INSIGHT: Congress moves to expand LNG exports, worrying chemicals

10 April 2014 14:00 Source:ICIS News

US chemical makers worried by boost to LNG exportsBy Joe Kamalick

WASHINGTON (ICIS)--Wide scale and accelerated exports of US natural gas moved closer to reality this week as a key House panel approved fast-track sales of liquefied natural gas (LNG) to virtually all foreign countries, a prospect that worries many chemicals manufacturers.

Because of newly abundant supplies of natural gas from shale formations, US petrochemicals producers and downstream chemical makers have been transformed, virtually overnight in global market terms, from being among high-cost producers to perhaps the lowest-cost manufacturers of chemicals worldwide.

But that newfound and profound cost-based competitive advantage for domestic chemical makers could be seriously undermined if too many diners crowd around the natgas banquet table.

Chemicals sector officials worry that a multi-industry ravenous rush to consume more and more natural gas ultimately could kill the goose that lays the golden egg of natgas abundance, eroding supply and driving up prices.

There are efforts afoot to broadly increase the use of natural gas as a transportation fuel, replacing gasoline and diesel as the fuel of choice for vehicle fleets such as municipal bus lines, garbage collection, freight-delivery, utilities and other vehicular service providers.

In addition, some members of Congress want to see wide scale use of natgas as a general fuel for private automobiles.

The abundant and low-cost supplies of shale gas also have accelerated fuel shifting among electric generators as more power companies switch from coal to gas - especially as the US Environmental Protection Agency (EPA) ramps up its regulatory campaign to essentially shut down coal-fired power plants.

The prospect of ever-increasing domestic consumption of natural gas by electric utilities and for commercial and personal vehicle power was aggravated this week by the advance of legislation in the House that would broadly expand the global market for US LNG sales and accelerate the pace of regulatory approval for those transactions.

A key House subcommittee on Wednesday approved legislation to speed-up US exports of LNG and to authorise LNG sales to any member country of the World Trade Organisation (WTO).

In a voice vote, the House Subcommittee on Energy and Power approved HR-6, the “Domestic Prosperity and Global Freedom Act” to amend the 1938 Natural Gas Act (NGA) so that US exports of LNG will be available to almost any foreign country.

Under existing provisions of the NGA, US LNG cargoes generally may be sold only to countries that have a free trade agreement (FTA) with the US. LNG exports to non-FTA nations are allowed, but those applications are subject to additional levels of scrutiny and lengthy delays.

The US has free trade agreements with only 19 other nations, while there are 159 member countries in the WTO.

In part, HR-6 was advanced in the House in order to enable US exports of LNG to Ukraine and other nations in Europe that are dependent on Russia in whole or in part for natural gas supplies.

Before being passed by the subcommittee, HR-6 was amended to require that any LNG export application must specify the destination country.

In addition to greatly expanding the potential market for US LNG exports, the bill requires that any application for LNG export authorisation that has been pending before US regulators prior to 6 March “shall be granted without modification or delay”.

According to the Department of Energy (DOE), there are about two dozen LNG export applications pending for sales to countries other than the 19 nations that have free trade agreements with the US.

The American Petroleum Institute (API) quickly welcomed the subcommittee approval, saying that the vote “is just the latest signal that momentum for action on natural gas exports is stronger than ever”.

API president Jack Gerard said that he is optimistic that so-called fast-track authorisation for LNG exports will be approved by Congress, given bipartisan support for the measure in both the House and Senate.

“Now is the time to tear down our own bureaucratic hurdles to trade, create thousands of new American jobs and strengthen our position as an energy superpower,” Gerard said, noting that the US is now the top natgas producer worldwide.

While approval of HR-6 was welcomed by API and other energy sector interests, some in the US petrochemical and chemical industries have expressed concern that wide scale exports of LNG could put pressure on domestic supplies and natgas prices.

The US chemicals industry is heavily dependent on natural gas as both a feedstock and an energy fuel.

Having been approved by the subcommittee, HR-6 is headed to a vote by the parent panel, the full House Energy and Commerce Committee.

Approval there is expected and the measure likely will be up for a full House floor vote later this month.

A parallel measure, S-2083, was introduced in the Senate in early March and is pending before the Senate Banking Committee.

On both bills, the American Chemistry Council (ACC) is scrupulously neutral.

“Consistent with our free trade principles, we support export of American-made products, including LNG,” the council said.

“We do not have a position on bills that would alter DOE’s permit review process for LNG exports,” the council said.

LNG exports are just fine, the council says, as long as ramped-up foreign sales of LNG are matched by increasing domestic natural gas production.

“Government actions that create new or increased use of natural gas should be accompanied by a comprehensive policy that expands access to domestic resources onshore and offshore and develops infrastructure, such as pipelines, to transport supplies,” the ACC said.

“Natural gas has enormous potential to renew and grow the American chemistry industry, the entire domestic manufacturing sector and the US economy at large,” the council said, noting that increased natgas production creates jobs and spurs exports of a broad range of US manufactured goods.

However, said the council, “America needs to couple rules-based free trade principles with an ‘all of the above’ energy strategy to ensure we are fully developing our domestic energy resources”.

Chemicals producers, the energy sector and other manufacturing interests have long complained that the Obama administration has limited and even reduced exploration and development of abundant oil and natural gas resources on federal lands and in offshore regions, complaints that have been validated by recent federal reports.

The Society of Chemical Manufacturers and Affiliates (SOCMA) similarly expressed qualified support for a broad acceleration in US exports of LNG.

SOCMA vice president for government relations Bill Allmond said that “SOCMA supports LNG exports”.

“However,” he cautioned, “like most legislation, there are unintended consequences.”

“If a consequence of fast-tracking LNG exports significantly increases the cost of natural gas for specialty chemical manufacturers,” he added, “I expect we will revisit our current support.”

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

By Joe Kamalick