Critics of government regulation are latching on to a recent analysis of government inaction on approving liquefied natural gas (LNG) terminals as proof positive that the government’s red tape and burdensome regulations are costing the economy billions of dollars every year.
According to the International Business Times, the U.S. Dept. of Energy (DoE) is reviewing plans to build LNG terminals, but delays, critics charge, are “difficult for the U.S. to compete with other countries that are already in the process of building export facilities.”
Delays of Up To Two Years.
The American Council for Capital Formation, a nonprofit organization headquartered in Washington, D.C., published the report earlier this month.
According to the ACCF report, the 20 applications to build and operate LNG export terminals under review by the DoE have been plagued with delays, making it “difficult for the U.S. to compete with other countries that are already in the process of building export facilities.” ACCF officials say that some of the applications to build and operate LNG export terminals have been “under review by Dept. of Energy staff” for as long as two years.
IBT quoted the report’s author, Margo Thorning, saying, “If we delay the approval of the projects, we are not going to be able to sign long time contracts, like with Korea and Japan.” Thorning pointed out that in the past two year, “only two projects have been approved, with the most recent decision being made in May.” Such projects can take five years or more to move from approval to export flow and cost billions of dollars to permit and build, ACCF officials say.
It’s A Bipartisan Issue, Evidently.
Thorning, an economist and Ph.D., has said, “We fear that this protracted bureaucratic delay significantly undermines the vast potential that LNG exports can bring to our nation’s economy… America is racing against international competitors for LNG sales abroad, with at least 63 LNG export projects planned or under construction around the globe.”
The matter is so pressing that a bipartisan group of 32 senators wrote to Secretary of Energy Ernest Moniz in mid-July “urging the DoE to expedite LNG permit applications,” IBT noted.
Is expanding LNG exports really that big a deal? Is this a significant chunk of the economy we’re talking about here? Thorning’s report estimates that LNG exports could spur employment increases of anywhere from 73,100 to 452,300 between 2016 and 2035, and could add as much as $73.6 billion annually between 2016 and 2035 to our gross domestic product (GDP), citing a recent study by ICF International.
Benefits Accrue To State and Locals.
Obviously there’s a bit of slippage in those numbers, as so much is dependent on other economic factors. But at least they give a rough indication of just how much money we’re talking about. The ACCF paper emphasizes that most of those benefits would accrue at the state and local levels.
“To put the potential economic effects of increased LNG exports from the U.S. in perspective,” the report says, “it is useful to look at the recent impact of increased energy production on U.S. employment.”
Indeed, it then goes to cite a report on natural gas exports from the Small Business and Entrepreneurial Council, which found that “while overall U.S jobs in employer firms declined by 3.7 percent from 2005 to 2010, jobs grew by 27.6 percent in the oil and gas extraction sector during the same time period.”
And during the same period “employment grew by 15.1 percent in the drilling oil and gas wells sector; by 38.5 percent in the support sector for oil and gas operations; by 47 percent in the oil and gas pipeline and related structures construction sector; and by 62 percent in the oil and gas field machinery and equipment manufacturing sector.”
So we’re talking about a pretty hot sector of the economy these days, one the government would do well to expedite.
Government Agrees LNG is Profitable.
And the government, in fact, agrees that the LNG sector is an important slice of the economic pie. As analyst Mark Green wrote last December, “A just-released study conducted for the U.S. Energy Department… finds that allowing U.S. liquid natural gas exports would help the economy — and increasingly so as LNG exports grow.”
NERA Economic Consulting, which prepared the report for the DoE, analyzed 16 different export scenarios, Green explained, finding that “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.”
The Crux Of the Issue? Fracking.
The whole brouhaha is due, of course, to fracking. As Oil&Gas Journal wrote in April, hydraulic fracturing to produce natural gas “has transformed U.S. energy markets. Vast new oil and gas reserves are now commercially accessible, placing North American energy independence within reach.” The journal also states fracking has “driven down domestic gas prices, breathed life into a broad array of long-struggling U.S. industries, and replaced the need for LNG imports with a growing potential for substantial LNG exports.”
That’s prompted disagreements. Should we sell our LNG overseas where it would be child’s play to undercut pricey foreign-produced LNG, or keep it here?
Oil&Gas noted that for applications to export LNG to countries with which the United States does not have a Free Trade Agreement, the DoE “will undertake the required public-interest assessment,” considering the following questions:
- The domestic need for the natural gas proposed to be exported.
- Whether the proposed exports threaten the security of domestic natural gas supplies.
- Whether the arrangement is consistent with DoE’s policy of promoting competition in the marketplace by allowing commercial parties to negotiate freely their own trade arrangements.
- The environmental effects of the proposed decision.
- Any other issue determined to be appropriate.
The Sierra Club Doesn’t Like It.
Currently the DoE has “delayed the issuance of more non-FTA authorizations,” Oil& Gas said, “pending release of a two-part study commissioned by the DoE to determine how LNG exports might affect U.S. supply and global markets.”
So that’s where we are now — good old-fashioned inefficient government delay. But as the journal noted, even if the long-awaited export authorization is granted, LNG exporters still aren’t home free: “Other issues, such as access to gas supply, facilities siting and approvals, financing, and variations in projected worldwide LNG demand, and market prices confront market sponsors even if an export license is approved.”
It’s known that the Sierra Club has filed to oppose the granting of export approvals, citing concerns that fracking is harmful to the environment and will increase global warming. Oil&Gas, however, concurs with Thorning, the ACCF, and other critics of government’s lethargic pace: “Perhaps the biggest concern among LNG export supporters — and the greatest hope of opponents — is that regulatory delay may result in lost opportunities as LNG customers seek more certain prospects elsewhere.”