Exporting Liquefied-Natural-Gas for the Public Interest

In 2003, Alan Greenspan, went before the House Energy and Commerce Committee testifying that the United States economy was suffering from the sharply rising prices for natural gas.  Greenspan attributed much of the problem to “[o]ur inability to increase [natural gas] imports. . . .”  As the domestic production of natural gas declined during the last decade, the Federal Energy Regulation Commission (FERC) oversaw the construction of a number of terminals to import liquefied-natural-gas (LNG) to the United States.  Today, many of those same companies that built import terminals are seeking approval to export LNG outside the U.S.

The sudden about-face is reflective of the boom in the supply of natural gas within the United States.  Industry leaders are rushing to export because natural gas prices in the U.S. are as low as $3 per million British thermal units (mmBtu), but are as high as $13 per mmBtu in the Asian spot markets.  The high supply and low price for natural gas in the U.S. is the result of at least three factors.  First, the process of hydraulic fracturing or “fracking” has unlocked access to North American shale gas long thought impossible.  Water, sand, and polymers are pumped 8,000 feet below the surface to create fractures that release the gas from the hard shale rock.  Second, the robust and open access natural gas pipeline system in the U.S. has made the national market extremely liquid and attractive to investors.  Third, as of yet, very little natural gas is traded internationally.  Only one-third of all gas is traded across borders compared to two-thirds of oil, and most of it is through pipelines across land.  The inability for the U.S. supply to reach other markets has kept U.S. prices remarkably low and supply high.

As a result, the U.S. now controls one of the largest natural gas resources in the world.  The overall magnitude of the U.S. supply will shift global market power away from Russia and OPEC, according to at least one expert.  U.S. natural gas has potential benefits for energy independence and national security, but it also could put the U.S. in possession of a large bargaining chip in the effort to lower global greenhouse gas emissions.

While most environmental groups have focused on the environmental dangers of fracking, the emission benefits of natural gas should not go unnoticed.  The burning of natural gas produces half as much carbon dioxide, less than a third of as much nitrogen oxides, and less than one percent as much sulfur oxide compared to burning coal.  The environmental footprint is still vast compared to non-fossil-fuels, but the switch to natural gas could have an impact on a large scale.  Since 2006, the U.S. has made the largest reduction (7.7%) of all countries in carbon dioxide emissions.  In 2011, the U.S. carbon emissions dropped in part because U.S. electric generators are switching from coal to natural gas.  Global carbon emissions, however, are at their highest ever.  In 2011, China’s carbon dioxide emissions—bolstered by increased coal consumption—grew by 9.3%.

Should the potential reduction in greenhouse emissions by a country be a deciding factor in where the U.S. decides to export LNG?  Or is engaging in global-petro-politics for environmental benefit a dangerous precedent to set?  A country receiving an influx of cheap natural gas could embark in construction of new natural gas burners that would provide more efficient electricity generation.  The expected U.S. LNG export is not small, but has the potential for a tidal shift if directed towards the right region.  Current applications to export natural gas in front of the Department of Energy are for an amount equal to 60% of the current U.S. consumption.

Wielding the national supply to benefit the U.S. interest is no pipe-dream.  The Natural Gas Act of 1938 actually prevents the export of natural gas if the Department of Energy (DOE) determines the export “will not be consistent with the public interest.”  A notice and comment process is required to send natural gas overseas. The DOE has only approved the export of natural gas at the Sabine Pass facility in Sabine, Louisiana.  Fifteen applications to export natural gas currently await DOE review.  Given the novel situation, DOE hired a third-party to study the macroeconomic impacts of large scale LNG export before making further public interest determinations.  The study, released last week, explains in detail the potential net economic benefits for LNG exports from the U.S.

As part of the application process, the DOE requires the applicant to describe “the potential environmental impacts on the project” (10 C.F.R. 590.2.(b)(7)).  DOE must also consider the “environmental impacts” of the proposed agency action under the National Environmental Policy Act (NEPA).  So far, however, DOE has not fully considered the environmental consequences of LNG exports.  Instead, the public interest determination has focused almost exclusively on the economic impacts of exporting—the impact on domestic price and job creation.

In considering the Sabine Pass facility, DOE’s and FERC’s environmental assessment (EA) only focused on the environmental impact of the construction and operation of the export terminal.  Absent from the EA was any analysis of the consequences of LNG exportation.  The EA has sparked a NEPA battle between DOE, FERC, and the Sierra Club.  The Sierra Club’s motion to intervene points out that DOE conditionally granted export at Sabine Pass, summarily concluding that the public interest was served by the “environmental benefits from greater use of natural gas both domestically and internationally.”  Yet, DOE failed to consider those benefits in the Sabine Pass EA.  And while the Sierra Club argues that DOE should consider whether exportation will increase environmental hazards caused by fracking, shouldn’t DOE at the very least be forced to consider the impact exports could have on global carbon emissions?  Shouldn’t DOE consider the very environmental impact it predicted?

Greater use of natural gas internationally may not necessarily lead to environmental benefits.  The greatest current importer of LNG is not Beijing, but Tokyo.  In the wake of the crisis at the Fukushima No. 1 (Daiichi) nuclear power plant, Japan power companies are searching for a cheaper and more politically stable form of energy.  Since Fukushima, Japan has shut down all but two of its fifty-four nuclear reactors.  The shift from nuclear power to fossil fuels led to a net increase in Japan’s carbon emissions in 2011.  Is it in the public interest for the U.S. to export LNG to Japan if it will facilitate a move towards higher carbon emitting electric generation?

Written by Matt Worthington, GIELR staff

One response to “Exporting Liquefied-Natural-Gas for the Public Interest

  1. How did you get the tips to create ““Exporting Liquefied-Natural-Gas for the Public Interest | Georgetown International Environmental Law Review” cyclingupdate ?

    Thanks -Robert

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