INSIGHT: Senate bill pushes for major US LNG exports to EU

13 December 2012 17:43  [Source: ICIS news]

By Joe Kamalick

US Congress eyes boosting LNG exports to EUWASHINGTON (ICIS)--New legislation in the Senate would greatly accelerate export of domestic natural gas to Europe, posing yet another competitive challenge to natgas feedstocks so critical to the US petrochemical industry and downstream chemical makers.

Senator Richard Lugar (Republican-Indiana) introduced a bill this week that essentially would establish an energy free trade agreement between the US and each of the 28 member nations of the North Atlantic Treaty Organisation (NATO).

He said the legislation, titled the Liquefied Natural Gas for NATO Act (LNG-NATO Act), was needed to protect US security interests by insulating US European allies from energy blackmail at the hands of Russia.

“A lack of diversity in natural gas supplies to NATO allies and friends is a critical concern for US national security interests,” Lugar said in introducing the bill.

“For the first time, vigorous US diplomacy can be coupled with allowing free trade in LNG from the US,” he said, adding: “Now is the time to dramatically shift gas markets to blunt the temptation for political manipulation of supplies by Russia and Iran.”

Lugar, the ranking Republican on the Senate Foreign Relations Committee, said in a note to other committee members that newly abundant US shale gas supplies now make it possible for the US to counter Russian energy coercion of long-time US allies in Europe.

“Unlike in past years, US domestic shale natural gas production affords us the opportunity to directly alleviate the dependency of our NATO allies in the Baltics, Central and South-eastern Europe, and Turkey on Russian supplies, … while benefiting the US economy by opening new markets,” he said.

Lugar said it was essential that the US do what it could to “curtail Russia’s energy leverage over European NATO allies”. 

He noted that among US NATO allies, Bulgaria, the Czech Republic, Estonia, Latvia, Lithuania, Poland, and Slovakia all depend on Russia for more than 60% of their gas imports.

“The Kremlin has undertaken a series of astonishingly antagonistic policies,” Lugar said, citing “Russian energy cutoffs in the cold of winter, energy contract coercion” and other methods designed “to further isolate certain European markets”.

Lugar listed a series of punitive or coercive measures taken by Russia since 1998 to use its crucial natgas supply to Europe in order to impose price hikes or in retaliation for consumer nations’ opposition to various Moscow foreign policies.

Just as the US is enjoying an unexpected abundance of natural gas supplies, Lugar noted, “natural gas imports are likely to occupy an increasingly central role in Europe’s energy portfolio, necessitating multiple alternatives”.

“Europe’s reliance on natural gas imports has been exacerbated by a steep decline in natural gas production within Europe, Germany’s decision to phase out nuclear power (France, too, is considering a scaling back of nuclear energy), and opposition to shale gas in several EU countries,” he added.

At the same time, EU nations appear unwilling or unable to tap into their own shale gas resources.

“Although Europe’s unconventional shale gas resources could impact Central European energy markets in the future,” Lugar said, “the results of exploration have been uneven, and significant production is not expected in the near term.” 

In the meantime, “numerous European nations are ramping up capacity to import LNG”.

But any move to ramp up LNG exports to Europe could pose a threat to US petrochemical producers, who are expecting a decade-long or longer period of feedstock cost advantage in the global chemicals market – if natural gas prices remain in the $2-$6/MMBtu range.

Lugar’s bid to start shipping massive supplies of US LNG to Europe could combine with other claims on the domestic natgas bonanza to squeeze the chemical sector cost advantage out of existence.

Stringent new Environmental Protection Agency (EPA) regulatory limits on emissions of carbon dioxide (CO2) are accelerating already advanced fuel-switching among US electric utilities, driving ever more demand for gas-generated power plants instead of coal-fired facilities.

Earlier this year, the chemical industry just barely beat back a popular measure in Congress, the “New Alternative Transportation to Give Americans Solutions Act” (NAT GAS Act).

The NAT GAS Act would have provided tax incentives for the purchase of natural gas-fuelled vehicles (NGVs), construction of natural gas retail fuelling stations and use of natural gas as a vehicle fuel.

The bill also called for a new tax credit for auto manufacturers to produce more NGVs, and it would have provided incentives for conversion of large commercial vehicle fleets – such as service companies, utilities and taxis – from gasoline to natural gas.

At one point, the bill had 186 cosponsors in the House and would have needed only 32 additional votes to win a simple 218-vote majority approval in that chamber – a prospect that had chemical producers and other manufacturing interests very worried.

The American Chemistry Council (ACC) and other industries mounted a strong lobbying effort against the NAT GAS Act, warning that the measure would “contribute to market distortions and higher production costs for the domestic chemical industry and other US manufacturers”.

While many of the NAT GAS Act sponsors withdrew their support, the idea of using natural gas as a vehicle fuel still has wide appeal in Congress and could be revived in the 113th Congress that convenes in January.

If Congress moves to spur US LNG exports to Europe and creates incentives for widespread use of natgas as a transportation fuel even as utilities increasingly dump coal for gas, petrochemical producers might see natural gas prices edging upward yet again, perhaps rapidly, in years ahead.

That perfect storm of competition for the shale gas bonanza could be aggravated – along with natgas prices – still further if EPA and other federal agencies move to impose more restraints and limits on hydraulic fracturing (fracking), the drilling technique that is essential to shale gas development.

At least ten different federal agencies have launched as many as 14 separate regulatory initiatives aimed at determining the environmental impact of fracking and whether federal regulation or restriction of the technique is needed.

And in April this year, the White House convened a 13-agency working group to “facilitate coordinated administration policy efforts to support safe and responsible unconventional domestic natural gas development”.

In announcing that special natgas task force, President Barack Obama said other federal agencies could be added to the 13 original members.  The objective, he said, is to seek “sensible, cost-effective public health and environmental standards to implement federal laws and augment state safeguards” on fracking.

Senator Lugar is retiring from Congress at the end of this year, so he will not be on the Hill next year to advocate for his LNG-NATO bill.

But Lugar’s spokesman, Andy Fisher, said that the senator introduced LNG-NATO now just to “get the discussion started”.

“We know that other members of Congress are likely to take this up next year,” Fisher said.

($1 = €0.77)

Paul Hodges studies key influences shaping the chemical industry in Chemicals and the Economy


By: Joe Kamalick
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