Energy / Trade

Are We There Yet? A review of U.S. Natural Gas Exports

A year ago, after the overthrow of Ukraine’s president and the ensuing crisis, industry leaders in the U.S. pushed to change regulations that prevent liquid natural gas (LNG) exports. If Ukraine had truly wanted to break free from Russian influence, it would have had to eliminate its dependence on Russian gas. However, during that critical time, unnecessary export regulations prevented U.S. producers from replacing Russian gas supplies and minimizing Russia’s influence over the new Ukrainian government.

Opponents of reforming the U.S. regulations criticized this argument, claiming that even if the rules were changed, the U.S. did not have the LNG export infrastructure necessary to supply Ukraine. The Huffington Post predicted U.S. natural gas “wouldn’t even leave American ports until 2015, long after Ukraine’s revolution government will either have established itself or failed.”

It is now 2015, and the Ukrainian government is still somewhere in limbo. Is the U.S. any more prepared to export LNG than it was a year ago? As we near the anniversary of Ukrainian President Yanukovych’s overthrow, it is a fitting time to review recent progress in LNG exports as well as the geopolitical implications of these developments.

Today, the U.S. still lacks the necessary infrastructure to export LNG, but that could change by the end of the year. Before gas is shipped, it is sent to LNG export terminals where it is cooled and liquefied. No such facilities in the lower 48 states exist, but some are currently under construction. The Sabine Pass terminal in Louisiana is scheduled to come online later this year, and last year the Federal Energy Regulatory Commission approved the construction of 3 more terminals on the east coast that will be operating by 2020.

Besides the challenge of infrastructure, gas producers face heavy regulation that effectively discourages LNG exports. Under current laws, producers must submit to a lengthy permitting process when exporting to any country that doesn’t have a free trade agreement with the U.S. This red tape hinders producers’ ability to respond to market changes and compete with foreign producers.

Since the crisis in Ukraine erupted, Congress has considered numerous pieces of legislation to expedite or remove the permitting process. Most recently, the House passed a bill that gives the Department of Energy 30 days to make a decision on export applications – a measure that even the Department of Energy says is feasible. Other legislation currently under consideration would remove the permitting process altogether for countries that are members of the WTO.

While any game changing legislation has yet to be signed into law, producers are optimistic that the Republican controlled Congress will make major strides in LNG exports in the next year. This, coupled with the current infrastructure projects, could drastically raise U.S. export capability by the year’s end.

These developments have serious geopolitical implications. U.S. natural gas provides alternative supplies to allies while eroding the ability of adversaries like Russia to use their energy supplies as political leverage. Exports would allow the U.S. to provide economic and political stability to the world while boosting our own economy at home.

Yes, the U.S. is closer to exporting LNG than it was a year ago, and the current legislation considered by Congress will need to take effect for this progress to continue. LNG exports will provide jobs, boost U.S. power abroad, and promote the development of our own energy resources. For the U.S. and its allies, LNG exports are a simple and smart way to secure the future.

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