Senate Hearing Confirms Natural Gas Export Plans Will Raise Prices For Americans

Read time: 6 mins

Considering the rate at which natural gas resources are being developed, and the sudden push from industry to export the product, it might come as a surprise that the Senate’s Energy Committee hadn’t had a hearing on liquified natural gas (LNG) since 2005.

Last Tuesday, for the first time in six years, Senators brought the issue back to the Capitol spotlight, as they considered the impact of exporting LNG on domestic prices.

In order to export or import natural gas, companies can either transport it through pipelines, or ship it as liquefied natural gas (LNG). LNG is natural gas cooled to -260 degrees Fahrenheit, at which point the gas becomes a liquid. Back in 2006, LNG imports far outstripped exports, and industry used that trade deficit to push for a massive expansion of domestic drilling, relying heavily on the argument for American “energy security.”

Now that that expansion is well-underway, with the infamous Utica and Marcellus shales the frontier of rapid development, utilizing controversial fracking and horizontal drilling techniques, the industry is eager to start exporting LNG to international markets where the fuel fetches a much heftier price.

The Senate hearing comes in the wake of a massive 20-year, $8 billion deal between the British BGGroup and Houston-based Cheniere Energy.

The amount of LNG represented in that deal alone amounts to roughly 3.3 percent of all current U.S. natural gas consumption.There are currently four other export applications on the desks of the Department of Energy (Dominion Energy’s Jordan Cove project, which I wrote about here, is another), and together they would be the equivalent of 10 percent of current U.S. natural gas use, according to Chris Smith, a Deputy Assistant Secretary of Oil & Gas at the DOE.

Exporting that amount of LNG alone is, lawmakers worry, enough to impact domestic prices. Earlier this year, when the DOE approved  the export permit for the Sabine Pass LNG project in Louisaiana (where the Cheniere LNG would ship off towards Europe), the department admitted that the project would raise gas prices in the U.S. by more than 10 percent.

Speaking at the hearing last Tuesday, Senator Ron Wyden of Oregon put Smith on the spot as to the rational of that decision:

Clearly, the department believes that raising natural gas pries by 10 percent meets the public interest test required by the Natural Gas Act…My question is, does the department believe that raising gas prices by five times that amount would be in the public interest?

The agency must determine whether the export projects are in the “national interest” during the approval process.

These first five proposed export deals represent, as Reuters referred to the Cheniere deal, “a new  chapter in the shale gas revolution that has redefined global markets.”

Many energy experts, environmentalists, and lawmakers like Senator Wyden are concerned that, despite the rhetoric, a massive expansion of natural gas drilling won’t actually improve America’s energy security or self-reliance, but will only help the gas companies reach more lucrative foreign markets, leaving Americans to clean up the mess and pay for any pollution, spills, or long-term ecosystem degradation, as well as paying higher natural gas prices.

As proof of the industry’s intention to tie into a global market, Wyden held up a graph of LNG prices worldwide, showing that prices are up to three times higher overseas than they are in the United States.

(DeSmogBlog has contacted Senator Wyden’s office for a clearer copy of that graph, and will post it when we receive it.)

Showing the graph, Wyden warned, “Exports in the United States are going to make natural gas like the oil market. That’s why I’m concerned about what these price hikes could mean for our businesses and our consumers.”

Some other interesting bits from Wyden's testimony:

“I’m trying to get my arms around where the department is going to draw the line. Given the fact that prices overseas are many times higher than North American prices, my question really deals with how high do you think the price of the natural gas in the United States can go up as a result of these exports and still meet the public interest test?
Is there anything else you can tell me about how the department is going to draw the line so we can tell American businesses and consumers that they’re going to be able to get affordable natural gas as a result of this new export policy?”
“We’re going to be looking at impact on GDP. We’re going to be looking at jobs. We’re going to be looking at impact on a balance of trade. Some of those factors will be affected by the price itself. So we understand the importance that price holds.
“We also understand that natural gas at these export levels remains an inherently local domestic commodity. Prices are higher in Asia, but if you compare natural gas with oil, oil is a globally fungible commodity where you have enough transportation infrastructure to move oil from market to market. Whereas the ability to couple prices in the United States with prices in Asia, there simply isn’t the infrastructure that would allow you to do that at this point in time.”

Also providing testimony was Jim Collins, director of underground utilities for the city of Hamilton, Ohio. Collins argued that exporting LNG would tie the country to international markets, and would increase domestic prices and cause Americans’ utility bills to rise. Collins is no anti-gas crusader. He supports the use of natural gas as a transportation fuel and electricity producer, but is worried that the export strategies of gas companies will leave Americans worse off.

Today, the vast  majority of natural gas exports from the United States travel through pipelines into Mexico and Canada. Only about 5 percent of natural gas exports currently leave our borders as LNG from coastal ports. (I dug deeper into the natural gas trade numbers in this earlier post.)

As of last year, there were 11 LNG terminals in the United States, only one of which – Sabine Pass – is approved for exports. That the industry is lobbying so hard to open up other terminals for overseas shipping is proof that the “energy security” claims they're making to rally favor around rapid shale gas development are disingenuous at best.

It's worth noting that natural gas imports are still far greater than exports, and current natural gas demand still outstrips domestic supply. If “energy security” were the real goal, then the companies should be content closing the gap of domestic supply and demand.

But because the gas industry intends to tie into the more lucrative foreign markets as soon as possible, Americans will wind up paying higher energy bills, and will be left with all the risk, and cleaning up all the industry's pollution and waste. Which is why so many energy experts, environmentalists and lawmakers see natural gas exports as a lose-lose for America.

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Liquefaction plants are typically the most expensive element in an LNG project. Because 8%–10% of gas delivered to the plant is used to fuel the refrigeration process, overall operating costs are high even though other costs, such as labor and maintenance, are low.

On a typical voyage, an estimated 0.1%–0.25% of the cargo converts to gaseous phase daily.

This document was also good;

Hey AnOilMan. Glad to have an expert about this stuff on board. With your knowledge maybe you can answer some questions about some statements in articles that I don’t understand.

For instance just yesterday I was on the phone with an old friend of mine. He was down on Odessa Texas on a location that they were doing a 20-stage frack. Only thing is that this was on a vertical well. Can you explain how a 20-stage frack on a vertical well is less invasive than a 20-stage frack on a horizontal well?

I have seen a number of times in articles that state drilling pressures have increased 10,000, 13,500 psi in horizontal wells. For one thing I don’t know exactly what they are talking about, “drilling pressure”. And why would this be more of an environmental hazard. How is drilling pressure controlled?

Also it has been stated that a horizontal well take several times longer to drill and uses a lot more energy. Why would this be?

I have asked these questions on several of these articles but never got an answer. Can you help explain?

troydonscott, maybe someone over here could help you with that, or maybe they already have posts about it:

Nothing there, have not got any answers yet! The main point I make is that if you speak the truth you can get more accomplished. Speak lies, exaggerations, deceptions, and the like and you will get driven back hard. We (the US) and maybe Canada as well are sitting in a position to make a difference in global warming. But just like global warming we may be past the brink. The jury is in deliberation right now and where we go from here is up to them. What I am referring to is that this move to stop fracking may sound good but will the world follow. The biggest threat to the climate at the present is the fugitive gasses according to Desmog themselves. As for the rest it is just a bunch of exaggeration. Now if we keep the fracking here in the US then we can pass measures to eliminate climate problems. Loose this control and loose the climate battle. So we can support the clean up the climate damaging parts of fracking or run it out and let other countries decide. However when the jury comes back we will then know. Let’s say that the verdict is fracking is BAD do you really think this will stop it. No! It will just move south of the border and to other third world countries and then we have no way to regulate what goes on. Our gas imports are reducing because of this. Do away with it and the imports will just rise. I would like to see a bunch of fracking activist go down to Mexico and start trying to get the Mexican people to rise up against Pemex to stop the fracking. That would be short lived and make the papers even here in the US. I have heard post of people that boast of their climate self-righteousness. But will that help the globe? Really and truly to me I would have no problem following this American Iron back to Mexico again, I could make more money, but my morals say it would be better to keep it here and clean it up.

I think you are confusing two issues here.

From what I gather, there is a lot of opposition to Fracking because there is a lot toxic pollution.  (If you went to the tap one day and the water burned.. you’d be unhappy.)

The other opposition is just plain Carbon emmissions… i.e. we should use less carbon.

How to stop Mexico from emitting? Global Carbon Tax, and lead by example.  This will reduce our interest in Fracking.

Furthermore, the situation is more dire than your simple example. Global population growth combined with our high energy life styles is disaster.  Utter disaster.

Note the part at the end where Hans indicates that our job in the rich west is to shepard the poor into a less destructive life style.

So we tear up our land extracting natural gas from shale because it will give us energy independence? How’s that working out?

Let’s increase drilling for oil on the seacoasts for more energy independence!

Americans are such energy hogs.

It’s about time to implement my austerity program.

Step 1. Outlaw all summer air conditioning
Step 2 outlaw private automobiles including electrics
Step 3 mandate 65 degree max indoor winter temps
Step 4 no air travel except in emergencies

It’s time to lay off the supply side of energy. Let’s kill the demand side. That’s the true key to energy independence - don’t use it.

No exceptions to the above rules.
I could totally do this right now. The rest of you just aren’t serious.

I’m not so harsh.

First, I’d like to see an end to oil subsidies.

Second, I tend to think a carbon tax is the way to go.  I’d like to see it be significant, and steadily increase.

(Now… I do see why folks don’t want carbon trading.  The thought that carbon credits could be foreign means mass exodus of money.  So… Carbon tax.)

Most oil companies will catastrophize any sort of Carbon Tax.  This is sheer stupidity.  When Kyoto was about to go through in Canada, the Premier of Alberta (oil mouthpiece), said there was some wiggle room, and that the oil sands could abide by a Carbon tax.  This is because initially, the tax was going to cost like $4 a barrel.  This is nothing significant.

Lastly, it will take a long time to transition off oil.  I think we need to do this now.

I think my plan is what environmentalists would be pushing for if they were at all serious. If they believed that we are really courting catastrophe by carbon emissions, it would be time for drastic action - shut down the airline industry and the personal automotive system. Extreme situations call for extreme actions.

The words that I often hear are that we are at or near to a catastrophic tipping point with climate disruption. Well literally nobody seems to believe that so I don’t believe it either.

The unmistakable message of possible implementations of light carbon taxes is that we are not in an emergency situation. The clear message I get from every government on the face of the earth  is that they believe we are not in an emergency situation.

The “lets slow down our emissions a little and maybe eventually the Chinese might do the same”is a weak response. There is no real perception of emergency by anyone. If there was, everyone would be turning out the lights by now.

The distinction I’d make is that you want your carbon tax to increase.  A lot and steadily.  Market forces will repond to that, and phase in and phase out whatever most efficiently resolves the issue.

Looking at things from a different perspective… by the time you have excessive heating or far too many severe weather events, you’d have to implement exactly what you said.  Instant, overnight catastrophic reorganization of our global economy.  Even then, you’d still have to live with the consequences of waiting too long.  (i.e. yearly clean ups of Cat 5 hurricanes instead of Cat 3 hurricanes.)

What you’re advocating is waiting until you have the heart attack before you decide to start excercising, and changing your diet. This of course assumes you survive the heart attack…

On a more funny note, I hope I don’t ever have to ride one of these.  Can you imagine cleaning up after an accident?