Federal regulators recently rejected an application to build a liquefied natural gas (LNG) export facility on the coast of Oregon after three years in regulatory limbo – a project that had received “unflagging support” from editorial boards, variously hailed as an “economic game-changer for Coos Bay” that offered “a way to tamp down Russia’s influence in Europe.”
Regulators cited a lack of proof of commercial demand for the terminal, even though the uncertainty that permeates the approval process for LNG export applications has made it extremely challenging for developers to sign offtake contracts. More importantly, investors have strong incentives to only proceed with projects that have commercial merit. We are likely to get the very best projects if they are permitted to compete freely for capital and access to markets and we certainly don’t want to cede those markets to foreign competitors. The regulators’ role should be limited to making sure projects meet appropriate environmental and safety standards. The capital markets, rather than the regulators, are best suited to determine the commercial value of complex and long-term LNG export opportunities.
When it comes to natural gas, the U.S. has abundant reserves that can help make the global environment cleaner. The U.S. has already seen the value of replacing other fuels with gas. Largely because of the increased use of natural gas in place of coal for electricity generation, domestic energy-related emissions fell to a 20-year low in 2012. Similar reductions are available elsewhere. Consulting firm Pace Global recently released a study that found that if five international markets – Germany, Japan, South Korea, China, and India – used coal instead of U.S.-produced LNG to generate electricity, power generation in these countries would give off 92 to 194 percent more emissions. Those are sizeable numbers.
The Pace report supplements a significant body of research that demonstrates the environmental benefits of increased natural gas use. For example, the Department of Energy’s (DOE) National Energy Technology Laboratory and the International Energy Agency reached similar conclusions, while the Intergovernmental Panel on Climate Change credited the transition from coal to gas as an “important reason for a reduction of GHG [greenhouse gas] emissions in the United States.”
Second, LNG exports offer a way to jumpstart the United States’ sluggish economy. The Geneva-based Bureau of International Settlements recently pointed to a lack of investment opportunity as a prime factor in restricting economic growth. LNG exports – and the accompanying billions of investment dollars they bring – would provide a quick and easy fillip. Importantly, the more we export, the greater the return; multiple studies commissioned by the DOE have found that macroeconomic benefits to the U.S. economy increase as we ship more gas.
Allowing greater export volumes will also create jobs. According to ICF International, it could support between 73,000 and 452,000 jobs across the entire supply chain, while IHS Energy predicts that the industry as a whole would be responsible for indirectly employing 750,000 people in a variety of sectors by 2020. For these reasons, domestic manufacturers such as Caterpillar and the National Association of Manufacturers have urged the U.S. government to allow our surplus gas to compete internationally.
Third, U.S. LNG exports will help our Pacific and European allies, who have lobbied hard to make U.S. natural gas more readily available abroad. Many of these countries currently have to contend with natural gas suppliers with political agendas, so having the option of purchasing U.S. gas would provide them with the strategic leverage that they desperately need.
Despite all of this, the U.S. is not in a position to take advantage of these benefits, thanks to a regulatory approval process that has proven to be lengthy and riddled with uncertainties. The roughly 30 proposed projects still awaiting a decision from DOE each represent significant opportunities to invest in the U.S. economy, lower global emissions, and enhance geopolitical security around the world. By keeping these projects in regulatory limbo, and in Jordan Cove’s case rejecting them outright, the government is standing in America’s way. The sooner it moves, the better.
