The Ukraine-Russia crisis has Congress and the Obama Administration rushing to consider monumental changes to accelerate exports of natural gas that will permanently and negatively impact the energy landscape for natural gas domestically, due to OPEC-linked liquid natural gas prices.
The potential knee-jerk reaction has unsettling consequences for homeowners, farmers and manufacturers that are dependent upon affordable natural gas and power.
Help Ukraine drill
Exporting U.S. natural gas to help our Ukraine and NATO allies is not a viable option for years to come. There are no export facilities that are ready to ship and even if they were, their output is already under contract to be sold. Helping them to drill for natural gas is a solution.
According to the U.S. Energy Information Administration, Ukraine has 39 trillion cubic feet of proven natural gas reserves, and at a 2012 consumption rate of 1.8 Tcf, they have a 21-year supply. This compares favorably to U.S. proven reserves of 318 Tcf, or a 12-year supply at the 2013 consumption rate of 26 Tcf. The problem is that Ukraine only produces 1 Tcf of gas.
The old adage of “give a person a fish and feed him for a day or teach him to fish and feed him for a lifetime” still applies. Drilling in the Ukraine would create needed jobs, economic growth, and energy independence. Exporting U.S. natural gas simply makes them dependent upon us rather than Russia.
This logic is completely lost on a Congress that is bent on changing existing law in order to accelerate exports of natural gas and remove protections for the U.S. consumers. Congress is debating H.R. 6, the “Domestic Prosperity and Global Freedom Act” and similar legislation by Sen. John Barrasso, R-Wyo., which would accelerate exports of LNG and impose a new energy tax that is nothing short of an OPEC cartel LNG export tax.
Here is how it works. The OPEC cartel is both a large seller of crude oil and LNG. OPEC cleverly links the price of LNG to crude oil prices. This means that if crude oil prices rise, so does the price of LNG. It is for this reason that LNG sells in the Pacific for very high prices in the range of $15-$16/mmBtu. Clearly, the global LNG market is not a “free market.” If OPEC decoupled the price from crude, the LNG price would likely fall. In contrast, the U.S. NYMEX Henry Hub price is in the mid $4/mmBtu range. It is these artificially high OPEC LNG prices that are driving natural gas exporters to push Congress/U.S. Department of Energy for unfettered natural gas exports without consideration to domestic consumers – all in the name of supporting our NATO allies.
In contrast, the U.S. natural gas prices are determined by domestic supply versus demand. This is how “free markets” work.
This is a critically important contrast because the artificially high OPEC LNG price means that foreign buyers of LNG from U.S. export terminals will be willing to pay higher prices for it and “buy it away” from domestic consumers. The impact will first show up during the peak winter heating season demand and result in spiking prices for both natural gas and electricity. Longer term, as U.S. supply and demand comes into balance, and as increasingly larger volumes are exported, the prices will rise year round and permanently transform the U.S. market. OPEC’s plan puts the U.S. on the pathway to substantially higher prices, the OPEC energy tax.
This is exactly what happened in Australia. Now, natural gas producers do not want to sell gas to Australian consumers unless they pay the LNG export prices. Manufacturers are leaving the country and power plants are beginning to convert from natural gas to coal.
U.S. homeowners have no idea that their future higher home heating and cooling costs will be significantly and permanently increased due to OPEC cartel prices. The DOE has already approved six applications to export to non-free trade countries, an equivalent of a 13.5 percent increase in demand versus 2013 demand. This is a significant increase on top of growing new domestic demand.
According to a DOE sponsored study completed in December 2012 by NERA Economic Consulting, the big winners are those who own gas resources, producers of natural gas, exporters of natural gas and foreign countries. The report says that the losers are the public who will see higher energy costs, lower wages and a decline in manufacturing.
Congress should take a measured approach to LNG exports and protect the American consumer from the unfair OPEC energy tax. Congress should not support OPEC over the successful U.S. free market.