of the nation’s natural gas markets, can be fully utilized. 
 
LNG continues to serve as an attractive energy source to companies and governments in Europe and Asia. For instance, in Japan, natural gas can cost in upwards of $20 per MMBtu. Compare that to $3-$4 per MMBtu here in the United States. Unlike other commodities like oil or gold, there is no central pricing system with natural gas. Therefore, the international price of the commodity continues to fluctuate depending on the market one shops. However, LNG continues to be used for the same purposes across the world: home heating, cooking, and commercial and industrial use. LNG can become a valuable trade export providing reliable energy sources to markets otherwise unreachable.  
 
Many of the current or proposed export terminals in the United States are located on the East and Gulf Coasts. This may be attributed to the fact Europe continues to experience an increase in demand with a high capacity for importing LNG. However, with the widening of the Panama Canal, growing Asian demand will provide for additional natural gas markets to open up. Exporting LNG to these areas of the world is a win-win for all parties involved. It brings an additional source with ample supply to the marketplace. With domestic demand being met, shipping excess LNG leads to job creation at home, a reduction in the national trade deficit, and in increase in revenues for the federal government. As a Member of the House Ways and Means Subcommittee on Trade, I believe these are all value-added benefits for our nation. By bringing larger volumes of natural gas to market, the role this commodity plays in international development could also be enhanced. The primary beneficiary of such actions would be countries with surplus supplies of the product, specifically the United States.
 
Opponents of LNG exportation argue shipping this commodity outside our borders will only increase the price of manufacturing feedstock fuel. These detractors cite how an increased international demand will only force global prices to turn volatile leading to demand shocks. This could not be further from the truth. According to the American Petroleum Institute, the barriers of entry for LNG facilities remain high as a single project can require anywhere from $5-45 billion of capital investments in addition to years to build and properly permit the site.   
 
The domestic natural gas boom presents the United States with an opportunity to become a global energy player. Our nation should seize this opportunity and not let it pass by. It’s in the public’s interest. However, the rest of the world is not far behind, nor will it wait. Australia has eight LNG facilities currently under construction; the United States only has one. Because of LNG, the United States now finds itself standing on the edge of an unprecedented domestic energy renaissance with South Louisiana serving as the hub of operation. I’m proud to see South Louisiana doing its part to lead the way in harnessing this energy source and turning into a global game changer. The rest of our country should do the same.
 
Boustany represents Louisiana’s 3rd Congressional District and serves on the House Ways & Means Committee. 

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Discussion on Future Energy Mix at NARUC Celebrates Natural Gas and Coal, Doesn’t Mention Climate

By Adam James

The National Association of Regulatory Utility Commissioners recently held a session titled “Getting It Right: Gas, coal, and the Future Generation Resources Mix.” In an embarrassingly one-sided panel discussion featuring David Carroll, President and CEO of the Gas Technology Institute and Mark McCollough, Executive Vice-President of Generation at American Electric Power, the verdict came in:

The future of the American generation mix should (prominently) feature natural gas and coal.

Put a pin in that for a second, and you may also be interested to note that the word “climate” did not come up once in the entire session.

Why is one of the most powerful groups of energy regulators in the United States having a conversation about the future of energy in American that doesn’t include consideration of climate change? This is by no means an unintelligent group. They are used to optimizing for economic and environmental concerns. They have a wide range of legal and regulatory experience, and access to the best scientific data available. They should be a high priority target for local environmental activists for education and influence. And yet….

In the generation game, it is a simple fact that if you don’t mention climate, renewables are just another special interest. Although they are rapidly reaching cost competitiveness (in fact, they are competing on an even footing in some markets), renewables have one crucial selling point: They are zero-carbon, and as a result, do not contribute to climate change.

Regulators will play a massive role in shaping the conditions under which new generation projects get built — and as two panelists emphatically noted, the risks associated with investing billions of dollars in projects that span 30 or more years are huge. They called for certainty about the policies that would govern these future projects. Regulators have a responsibility to get educated about the science of climate change, and create the appropriate disincentives for high-carbon generation. In other words, if costs really are going to be the bottom line, regulators should begin by translating the “externalities” from high carbon generation, that means gas and coal, into the cost analysis and decision making process around approving new plants. If climate change is never mentioned, though, and you write off the costs of pollution and climate change as non-factors, fossil fuels will continue to win the day.

This becomes incredibly important because, again as the speakers noted, utilities are making investments today that will guide decisions in 20 years. Allowing new fossil fuel generation to come online — whether because a natural gas supply glut has clouded their vision or because the costs are not appropriately integrated — forces us down one of two paths. The first path is utilizing high-carbon generation well into the future, exacerbating climate change and its impacts. The second is creating a pitched battle between the utilities who have sunk costs into these projects and the environmental advocates who are trying to take them offline. The losers in that fight will ultimately be ratepayers, who pay the costs of these generation projects over long periods of time.

The foxhole for these speakers, as would be expected, is reliability. Clean technology is great, they say, but it isn’t reliable enough to meet our needs. Furthermore, the customers foot the bill for those projects which are higher cost than fossil fuels.

A few notes here. First of all, NREL (and many others) have shown the grid can operate reliably on very high penetrations of renewables and other clean energy resources (such as biomass, hydropower, and geothermal). Second, customers also foot the bill for the health impacts of dirty air and will pay for the worsening impacts of climate change on their daily lives. Third, when customers cannot afford to pay those bills, they are covered by the taxpayer via higher healthcare costs or FEMA appropriations; a strategy that fuels the deficit. Finally, the risks associated with fossil fuel plants are actually shifted to the consumers in a way that they are not with renewables. This is because fuel costs (coal and gas) are variable and paid by the consumer, whereas the initial investment is fixed. Renewables are the opposite, fuel costs (wind and sun) are zero, whereas the initial investment is higher. This means that, as a consumer, you are assuming more risk in fossil fuel projects than renewables because you are at the beck and call of historically turbulent price fluctuations.

The speakers of course point to the higher costs associated with renewables, but forget that a transition to a clean energy economy would create millions of jobs and a higher quality of life for us and future generations.

In any case, NARUC can do much better. Educating our nations regulators about the real costs associated with the investments they are overseeing is a top priority in the absence of federal legislation. As Renewable Portfolio Standards have shown, states can lead on clean energy and drive actual transformation — even as the federal government falters. Regulators will be linchpins of the success or failure of initiatives at the state level to transition to a clean energy economy, and must rise to the occasion.

Adam James is a Special Assistant for Energy Policy at the Center for American Progress. You can follow him @adam_s_james or email him at ajames@americanprogress.org

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