The Department of Energy appears to be following a “Nigerian strategy” with respect to the nation’s recent windfall of natural gas.
Washington’s policies will benefit the 1 percent who own or run energy companies — and translate into higher costs for most Americans. If you can get a marginally higher price by selling off a valuable natural resource, the department seems to believe, you should do it.
So far, the Energy Department has OK’d every export application that has managed to navigate its complicated approval process. As more natural gas is exported, however, the more foreign appetite for natural gas will bid up U.S. prices, the faster American gas reserves will be depleted and the quicker the U.S. energy-based manufacturing recovery will be choked off. But all these potential problems seem to count for little when measured against the bottom lines of global energy companies.
There is, in fact, an odd cacophony within the Energy Department. Each year its Energy Information Agency produces a much-anticipated roundup and forecast of U.S. energy production. Its newest version suggests only modest growth in U.S. gas exports. By 2040, the agency expects liquefied-natural-gas (LNG) exports — the only way to send gas to countries without pipeline connections — will increase by only 3.5 trillion cubic feet, accounting for less than 10 percent of projected 2040 output. (Liquefied natural gas has been cryogenically chilled to the approximate density of crude oil. It requires special tankers and expensive “regasification” facilities on the importer’s end.)
But that modest forecast is completely inconsistent with the way the Energy Department has been banging out approvals for multibillion-dollar liquefied-natural-gas export facilities. It has so far approved, or conditionally approved, eight projects that would bring the export capacity to 4.4 trillion cubic feet by about 2019. The department also recently streamlined the process, apparently to expedite more approvals. The current priority list has 24 applicants. If just the top 10 are approved — and they all are far along in the process – liquefied-natural-gas export capacity would jump to about 10 trillion cubic feet by the early 2020s — or about a third of all output.
No company casually undertakes such a formidable export application. The average cost of an approval is roughly $100 million. The company’s legal, engineering and environmental teams must go through years of discussions and meetings with hundreds of federal and state officials. The government must examine plant designs and sitings, the company’s financial and management capacity to build and manage a $5- billion to $10-billion project, and its current and future sales contracts. Such processes can develop a life of their own. After a company has spent tens of millions, and cleared hurdle after hurdle, it can become difficult for the government to turn an application down. So the odds are high that at least the next 10 or so applicants will be approved.
The law requires that the Energy Department approve only liquefied-natural-gas projects that are “in the public interest.” In effect, would the United States benefit from a big spurt in gas exporting? One 2012 Energy Department study, by the economic analysis firm NERA Inc., found that exporting gas, in whatever quantities, was always in the public interest.
The firm’s argument was simple: Liquefaction fees guarantee that the per-unit revenues from exported natural gas would always be higher than domestic sales. So “U.S. consumers,” and the nation, would benefit to the extent of this additional income.
The report’s fine print is key, however. NERA acknowledged that exports in any important volume would increase domestic energy prices, which would depress the economy. Since new plants would be almost entirely automated, the hundreds of billions of dollars of investment they required would, on net, divert worker incomes to the employers and owners of capital. Or, as the report explains, exporting is always good for American consumers — especially the “consumers who own the liquefaction plants.” You know, the folks who hang out with consumers who, say, run Exxon or Goldman Sachs.