The United States doesn’t usually look to Britain for guidance—the last time may have been when Winston Churchill was Prime Minister. That time has come again. This time, the US should follow the leadership of Prime Minister David Cameron, who last week said: “Britain must be at the heart of the shale gas revolution.” He pointed out that ignoring the “revolution” could be giving their economy “much higher energy prices than would otherwise be necessary.”
But, the most significant aspect of his comments may well be that the “shale gas revolution” has the potential to “re-industrialise” the economy. That one word—“re-industralise”—may hold the key to the Obama Administration’s opposition to our own “shale gas revolution.”
America’s own “shale gas revolution” is, in large part, responsible for the US Energy Information Administration’s (EIA) recent announcement citing a 29% increase in natural gas production. The resource is so plentiful that supplies show a storage surplus and prices have remained near decade lows. As a result, in the past seven years, America has flipped from a potential liquefied natural gas (LNG) importer, to an exporter. Energy companies have proposed 16 projects to export LNG to Europe and Asia. The projects would, according to the New York Times, “generate thousands of construction jobs, spur further development of natural gas fields and generate lucrative export earnings.” Yet the Obama Administration has only approved one export terminal—stalling the economic development the remaining 15 projects would create.
According to Kathleen Sgamma, Vice President of Government and Public Affairs for the Western Energy Alliance, there are two “concerns” preventing approval of the 15 pending projects:
- Fear that LNG exports will raise the cost of natural gas and, therefore, hurt consumers, and
- Fear that LNG exports will cause environmental harm.
To point number 1, it is interesting to note that one of the loudest opponents of the huge opportunity to generate “thousands of construction jobs” and “lucrative export earnings” (which would have a positive impact on our balance of payments) is Rep. Ed Markey (D-MA). Markey, “a critic of both fracking and natural gas,” “has introduced two [now-failed] bills in Congress with the stated purpose of protecting US consumers from increased natural gas prices,” while preventing the Federal Energy Regulatory Commission from approving new LNG export terminals. Following the approval of the first LNG export terminal, Markey issued a press release stating that LNG exports: “will increase electricity and heating prices for American consumers.” This is the same Markey of the Waxman-Markey bill (often referred to as the cap-and-trade bill), about which the Congressional Budget Office said would have a $175 per household annual cost—which Markey minimized by saying it was “the cost of about a postage stamp a day.” (Note: other reports found the annual per-household cost of the cap and trade bill to be $1500.) So, in 2009, he was okay with raising energy prices on consumers, yet now, in 2012, he wants to block LNG export terminals due to potential price increases for American consumers.
In a five-page letter to Secretary Steven Chu, dated January 4, 2012, in which Markey states: “I am worried that exporting America’s natural gas would raise energy costs for American consumers,” Markey calls upon the DOE to explore the “consequences” of exporting natural gas. He asks specifically for scenario comparisons: He asks specifically for scenario comparisons:
“Please compare this export scenario to a scenario in which no natural gas is exported, providing your near- and long-term expectations for (1) domestic supply and consumer prices; (2) U.S. economic competitiveness and manufacturing; (3) consumption rates of oil, coal and natural gas in the United States and foreign countries; and (4) greenhouse gas emissions in the United States and globally.”
Several such studies have been completed. One from the US EIA was released in January 2012 and found that “increased natural gas exports lead to higher domestic natural gas prices, increased domestic natural gas production, reduced domestic natural gas consumption, and increased natural gas imports from Canada via pipeline.” However, “the EIA also noted that U.S. natural gas prices are expected to increase even before considering the possibility of additional exports. Nonetheless, increased natural gas exports are expected to lead to higher domestic natural gas prices, although the precise amount depends on the ultimate level of exports and the rate of phasing in increased exports.”
Another report (an independent assessment done by the Deloitte Center for Energy Solutions and Deloitte MarketPoint LLC), conversely, “found that any price increases resulting from US LNG exports would be quite minimal”—with an average price increase of 2% (according to a Bookings Institute report analyzing the various pricing studies that have been conducted on the impact of US LNG exports on the domestic price of natural gas).
Finally, on December 6, 2012 a new study was released from the DOE—which the Wall Street Journal reports is “central” to the Administration’s decision on approving exports and notes that “The Department of Energy had said it wouldn’t issue permits for exports to countries lacking a free-trade agreement with the U.S., until the study was done and it could be assured that exports were in the national interest.” The NYT reports: “domestic prices would not rise sharply as a result of exports and that export revenue would generally help most Americans.” And, the WSJ states: the “long-awaited government study” “has the potential to reshape the global energy market.” The report, which analyzed more than a dozen scenarios for US production and LNG exports found that “across all these scenarios, the U.S. was projected to gain net economic benefits.”
On Wednesday I was flying from Albuquerque to Denver. As luck would have it, I was seated between two men who were both involved in the natural gas industry—though neither knew each other. In preparation for my conversation with Kathleen Sgamma, I was reading up on the just-released study. I was reading an article titled: “Report: Natural Gas Exports Would Benefit US Economy,” when I came upon this:
Across all these scenarios, the U.S. was projected to gain net economic benefits from allowing LNG exports. Moreover, for every one of the market scenarios examined, net economic benefits increased as the level of LNG exports increased. In particular, scenarios with unlimited exports always had higher net economic benefits than corresponding cases with limited exports.
I laughed. I read the quote to my seat partners, who also laughed. We questioned why this was even news. Then I read the next line—which not part of the report, but part of the article: “Some in the oil and gas industry contend the idea is a no-brainer.” Touché.
If this is a “no-brainer,” why the delay? Why did, in August 2012, a bipartisan group of lawmakers (ten Democrats and thirty-four Republicans) write a letter intended to pressure the Obama Administration to speed up approval for pending LNG export applications? Because, as Sgamma told me, the Administration has ceded power to environmentalists who have all kinds of excuses.
The WSJ supports Sgamma’s claim. The WSJ article points to Obama’s “political risk because of criticism from environmental groups, which have been among his strongest supporters.” Addressing the opposition, it says: “Environmental groups, meanwhile, fear that allowing exports would encourage more natural-gas production.” Sgamma told me: “The environmentalists hate that we have this abundance of natural gas.”
The Sierra Club has spearheaded opposition to new LNG export terminals. In response to the new report, Sierra Club executive director, Michael Brune says: “It is baffling that this report omits the serious threats increased fracking and gas production pose to our water, our air, and the health of our families.”
As I frequently cite, based on my own study of environmental groups goals regarding energy (as found in my book Energy Freedom), environmentalists would rather have us all living in caves. They oppose shale gas development and fracking—as evidenced by the Sierra Club’s position reversal on natural gas, found in its new “Beyond Natural Gas” campaign—for fear, as PM David Cameron said, regarding England, it could “re-industrialise” the economy. Just days after Cameron made this statement, the British government gave fracking the “green light.” Now, with the release of this newest report, it is time for the US to follow the UK’s lead and allow the shale gas revolution to reshape the global energy market. The Administration needs to stop dragging its feet and give the pending applications for LNG export terminals the green light.
Sgamma affirms that “Western producers are able to increase production as natural gas is exported abroad. We have the capability in the West to meet the growth in demand that would result, as indicated by the current oversupply of natural gas. Western producers are able to ramp up production to meet export demands, while maintaining an abundant supply of affordable energy for the domestic market as well. … Economists have not fully appreciated how available spare capacity today, constant improvements in technology, and new discoveries into the future will likely maintain the downward pressure on price.”
She closed our conversation with these important questions: “How much worse does the economy have to get? How much longer are the American people willing to tolerate policies that prevent job creation and economic growth today?”
Remember, it is the Obama Administration, under pressure from environmentalists and the likes of Rep. Markey, which is preventing US consumers from benefitting from an “increase in wealth transfer and export revenues.” The economic benefits, as proven by the latest study, far outweigh the potential for higher energy prices. It is time to allow the shale gas revolution to reshape the global energy market.
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