While Texas Froze Part 3: The increasing global demand for LNG

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The LNG tanker Zekreet is the eighth of 10 LNG carriers built for the Qatar Gas LNG Project. (TradeWinds photo.)

The increase in U.S. exports triggers renewed effort to limit LNG shipments

Editor’s note: This is the third article in a four-part series revealing how the exportation of natural gas adversely affected Texans during Winter Storm Uri, how this situation could have been prevented, and what policy changes are needed to avoid a similar disaster in the future.

The United States exported 10 percent of the natural gas that it produced in 2021 as liquefied natural gas (LNG). Most Americans know little or nothing about LNG. However, it has a huge influence on international affairs, the world’s environment, and the economies of United States and the state of Texas—all the way down to daily budgets of individual consumers.

As this article is being published, the financial trauma of rising natural gas and oil prices driven by Russia’s invasion of the Ukraine has shaken the world, measured in earthquake orders of magnitude. It is a humbling reminder that, even in our high-tech, cloud-speed world, we are totally dependent on energy and other natural resources for our survival.

On March 7, 2022, natural gas futures in the European Union briefly rose to the equivalent of almost $100 per thousand cubic feet (MCF). That was 21 times the cost of $4.76 per MCF at Louisiana’s Henry Hub gas pipeline and distribution facility on the same day. The primary reason was panic driven by fears of Russian gas curtailments.

Those fears were well founded. On April 27th Russia halted natural gas supplied to Poland and Bulgaria, nations that have assisted Ukraine’s resistance to the Russian invasion. European nations are taking bold steps to free themselves from or at least reduce reliance on Russian gas.

Jennifer Granholm

Energy Secretary Jennifer Granholm at the CERAWeek Conference in Houston (a premier gathering of international energy professionals) on March 9, 2022, said that due to the Ukrainian invasion and the accompanying European energy shortage, the United States was on a war footing. “Clearly LNG is a big part of this equation,” she said.

Source: bp Statistical Review of World Energy, July 2021

Russia has the largest proven natural gas reserves in the world. In 2020, Russia produced 17 percent of the world’s supply, second only to the United States. Russia supplied a third of Europe’s natural gas, 90 percent of it delivered by pipelines.

European countries don’t buy Russian gas because they think the autocrats and oligarchs are swell guys. They do it because it is cheaper than gas delivered by LNG tankers.

Rick Perry

American LNG exports are now being framed by the U.S. gas industry as patriotic. In 2019, former Texas Governor and then-Secretary of Energy Rick Perry traveled to Europe to pitch his version of “Freedom Gas” that would allow Western Europe to untangle itself from contracts with Russia. At the time, the message was not well received. Europe is trying to decarbonize, and LNG imports were plainly more expensive than pipeline supplies from gas-rich neighbors. (In addition to Russian sources, undersea gas pipelines supply the continent from Norway and North Africa.)

After the invasion of Ukraine began, Western European and NATO-allied powers have sought policies to limit Russia’s natural gas imports. Germany, foremost among them, has cancelled the commissioning of the $11 billion Nord Stream 2 undersea pipeline that would have brought natural gas from Russia to Europe through the Baltic Sea.

But how will Europe make up the energy deficit? U.S. LNG can only play a modest role.

For the United States to single-handedly replace Russian gas supplied to Europe, it would have to: triple its total 2020 LNG exports; dedicate every molecule of these exports to Europe; and get European countries to adjust to paying a premium over the cost of fuel they are getting from pipelines.

There would be enormous costs to increase the LNG export infrastructure in the United States to this level while simultaneously increasing U.S. gas production to unprecedented levels; increasing the number of import regasification facilities in Europe; and expanding the fleet of LNG tankers.

Even the most determined efforts could take a decade to ramp up and complete. And while no cost estimates have been made public for such an effort, it could easily run into several hundred billion dollars.

The emergency is right now. Even if extra LNG supply can be located on the world market, Europe currently has little spare import regasification capacity to receive it during winter months. Germany, a country highly motivated to reduce Russian gas dependence, plans to build at least two LNG import terminals. But construction is expected to take several years.

In the winter of 2022, a majority of America’s LNG already was being shipped to Europe (a change from previous years). This resulted not from a U.S. policy shift but because European countries outbid gas-hungry nations in other parts of the world.

U.S. consumers to pay a price

Alarm from U.S. manufacturing industries over LNG exports can best be described by the position of the Industrial Energy Consumers of America (IECA), an organization representing the interests of more than 11,700 U.S. manufacturing facilities including chemicals, plastics, metal smelting and working, paper, food processing, building products, automotive manufacturing, independent oil refining, and cement. IECA has been involved at the federal level in both the regulation and legislation for more than 20 years.

The U.S. fracking revolution was a catalyst for a new wave of factories in the domestic petrochemical industry. Between 2010 and 2020, employment increased 8 percent in the chemical industry and 14 percent in the plastic industry based on increased investments of $336 billion. But now LNG exports are competing with one of the primary sources of energy and raw materials for these industries.

Paul Cicio

IECA President Paul Cicio suggested that what happened in Australia, where the country’s massive LNG exports drove up the domestic price of fuel to intolerable levels, is a foreboding of what could happen in America. He emphasized that IECA is not against exports. “It is against excessive exports.”

IECA’s position is that the U.S. Department of Energy (DOE) should intervene in critical price periods. It believes DOE needs to calibrate LNG exports to make them proportional to domestic prices and allow restricted imports at critical times.

Since the federal Natural Gas Act allows DOE to approve LNG exports based on how the exports affect the well-being of U.S. citizens, IECA has asked the Secretary of Energy to determine if unrestricted LNG exports are in the public interest.

In a letter to DOE Secretary Granholm September 21, 2021, Cicio asked for an export reduction to prevent domestic supply shortages and price increases that were possible in the coming winter. The letter pointed out that benchmark gas prices were double what they were only a year earlier, and the increased price would cost U.S. consumers $109 billion.

He also asked that construction of future U.S. LNG terminals be put on hold to prevent LNG exports from having an even more pronounced effect on domestic prices.

On the national landscape, Cicio finds that, in general, Republicans are more favorable to the gas exports, and Democrats are more favorable to the domestic gas-consuming industries he represents. On a state level, there is a general divide between producer states like Texas and Louisiana, which support LNG exports, and consumer states, which do not. However, state influence is generally indirect, as the regulation of these plants is a federal matter.

Asked if IECA has been able to enlist the support of the electric and gas utility industries, Cicio said that utilities have not gotten involved because higher natural gas prices that result from exports are pass-through costs to consumers. LNG-induced price increases do not directly affect these utilities’ bottom line.

Consumers, who are impacted by LNG exports via their home and business utility bills, have not yet experienced enough financial pain to have an interest. LNG is not a line-item on a utility bill and U.S. natural gas prices have not gone up nearly as much as, say, gasoline prices.

Regarding the European theatre, Cicio stated the U.S. should prioritize LNG shipments to its European allies and not China.

Other efforts to limit LNG exports

Jack Reed

The federal law that authorizes LNG exports requires that they be in the public interest. As for LNG’s effect on the average U.S. consumer, on February 2, 2022, a group of 10 Senators including Jack Reed (D-Rhode Island) and Angus King (I-Maine) sent a letter to Energy Secretary Granholm asking her to limit LNG exports and examine their impacts on household energy prices.

Public Citizen, one of the country’s leading national consumer and environmental advocacy organizations, is considering filing a petition with the Department of Energy to ask for a complete halt to LNG exports.

Tyson Slocum

Tyson Slocum, the organization’s Energy Program director, recently said, “The U.S. Department of Energy must revise its public interest determination in authorizing LNG exports to take into account the negative impacts LNG exports are currently having on domestic energy prices, supply constraints, and the environment.”

Slocum testified to the U.S. Senate Energy & Natural Resources Committee in September 2018 and made economic arguments against increased LNG exports that justify the proposed petition to DOE. He said:

  • LNG exports were raising prices on U.S. manufacturers that made them less competitive while increasing prices for consumers;
  • Natural gas was more valuable to the U.S. economy for making value-added products than exporting it as LNG; and
  • Australia’s huge LNG exports drove up the country’s prices and drove down gas availability to the point that the country was seriously considering building LNG import facilities to compensate.

Slocum also warned that increased exports would increase greenhouse gas emissions.

U.S. retail utilities

Cicio with IECA appears to be right about lack of utility involvement with the LNG issue, even though it affects their customers’ fuel costs. At the local level, Austin Energy and Texas Gas Service have no policy on LNG and currently they have no plans to engage on the issue. At the national level, organizations such as the Edison Electric Institute and the American Public Power Association, are also missing in action.

The main organization representing gas utilities in the United States, the American Gas Association, has no specific policy against LNG at this time. A short position statement on the Association’s website (accessed in March 2022) states, “We do not believe that U.S. exports of natural gas will have a material impact on core LDC (Local Distribution Company) customers for the foreseeable future. Should access to the domestic resource base…result in significant negative impacts on the customers of local gas utilities, this position could be reevaluated.”

That website position statement was dated November 2011—five years before any large amount of LNG was exported from the United States.

Energy companies face conflicts of interest

Two large corporations that own U.S. utility companies also own LNG export terminals.

LNG tanker Gemmata was in March 2018 the first carrier to sail from the Dominion Energy Cove Point LNG export terminal in Maryland. (Photo by Paul Nilsen.)

Dominion Energy, which has large holdings in electric and gas utilities, is majority owner of the Cove Point LNG facility in Maryland.

Sempra, another large corporation, also owns both electric and gas utilities. Sempra is the majority owner of the Cameron LNG facility is Louisiana, as well as a co-owner of a plant being built on the Pacific Coast of Mexico that will export gas obtained from the United States.

It would be uncommon corporate behavior for these companies’ electric and gas services to become publicly critical of their corporation’s LNG divisions, even if LNG exports raises utility fuel prices. Higher fuel prices likely would be passed onto customer utility bills and would have no effect on profits.

This is the third article in a four-part series on how Texas exported fuel that could have been used for emergency supplies during the brutal freeze of February 2021. I hope you will be interested in Part 4: LNG needs monitoring and regulation.

Trust indicators: Paul Robbins is an environmental activist and consumer advocate who has lived in Austin for five decades. He is editor of the Austin Environmental Directory, a sourcebook of environmental issues, products, services, and organizations in Central Texas. The publication has been offered free to the public since 1995, and can be accessed free online.

Thanks to Tony Switzer and Sarah Campbell for reviewing this story, and Ken Martin for editing.

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