Shift in US Natural Gas Market Will Hobble Economy, Harm Environment

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By Rory Cox
Pacific Environment

Little noticed by most outside the energy business, the US is currently undergoing a seismic shift for the worse in its energy policy. This shift threatens to kick the cane out from under our hobbled, creaking economy, harming domestic manufacturing while also removing a critical piece of the puzzle in making progress towards reducing greenhouse gas emissions.

Currently, the US energy grid has a strong strategic advantage in that there are plentiful natural gas reserves in North America. Natural gas is what supplies most of California’s energy grid, and increasingly is replacing coal plants in the US. It is supplied through a network of pipelines. This is different than, for instance, Japan, which relies on natural gas imports delivered by ship from around the world. While Japan pays upwards to $14 per unit for natural gas, the US’s unique situation means we’ve been paying much less—currently, natural gas sells for as little as $3 per unit.

Gas producers around the US are now asking, why sell to US utilities for $3 per unit, when Japan is willing to pay $14 for the same fuel? And so they’ve taken their case to the Obama Administration, and are now receiving permits to export natural gas to the world by way of a technology that converts the natural gas to a liquid so it can fit on a ship (liquefied natural gas, or LNG.) Last May, a company called Cheniere received a permit to export LNG through a terminal in Louisiana. Other companies have applied for export licenses at two other projects along the Gulf Coast.

The Bay Area’s own PG&E is part of a consortium of companies that has applied to export LNG out of a proposed terminal on the Southern Oregon coast, enabling them to sell  natural gas sourced from Wyoming to Japan, China, and other Pacific Rim markets where it can get top dollar. The first leg of this export route—the Ruby Pipeline from Wyoming to Central Oregon—was completed last July. The next leg – the proposed Pacific Connector, partly owned by PG&E, would take the gas on the final leg of over 200 miles from Central Oregon to the Coast. In other words, PG&E is working to build a project that it knows will raise the price of natural gas for its own customers.

All of these export schemes add up to a disaster for both the US economy and environment. Exporting natural gas will raise US prices for natural gas. According to a study done for the Department of Energy, Cheniere’s LNG terminal alone will increase natural gas prices by up to 10 percent. As more terminals come on-line, prices will increase more, as a larger percentage of gas produced in the US leaves the country. This will mean higher prices for ratepayers.

The rate increases are terrible for US manufacturing which will remove one of the few comparative advantages for manufacturers to locate in the U.S., not abroad. This is why the Industrial Energy Consumers of America have taken the lead on opposing this scheme. Whatever job gains that may occur in gas fields will be negated by the far more important manufacturing jobs that are lost.

Exporting natural gas will also be a blow to our efforts to fight climate change. Environmentalists nationwide have been very successful in shutting down coal-fired power plants, sometimes by replacing them with natural gas, which emit fewer greenhouse gases than coal plants. Utilities are willing to replace coal with gas because of the closeness in price between the two.  There is legitimate debate about how clean natural gas is, especially when it comes from hydrofracking technology. But should the price of natural gas rise, that debate won’t even be able to happen. Coal will come back, hydrofracking will increase, and climate problems will accelerate. In addition, the act of super-cooling natural gas and shipping it around the globe adds significant emissions.

In short, exporting LNG is a bad deal for everyone outside the fossil fuel industries. It will ensure that the US absorbs all of the impacts of gas drilling, and gets none of the benefits. There needs to be an immediate “time out” on LNG export permitting processes, and there needs to be a full public accounting of what this will do to our economy and environment.

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Rory Cox is Senior Energy Consultant at San Francisco-based Pacific Environment.