Guest commentary: Dow plays both sides on natural gas exports

By Dr. Jack Rafuse

In a February 24 Wall Street Journal op-ed, Andrew N. Liveris, Chairman & CEO of Dow Chemical, laid out a cynical and self-serving argument for a “sound and balanced [U.S.] energy policy.”  He correctly said that shale gas gives the nation “a historic opportunity to strengthen the economy, increase national competitiveness and create jobs.”  He’s right on the opportunity — but Dow wants to have their cake and eat it too.

Mr. Liveris wants to “maximize America’s new competitive advantage by adopting a measured approach to natural gas policy.  He derided others for what he claimed was their desire “to quickly export massive quantities of natural gas, even bypassing a public-interest review process required by law.”  That “straw man” misrepresents Dow’s position and that of the gas producers, and misleads companies that Dow recruited to the America’s Energy Advantage coalition that Dow formed to fight “indiscriminate” LNG exports.  Pants on fire.

Studies for the DOE’s Energy Information Administration and others by experts and academics conclude that LNG exports would increase investment in developing shale gas resources.  U.S. natural gas production is projected to go from 23 trillion cubic feet (TCF) in 2011 to 33.1 TCF by 2040; exports by 2020 would help drive shale-gas supply from a projected 25 TCF to 27 TCF that year.  The studies project that domestic gas prices with exports would rise by about 5 percent to 7 percent — today’s price per million cubic feet (MCF) of gas is at $3.  Dow and others have testified that companies could “reshore” overseas manufacturing facilities to the United States if the price of gas were in the $6 to $8 range per MCF.  They claim to be free traders, but they don’t want gas exports.  Pants on fire.

Japan pays $16 per MCF for imported LNG, and European nations depend upon LNG imports or on natural gas piped through Russia — but the Russians have shut off supply more than once in recent winters, to “renegotiate” prices.  So Americans and our Japanese and European trading partners could benefit by LNG exports which could never be “indiscriminate” because of the huge investment necessary, and because DOE export licenses must always protect the national interest.

Mr. Liveris also wrote that “Dow still holds a 15% limited partnership in a Texas import facility.”  But, he says, “Advocates of unchecked exports charge that Dow will profit from exports, but the charge is false.  Other companies — not Dow — are pursuing plans to retrofit the terminal for exports.”  Pants on fire.

On December 17, 2010, lawyers for the Freeport LNG Expansion Project submitted to DOE, Freeport’s application for a “long-term, multi-contract authorization to export up to 9 million metric tons per year of LNG, up to a total of 225 million metric tons, for a 25 year period.”  (9 million metric tons per year = 1.4 billion cubic feet per day (BCF/D) or 1.4 billion British thermal units per day.)  That amount would require 0.1 BCF/D to fuel the processing train.

The legal document, pre-approved by all parties, lists four limited partners in the export project, including: “Texas LNG Holdings LLC, a Delaware limited liability company and wholly owned subsidiary of The Dow Chemical Company, which owns a 15% limited partnership interest in FLNG Development.”  So Dow claims that they will not profit from exports, yet Dow’s wholly-owned subsidiary has invested 15% (about $300 million) in the export expansion project.  Unbeknownst to Dow’s Chairman?  Pants on fire.

Such subsidiaries are set up solely to protect the parent company in major ventures such as this LNG Export Project.  They are legal and make good business sense.  They typically have three to five employees, who are members of the parent company’s legal staff; they have no source of funds except from the parent company.  Yet Mr. Liveris says this wholly-owned subsidiary is not in the LNG export business.  Pants on fire.

All this raises two points:  1) Dow claims to love free trade; they export chemicals.  So why does Dow think it is in the national interest for Dow to dictate global prices?  And 2) Mr. Liveris is Co-Chairman of The President’s  Manufacturing Commission; what kind of economic/mercantilist advice can the President be getting?

Mr. Liveris is adamant — and his pants are on fire.  A Dow subsidiary holds 15% of one of the first LNG export projects to apply for a DOE permit.  The project has a contract and customer that guarantees Dow a long-term export profit, and Dow enjoys extremely low domestic natural gas prices.  Mr. Liveris wants Dow to have its cake and eat it, too.  He does not want anyone else or any other company to share the fun or profits.  That may be his hope for Dow, but it’s not in the U.S. national interest.

John Rafuse, PhD is a former energy advisor in the Nixon White House and currently principal of the Rafuse Organization, a public policy consultancy.

Read FuelFix coverage of the debate over exporting U.S. fuel: