Senate Energy Holds Gas Oversight Hearing

The Senate Energy and Natural Resources Committee held a hearing this afternoon, June 19, to consider how to harness U. S. natural gas—a game-changing resource—“for export, domestic consumption, and transportation fuel.” The hearing was webcast by the committee and has been archived on their website: Click Here.

Not unexpectedly, much of the discussion focused on how the U. S. shale gas bonanza can be shared with America’s friends and allies around the globe through prompt approval of the liquefied natural gas (LNG) export applications pending before the Department of Energy.

Five witnesses testified:

  • Christopher Smith, principal DOE Assistant Secretary for Fossil Energy.
  • Martin Durbin, President and CEO, America’s Natural Gas Alliance.
  • Robert McNally, President, Rapidian Group.
  • Elizabeth Rosenberg, Energy, Environment, and Security Program Director, Center for a New American Security.
  • Daniel Weiss, Director of Climate Strategy, Center for American Progress.

Highlights of the written statements:

  • Smith: Since receiving the first long-term application to export LNG to non-FTA countries from the lower-48 states, DOE has been—and remains—committed to conducting a public interest determination process as required by the Natural Gas Act that is expeditious, judicious, and fair.
  • Durbin: [America’s] affordable gas supply can support significant demand growth across all sectors of the economy including power generation, manufacturing, transportation and exports. The relevant question is not how much prices will increase due to this growth in demand, but rather how much demand will grow to take advantage of this abundant, affordable resource… And with respect to LNG exports, time is of the essence… Global demand for natural gas is expected to increase between 18 bcf/d and 38 bcf/d by 2025. Proposed new global LNG capacity outside the U.S. is approximately 50 bcf/d. Given the disparity between projected demand, and the number of facilities being proposed worldwide, the window of opportunity for the U.S. to get involved is narrow.
  • McNally: U. S. energy abundance [means that we have] an “Arsenal of Energy” to help friends and allies diversify away from costly and dangerous energy dependence… One of the most important and ripe areas for updating is our policy on energy exports. The United States is the only country that requires companies to obtain a “public interest” permit to export natural gas. It is far from clear what public interest would be harmed by allowing the market to determine how many LNG facilities should be built.
  • Rosenberg: The recent U.S. boom in natural gas production has contributed directly to greater gas supply diversity and competitive prices in European markets. [As] LNG imports to the United States slowed to a trickle over the last several years, cargoes of LNG destined for the United States were redirected to Europe and elsewhere… [More recently], the expectation of U. S. LNG exports entering the global gas market, whether cargoes will land in Europe or travel to other destinations, [has given] additional leverage to Europeans in price negotiations.

After the opening statements, a lively question and answer period ensued.

Sen. Mary Landrieu (D-LA) asked all witnesses: What is the final FERC volume that’s been approved to date? Everyone, except Weiss, agreed that 3.9 billion cubic feet per day has been approved (including Cameron LNG today). Landrieu then asked about the volume of recoverable gas in United States. To that question, the witnesses either deferred or agreed with Durbin’s written statement that America has “a range of technically recoverable gas using today’s technology of 2,203 to 3,545 trillion cubic feet.”

Sen. Lisa Murkowski (R-AK) asked Smith: If Congress required DOE to make final “public interest” decisions within three or six months after the FERC environmental review is finished would that be sufficient? With respect to a specific time limit, Smith said, “We’ll uphold the letter and spirit of the law… but a time frame would hold our feet to the fire, it would ensure that there’s a start and finish to the process.”

Murkowski: If we don’t have greater regulatory certainty, will we miss this window of opportunity to enter the global marketplace? McNally: Senator you’re absolutely correct. We do have a window, and many other nations are moving ahead. It takes many years to finance, design, and build a project even with a quick approval process, so it’s crucial that we move quickly to get our companies into the game. Durbin: Only the early movers will have a competitive advantage in the global market.

Sen. Martin Heinrich (D-NM) asked: Is there a “sweet spot” for the price of natural gas… high enough to promote exploration and development, but not so high as to harm consumers? Smith: That’s the heart of DOE’s “public interest” review process. We’re called to look at a variety of considerations, and price is one. Durbin: Senator, I’d argue that the size of the resource that we have and our ability to continue producing it at affordable prices has essentially made the concept of a “sweet spot” irrelevant. We are going to be able to continue to meet domestic demand and get into the global LNG market.

Sen. Mark Udall (D-CO): As you know, Sen. Landrieu and I have introduced a bill to require DOE to reach a decision on non-FTA export applications within 45 days after the FERC environmental review is complete. Can you do that? Smith: DOE will comply with the letter and spirit of the law.

Udall: So if we tell you that you have 45 days, will you be able to comply with that? Smith: Again, Senator, I’m confident that whatever the law may require, the department can accomplish it. (Editorial Note: Smith’s answers to Murkowsi and Udall were a signal—undoubtedly one approved by the White House—if ever I’ve heard one!)

Sen. Udall: One of the criticisms we’ve faced is that expediting U. S. LNG exports won’t have an impact for years to come. Mr. McNally, you mentioned that U. S. exports are already boosting Japan’s bargaining position. Can you elaborate? McNally: I was in Japan in March and spoke with them and while their negotiations are secret, they said that their smiles have never been wider and their backs never straighter in negotiating these long-term LNG contracts because of the gas they’ve contracted here in the United States but won’t receive for several years.

Durbin: Fortunately, Senator Udall, the market works and no matter where the gas is going to go from here it is going to help moderate prices globally, so it will help Ukraine even if the gas is going to Asia and just the fact that we are not importing natural gas has already had an impact across the globe on LNG prices. For us to now be able to get into the game and to send these clear signals both to customers and other countries that we are committed to doing this is going to have a positive impact for our allies around the world.

Sen. Landrieu: Mr. Smith, in 1992, Congress said that gas exports shall be deemed automatically to be in the “public interest” if the gas is destined for free trade agreement countries. So, for those countries there’s nothing for DOE to decide since Congress has already determined that exports to these countries are in the public interest. Correct? Smith: Correct. Landrieu: Because the law directs you. Smith: That’s correct.

Landrieu: Well, this committee is going to consider what the update to that law should be… and some of us are thinking about adding to this list [of countries where export licenses are automatically deemed in the public interest]. So the real questions to me are: (1) how much gas should we export vs. keep at home to generate jobs… and (2) how many other countries should be added to this list? Should it be NATO countries? Should it be the 170 WTO nations? And what volumes should we allow and what triggers should regulate that?