Rather than exporting liquefied natural gas (LNG) on a large scale, keeping the natural gas in the United States is a more desirable goal on a number of levels, according to Bert Kalisch.
The president and CEO of the Washington, D.C.-based American Public Gas Association, Kalisch contends that not exporting LNG on a large scale benefits manufacturers, electricity customers, energy security and the environment. Kalisch's dialogue with Rigzone follows.
Rigzone: What have new domestic natural gas supplies from shale plays meant for U.S. public gas utilities?
Kalisch: The newly accessible shale gas supplies have been a boon for U.S. public gas utilities, their customers and the communities they serve. Natural gas customers are confident in the robust domestic natural gas supply outlook and are using natural gas in place of other more costly fuels. For instance, APGA-member, the Municipal Gas Authority of Georgia, has found that poultry farmers are converting their chicken houses from propane to natural gas, cutting their heating bills in half.
On the national level, these benefits are even more significant. For instance … a 2012 study by Continental Economics showed that Ohio consumers as whole (commercial, residential, and industrial customers) saved $1.5 billion in 2010 thanks to shale gas. However the data is analyzed, shale gas has provided significant economic benefits directly to consumers in Ohio and around the country.
Public gas utilities and local governments around the country are also seeing the benefits of shale gas by converting their fleets to run on compressed natural gas, replacing gasoline and diesel fuel, which not only saves on fuel costs but also improves air quality.
Finally, public gas utilities are seeing a resurgence in the industrial sector, with new and existing manufacturing and industrial facilities expanding in part due to low and stable natural gas prices resulting from the substantial shale plays
Rigzone: What are some telling statistics that reveal what shale gas has meant for APGA members' industrial, commercial and residential customers?
Kalisch: One example from Middle Tennessee Natural Gas is emblematic of what shale gas has meant for our members' customers. According to Jim Hodges, who is the Vice President of Engineering; "Middle Tennessee Natural Gas can say that the rates paid by our 55,000 residential and small commercial customers in the middle Tennessee area are both lower by 30 percent to 40 percent and more predictable and stable than they were 5 years ago. While we haven't seen a lot of new manufacturing industries start up in our area, our existing manufacturing base industries have been able to survive the recent economic downturn and maintain employment. Reduced energy costs have been one factor in their ability to persevere, and position themselves for future growth."
Another example comes from Clearwater, Florida, Chuck Warrington, who is the Managing Director of the Clearwater Gas System points out that, "Clearwater Gas System's 20,000 customers have enjoyed several years of stable natural gas rates thus far and we expect that to continue due to the vast amount of shale gas that has been discovered in the United States. The result has been that our local economy has continued to grow, despite the poor national economy, and we are starting to see stronger growth and excitement from commercial and industrial customers for growth. For example, we've been able to convert two asphalt plants from #5 oil to natural gas due to the lower prices. This was next to impossible in the mid-2000's when prices were north of $8 per dekatherm [Dth]. Just these two plants have resulted in an additional 100,000 Dth/year to our existing throughput (5-percent increase). Low natural gas prices have helped to fuel this growth."
Rigzone: How does APGA members' access to cheap natural gas benefit employment?
Kalisch: As discussed by Jim and Chuck above, the fact that shale gas has reduced energy prices for businesses large and small have allowed them to maintain employment at their facilities during the recession. In the improving economy, our members in some areas have seen expansion of local manufacturing facilities based upon affordable energy.
Moreover, according to Tom Kuczynski, Senior Vice President Strategic and Information Services for Philadelphia Gas Works, "the fact that lower prices and more importantly stable price forecasts serve to reduce investment risk thus enticing interest from the capital intensive ventures in the transportation sectors including NGV's, long-haul trucking, maritime and rail as well as distributed generation in the form of CHP all helping to diversify the load portfolio and spreading fixed operating costs over a much larger pool reducing costs for everyone. Lastly, I think it is fair to say that when utility bills in general are more affordable additional discretionary dollars are available to be spent elsewhere in the economy."
On a national scale, manufacturers such as Dow Chemical, Nucor Steel, and others have announced over $95 billion in new manufacturing investments in the United States in the coming years. In effect, what we are seeing is large, multinational manufacturing entities effectively re-shoring their manufacturing operations back to the United States. What this means for employment is the potential for millions of well-paying jobs in the manufacturing industry that had seen consistent employment and capacity declines over the last few decades.
Rigzone: U.S. petrochemical manufacturers and others have recommended that the federal government cap how much LNG can be exported in order to keep their feedstock costs stable. For example, Dow Chemical's CEO on different occasions has suggested limits ranging from 5 to 10 percent. Why does APGA reject even this?
Kalisch: First, APGA does share a baseline agreement on policy with Dow Chemical as we are members of America's Energy Advantage which includes Dow, Nucor, Celanese, Eastman and other companies. We agree with them that unfettered exports are not in the public interest.
However, though there is this basic agreement, we fundamentally oppose all exports of LNG from the United States. APGA believes that policymakers are faced with a critical choice about how the United States deals with its newfound natural gas bounty. We as a country now have a strategic resource that provides us with the opportunity to achieve long-standing national security goals such as reducing our dependence on foreign oil and to reverse the trend of decline in our manufacturing sector. To be more specific, natural gas provides the United States with the following opportunities:
- To reduce our dependence on foreign oil through the widespread adoption of natural gas vehicles (NGVs). The price advantage of compressed natural gas (CNG) and LNG compared to gasoline or diesel makes both types of NGVs very competitive with their diesel or gasoline counterparts. CNG sold by our members can be as low as $1.90 per gasoline gallon equivalent, saving consumers at least a dollar per gallon and much likely more over gasoline. This price advantage exists because of affordable, domestic natural gas and provides us with the opportunity to reduce our dependence on foreign oil the importation of which both exacerbates our trade imbalance and imperils our national security by forcing us to rely on unfriendly or unstable countries for our oil resources.
- To revive domestic manufacturing by allowing price-sensitive manufacturers to safely make long-term investments in new or expanded U.S. manufacturing capacity. These investments by domestic companies and by foreign firms such as BASF, have the potential to create millions of new jobs over the next two decades. Moving manufacturing to the U.S. to produce finished goods for our domestic market could potentially displace imported goods and will allow finished goods to be exported, which has a GDP multiplier of at least 8 and up to 20 if all direct and indirect impacts are taken into account. This is in contrast to exporting a raw material like natural gas which has a marginal GDP impact at best.
- To protect our environment by allowing electric generation to move away from coal for baseload power and to natural gas and renewables which have significantly lower emissions (natural gas) and almost no emissions (renewables). The replacement of coal with natural gas for generation has already lead to significant reductions in greenhouse gas emissions. According to the Energy Information Administration, between 2005-2012, energy-related carbon dioxide emissions have declined by 12 percent thanks largely to shale gas. This decline in emissions has helped to reduce the amount of carbon dioxide emitted by the country as a whole (thereby aiding in the fight against climate change) and also improves human health.
- The forecasts of domestic demand for natural gas are robust. With between 50-70 gigawatts of coal fired generation scheduled to be retired in the next 20-30 years, the manufacturing renaissance that is underway ramping up demand, and natural gas vehicles increasing in deployment, there are projections that these three sectors alone will account for approximately 20-30 billion cubic feet (Bcf)/day of new demand. Given that our daily production of natural gas is around 66 Bcf/day, that means that new domestic demand for gas is approaching an increase of 50 percent over current levels. Adding significant exports on top of that robust demand picture will strain producers' abilities to adequately respond.
- The domestic price of natural gas will increase anywhere from 3 to 17 percent depending upon what study you read. All studies concur prices will increase. This harms homeowners and job creating businesses by inflating their energy costs.
- These price increases will shrink the cost advantage of CNG/ LNG versus gasoline and diesel, thereby decreasing the economic incentive to switch. This in turn, will slow or stifle the opportunity to decrease our dependence on foreign oil through the deployment of NGVs – with negative impacts on national security and our trade imbalance.
- Highly price-sensitive manufacturers will end the nascent reshoring of operations here in the United States and instead move the jobs and economic benefits of those operations to other countries.
- According to the NERA economic consulting study on exports, wage income and capital investments decline in all sectors of the economy other than oil and gas producers (and presumably the exporting companies). In effect, this means that export benefits two sectors of the economy at the direct expense of all others in the form of increased energy costs. APGA believes the purpose of public policy isn't to enrich two sectors of the economy at the expense of all others.
Rigzone: Your organization has gone on record opposing the "large-scale export of LNG." What is the threshold for LNG exports to be considered "large-scale," and what are some examples of smaller-scale LNG exports that you do not oppose?
Kalisch: We consider all projects pending projects from the lower 48 states to Free Trade Agreement (FTA) countries and non-FTA countries to be large-scale and therefore, we oppose them. We do not oppose natural gas exports from the Lower 48 states to other U.S. states such as Hawaii or to U.S. territories such as Puerto Rico.
Rigzone: To some in the natural gas exploration and production (E&P) community, APGA may appear to be straddling the fence in terms of developing U.S. shale gas resources. On the one hand, the organization recognizes the need for hydraulic fracturing and supports the practice. On the other hand, APGA opposes granting the natural gas producers access to potentially lucrative overseas markets that could provide the economic incentive to produce more shale gas. How do you reconcile these positions, and what should the E&P community keep in mind in terms of your perspective?
Kalisch: We strongly support the responsible production of natural gas and are sincerely grateful to U.S. producers which have profoundly changed the energy landscape of the country for the better. Abundant and affordable shale gas has been a blessing for our economy and our security and producers deserve a tremendous amount of credit for the veritable energy revolution they have unleashed.
However, we have to keep in mind that the point at issue is not all exports of LNG; the point at issue is exports of LNG to non-FTA countries. The Natural Gas Act mandates that export of LNG to FTA countries be approved "without modification or delay." In reality, this debate is about whether it is in the public interest to export our natural gas resources to countries which do not open their markets to our goods and services and whether given that exports to FTA countries are automatic, is it wise to export even more gas to non-FTA countries.
Moreover, at a philosophical level, we fundamentally disagree with the notion that U.S. public policy choices should be made to benefit a few sectors of the economy at the expense of all others. Export of LNG acts as a significant wealth transfer in the form of increased energy prices paid by natural gas consumers served by our members (be they homeowners or businesses) and to producers and exporters. Fundamentally, we believe this violates the purpose of public policy.
On a practical level, APGA believes that the United States should focus on exporting the technologies/techniques that make shale gas accessible and finished, manufactured goods which have a much greater economic impact in terms of GDP than exports of LNG.
Overall, APGA believes that exporting LNG sacrifices too many national goals of energy security, national security, economic revival through manufacturing, and environmental protection for a too limited return to too few sectors of the economy.
Rigzone: Would you like to make any additional comments regarding the debate surrounding U.S. LNG exports?
Kalisch: APGA is not anti-free trade, but believes that policymakers must make choices about how best to promote the interests of the United States and its people. We believe that the wise policy choice at this time is to oppose the exports of LNG and to use all public policy means at our disposal to promote natural gas here at home.
Post to be found at:
http://www.rigzone.com/news/oil_gas/a/128130/LNG_Exports_The_View_of_a_Major_Public_Utilities_Trade_Group
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