Senators grappled with the thorny issue of natural gas exports on Tuesday, as even self-proclaimed free-market enthusiasts questioned whether some federal limits are needed to constrain U.S. prices and give a boost to domestic manufacturing.
Sen. Ron Wyden, D-Ore., the chairman of the Energy and Natural Resources Committee that held a hearing on the issue, said his goal was to arrive at a “sweet spot where U.S. gas producers make enough money to continue producing and U.S. manufacturers have an affordable stable supply of natural gas.”
Market forces would ensure that equilibrium, predicted Kenneth Medlock, senior director of the Center for Energy Studies at Rice University. Medlock cast the fears of excessive exports as overblown, considering the current global market for liquefied natural gas is around 30 billion cubic feet per day _ roughly the same amount companies are seeking to export from the U.S.
“There is no way that if all of those licenses were approved you’d see 30 billion cubic feet per day of capacity” constructed in the U.S., Medlock said.
Other countries are ramping up production of natural gas, following the U.S. lead in using hydraulic fracturing and horizontal drilling to harvest fossil fuels from dense rock formations. The added cost of liquefying and shipping natural gas overseas also eventually could blunt international demand for American natural gas, which currently sells for about a third of the cost it commands in Asian markets.
Ross Eisenberg, vice president of energy and resources policy for the National Association of Manufacturers, said the money, lead time and regulatory approvals needed to build facilities to liquefy natural gas by cooling it to -260 degrees Fahrenheit also will constrain exports.
But Senate Democrats and Dow Chemical Co. CEO Andrew Liveris were skeptical. Noting that natural gas is used as “the first, indispensable ingredient for everything we make in this country,” Liveris argued America’s bounty is a “once-in-a-generation opportunity for America to export advanced products, not just BTUs.”
In a hearing that dwelled on free trade fundamentals, Liveris said companies operate under “rules-based free trade.” For U.S. regulators, he insisted, it’s important we “be careful we look at this treasure and set the rules with Americans in mind.”
Sen. Joe Manchin, D-W.V., noted that he was a “free-market” proponent. “And yet,” he said, “I’m concerned we’re going to lose this opportunity of a generation.”
Manchin suggested a hybrid approach, with foreign sales constrained to possibly 5 bcf/day for a decade to allow time for U.S. transportation and manufacturing demand to catch up with natural gas supply. Afterward, “all bets should be off,” Manchin said.
Sen. Lamar Alexander, R-Tenn., said he was worried that linking U.S. natural gas prices and supplies to a world market indexed to the price of oil would jeopardize domestic manufacturing jobs, while hurting farmers and truckers.
“I see the enormous, incredible advantage the United States has at the moment from having a domestic price for natural gas. It’s really a godsend,” Alexander said. “I suspect it’s a much bigger source of jobs than the production value of natural gas in the United States.”
(Jack Gerard, president of the American Petroleum Institute, previously had argued that LNG exports “will create thousands of U.S. jobs, generate billions of dollars in revenue, improve our trade deficit and spur major investment in infrastructure, which will strengthen our energy security.”)
Sen. John Barrasso, R-Wyo., suggested that any limits on natural gas exports could be a slippery slope, inviting World Trade Organization challenges and prompting protectionist policies up and down the supply chain.
If the United States curbs natural gas exports, couldn’t we limit exports all along the supply chain, he asked. “Where do we draw the line?”
The panel also examined state regulations governing the hydraulic fracturing technology that is key to the United States’ natural gas supplies, as the Interior Department writes new rules for drilling on federal lands.
Noting that the United States’ diverse geology makes for different dynamics in drilling hotbeds such as Texas and Montana, Sen. Lisa Murkowski, R-Alaska, warned against “blanket rules . . . that might cause more problems than they solve.”
“Maybe we need to look a little more critically at a one-size-fits-all approach,” she said.
And Eisenberg argued that overly restrictive drilling regulations could suppress production and the domestic manufacturing renaissance tied to it.
“None of this is going to happen if we can’t get the natural gas out of the ground,” Eisenberg said. “If the federal government takes an overly restrictive stance … then our natural gas renaissance will be over before it has begun.”
Colo. Gov. John Hickenlooper, a former oil industry geologist, suggested that the federal government could work in concert with states. For instance, he suggested that federal regulators could adopt a region-based approach, with perhaps a single form for drilling wells on public land in Colorado and Wyoming, states that have similar geology. A different application process could be used for other parts of the country.
“Isn’t that the ultimate goal, to get different states and the federal government working together, so we cut the red tape and still maintain high standards?” he questioned.
Frances Beinecke, head of the Natural Resources Defense Council, said minimum federal standards are essential “to assure the public that their health and well-being are protected” _ an argument underscored by Medlock, who stressed the federal government has a role in promoting transparency around drilling.
Wyden said strong rules forcing disclosure of ingredients used in the hydraulic fracturing fluids pumped underground would go a long way to ensuring public confidence