From Shale Gas to LNG Exports: What Should America Do with its Natural Gas?


Author: Susan Sakmar

There is no doubt that the vast shale gas reserves that have been unlocked in the United States have been a “game changer.” Shale gas is expected to constitute almost 50 percent of total U.S. natural gas production by 2035.

What is in doubt, however, is whether or not the U.S. will become a major exporter of its natural gas.  A growing number of companies are seeking approval from the U.S. Department of Energy (DOE) to export liquefied natural gas (LNG).

Domestic natural gas production has expanded at a rate which may lead to the US exporting the energy resource.

U.S. law generally requires automatic approval of natural gas exports to most countries that have a free trade agreement (FTA) with the United States.  For non-FTA countries, the DOE reviews proposed exports on a case-by-case basis to ensure they are consistent with the “public interest.” A number of factors are considered, including the domestic need for the proposed natural gas exports and whether their exportation is a threat to the security of domestic supply.

The DOE claims that “it takes its statutory responsibility to make public interest determinations on natural gas export applications very seriously and is committed to taking the time necessary to get the decisions right.” Nevertheless, a bipartisan group of lawmakers, primarily from shale gas-producing and Gulf Coast states, have been putting pressure on the Obama administration to speed up approval for a number of pending LNG export applications.   In an August 2012 letter to Energy Secretary Steven Chu, these lawmakers pointed out that the DOE “does not seem to have a set timeline for decisions or a sense of urgency,” which has left a growing number of companies and projects waiting in limbo.  Cheniere’s Sabine Pass Liquefaction project is the only project that has been granted an export license for non-FTA countries.

It is clear that the prospect of the U.S. becoming a major natural gas exporter has become a political hot button that no one wanted to push in an election year.   Some policymakers have expressed concern that U.S. LNG exports will increase domestic prices for natural gas, which would harm individual consumers as well as industrial users of natural gas, such as the steel, plastics, and fertilizer industries.

While some business leaders seem reluctant to argue that a free trade nation like the United States should restrict exports, others have urged that we should exploit our competitive advantage.  With lower natural gas prices, the United States could create domestic jobs by converting its cheap natural gas into products for export, as opposed to exporting the resource as a raw material.  The CEO of Dow Chemical has argued that there is up to eight times more value in the products that could be derived from the natural gas than in exporting the natural gas itself.

Still others have claimed that with far less emissions than any other fossil fuel, the United States should use more natural gas at home, particularly in transportation and heating.   Using more natural gas in this way would also contribute to energy independence.

There is also some risk that environmental opposition to shale gas development will spill over into opposition to U.S. LNG exports.   For example, the Sierra Club has opposed a number of LNG export projects, arguing that the environmental impacts associated with natural gas production must also be considered in determining whether U.S. LNG exports are in the “public’s interest.” Since the case for U.S. LNG exports depends on the continued development of shale gas, concerns over the environmental impacts of this development must also be resolved.

Whether the lawmakers’ August 2012 letter to Steven Chu will prompt the DOE into action remains to be seen.  For the moment, the DOE appears to be in no hurry to decide the pending export applications or release a much-anticipated study on the economic impacts of proposed LNG exports.  This study was originally expected in early 2012, but has now been delayed until sometime later this year.   The DOE has also indicated that once released, the study will be open for public comment, which creates more uncertainty as to when the DOE will reach a decision on any more export applications.   Until then, it’s open to debate whether U.S. LNG exports are in the “public’s interest” or not.

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Susan Sakmar is licensed to practice law in California and currently is a Visiting Assistant Professor, Andrews Kurth Energy Law Scholar, at the University of Houston Law Center where her work is focused on global natural gas markets, including developments in LNG and shale gas.   Her most recent book Energy For The 21st Century:  Opportunities And Challenges For Liquefied Natural Gas (LNG) will be published in 2013 by Edward Elgar, Ltd. (UK).