Energy Secretary Nominee Faces Tough Natural Gas Decision
Nicolas Loris /
Rick Friedman/Polaris/Newscom
If confirmed as the next Department of Energy (DOE) Secretary, Dr. Ernest Moniz will take over an agency that has increasingly injected itself into making investment decisions with taxpayer money that would be more efficiently made by the private sector.
The Heritage Foundation disagrees with many of the policy recommendations Dr. Moniz has championed and offered 10 good questions for his new role as Energy Secretary. However, Dr. Moniz served as chair of an Massachusetts Institute of Technology paper on natural gas, and one of the recommendations made in the paper is particularly timely and relevant:
The U.S. should sustain North American energy market integration and support development of a global “liquid” natural gas market with diversity of supply. A corollary is that the U.S. should not erect barriers to natural gas imports or exports.
Interestingly enough, should Dr. Moniz head up the DOE, it will be his agency that is an enormous barrier to increasing liquefied natural gas (LNG) export opportunities in America.
Section 3 of the Natural Gas Act of 1938 gives the DOE’s Office of Fossil Energy (FE) a say in the decision to export natural gas. To export natural gas, a company must liquefy the gas at a liquefaction plant at –162 degrees Celsius. The liquefied natural gas (LNG) is then shipped from an export terminal and delivered to a re-gasification import terminal to be stored or distributed by pipeline at the recipient location.
After a company files an application to export natural gas with the DOE, the agency must determine whether the project is in the public’s interest. The DOE can deny a permit if the agency believes the total volume of natural gas exported is not in the public’s interest.
A facility is automatically authorized if the country the U.S. is exporting to is a recipient nation that has a free trade agreement (FTA) with the U.S. If the importing country does not have an FTA, the Energy Department must then publish the notice in the Federal Register for a comment period, and ultimately determine if the facility is in the public’s interest. The distinction that exports to FTA countries are in the “public interest” while others are not is arbitrary and completely unnecessary.
Exporting natural gas would provide a tremendous benefit for the American economy, as it would expand market opportunities. Given the disparity in prices between domestic and foreign markets (Asia, Europe, and Latin America, for instance) those opportunities should prove to be plentiful even with the costs of transport tankers and liquefaction plants.
The DOE recently released its second study on the macroeconomic effects of exporting LNG from America. Produced by the economic consulting firm National Economic Research Associates (NERA), the study found net economic benefits: an annual average increase in export revenue from $10 billion to $30 billion as well as overall increases in welfare and real household income (up to $47 billion by 2020). The NERA study concludes, “Across the scenarios, U.S. economic welfare consistently increases as the volume of natural gas exports increased. This includes scenarios in which there are unlimited exports.”
Thus far, the DOE has only granted one permit out of the 17 applications the Environmental Protection Agency (EPA) received to export domestic LNG. As the DOE wavers on approving LNG export terminals, other countries are pursuing this valuable opportunity.
Of course, natural gas exports are not a zero-sum game. Companies in other countries expanding their LNG exporting capacity do not necessarily negate opportunities for companies in the U.S. to do the same. If, however, a slow permitting process needlessly delays export terminals, the economics could change as exports from other countries lower prices in regions the U.S. wishes to engage. If exporting LNG from U.S. ports is no longer economically viable as a result of international competition, companies will not seek to build more terminals. But they should not be forced out of opportunities by an unnecessarily slow DOE.
If Dr. Moniz is our next Energy Secretary, he should recognize that the DOE’s role in permit authorization is completely unnecessary and that U.S. producers should be allowed to export LNG to any country they see fit. He should work with Congress to remove all decision rights from the DOE and prohibit any federal agency from determining natural gas exports based on public interest.
There are numerous non–free trade agreement nations with which the U.S. trades regularly. Natural gas should be no different and should be treated as any other good traded around the world.