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US senators hear LNG export testimony Experts express views on world LNG trade, the US gas industry and the potential to impact Russia’s European gas dominance Alan Bailey Petroleum News
Given European dependence on Russian natural gas, especially in the central and eastern parts of the continent, Moscow’s belligerence over the Ukraine has added a new twist to a continuing debate over the merits or otherwise of exporting U.S. gas into the worldwide liquefied natural gas market. Could the availability of U.S. LNG in world markets hit Russia’s gas exports, a major component of the Russian economy? And what would be the impact of the export of U.S. gas on the U.S. economy?
Expert testimony On March 25 the U.S. Senate Energy and Natural Resources Committee heard testimony from several expert witnesses on this difficult issue. In response to a massive upsurge in U.S. gas production, thanks largely to the development of new techniques for producing gas from hydrocarbon-bearing shales, the U.S. Department of Energy has been processing license applications for a number of proposed LNG export facilities. On March 24 the agency issued an export license for an LNG facility at Jordan Cove in Oregon.
In his written testimony Edward Chow, senior fellow for the Energy and National Security Program in the Center for Strategic and International Studies, told the committee that the Department of Energy has now granted conditional approval for six LNG export projects.
Adam Sieminski, administrator in the Energy Information Administration, or EIA, presented data from EIA’s 2014 energy outlook. That data predicts a continuing rise in U.S. shale-gas production, while also showing a modest Alaska contribution to U.S. gas production after 2025, on the assumption that the future export of LNG from Alaska proves viable.
Exports beneficial Witnesses generally agreed that the unfettered export of LNG from the United States would be beneficial to the U.S. economy by providing new markets for U.S. gas, supporting new U.S. industrial opportunities and sustaining investment in gas production for applications such as power generation. David Montgomery, economist and senior vice president at NERA Economic Consulting, debunked some arguments that have been leveled at U.S. LNG exports. Rather than causing high U.S. gas prices, competition in the worldwide LNG market would dampen prices rather than encourage them to rise, Montgomery said. And rather than creating U.S. gas shortage risks, gas earmarked for export could provide a supply buffer against peaks in U.S. internal gas demand, he said.
And Jaroslav Neverovic, minister of energy for the Republic of Lithuania, pleaded for the export of U.S. LNG, to help diversify his country’s energy supplies. Lithuania, having achieved its independence after being part of the Soviet Union, remains totally dependent on Russian gas. Lithuania is in the process of developing its first LNG import facility, Neverovic said.
Price impact Montgomery and David Goldwyn, a senior fellow at the Brookings Institute, both told the committee that they think that the export of U.S. LNG would create international competition for Russian gas, thus lowering the price that Russia could obtain for its gas and weakening the stranglehold that Russia’s gas holds over Russia’s European neighbors.
Long-term international gas prices are based on future price and supply expectations, so that any oil or gas investment decision, including the construction of LNG facilities, can have long-term price impacts, Montgomery said. And, with most energy consumers already having gas supplies under contract through to around 2016, it is important to consider longer-term projects in degrading Russia’s market share by diversifying gas supply sources, he said. Although high gas prices in Asia currently make the Asian market particularly attractive for U.S. LNG, European gas prices are also quite high — any disruption to Russian gas supplies as a consequence of the current political crisis would push European prices higher, he said.
Montgomery said that his firm had estimated that in the next five years U.S. competition could drive down Russia’s gas revenues by as much as 30 percent, with the potential of a 60 percent impact in the longer term.
Difficult to compete But Chow expressed caution over the assumption that U.S. LNG would compete successfully with Russian gas, given the unlikelihood that U.S. gas exports could make much of a dent in the near future in the large quantities of gas that Russia currently exports. Russia and Europe have a status of mutual dependence, with Europe depending on Russian gas and Russia depending on European gas sales, Chow said. And future U.S. LNG exports are currently committed to Asian buyers, given that the price of gas in Asia is significantly higher than in Europe, he said.
If Russia sees the possibility of having to compete with U.S. LNG exports as an empty threat that could embolden Russia to act more recklessly and could distract people from shoring up Ukraine’s economy, Chow warned.
The optimum solution is to help Ukraine become more self-sufficient in meeting its energy needs, by encouraging the country to remove some wasteful energy price regulations and by facilitating reform of the country’s energy industry, enabling the country to exploit its own, known oil and gas resources, Chow argued. And Europe, in general, would do well to focus on developing its indigenous energy resources, including shale-gas development using hydraulic fracturing techniques, he said.
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