Lift the Cloud of Uncertainty: Why The Next Secretary of Energy Needs to Move on LNG Exports

This week, lawmakers in Washington, D.C. will hear from President Obama’s nominee to head up the Department of Energy (DOE): Ernest Moniz. Dr. Moniz, a highly respected authority on energy issues, currently heads up the Massachusetts Institute of Technology’s Energy Initiative and has previously worked at DOE and other parts of government. His confirmation appears likely, given the bipartisan praise that has followed the nominee.

But however easy his path to confirmation is, there’s no doubt that the next Secretary of Energy has a broad agenda in front of him. Chief among his priorities will be committing the United States to the global market of liquefied natural gas (LNG) by removing export barriers, thereby maintaining our commitment to free trade and its benefits.

First, some background: The Department of Energy is currently at the tail end of a two-part study process analyzing LNG exports. The second portion of that robust study, conducted by leading energy economists at NERA Economic Consulting, was an analysis of how varying levels of LNG exports would impact the overall U.S. economy. The conclusion was very simple: across all the scenarios analyzed, there was a net economic benefit from exporting LNG – the result of increased activity in the energy sector, investment in multi-billion dollar liquefaction facilities and a reduction in the US trade deficit. The key take-away from that study, however, was that the more exports allowed, the greater the net benefit.

The conclusions of that study were abundantly clear as were similar findings in studies conducted by Deloitte and the Brookings Institute. But what hasn’t been clear is what DOE will do next. As part of their study process, they placed a moratorium on reviewing applications to create facilities to export natural gas. There are currently more than 21 facilities with applications sitting with DOE, all on hold while the Department reviews the nearly 200,000 comments and reply-comments it received. When pressed at a recent hearing by the House Committee on Oversight & Government Reform, DOE Acting Assistant Secretary Chris Smith refused to give any indication of when DOE would make a decision on the applications under moratorium, nor when DOE would conclude the study process. While it is important that DOE review the comments and give them serious consideration, the fact of the matter is that our economic future is based on actions that support free trade. Any decision made on LNG exports should be driven by the economic analysis the Department commissioned – the analysis that demonstrated in clear terms the benefits to our economy. An extended delay would raise the specter of another slow walking process as we have seen with Keystone XL.

The lack of a timeline for DOE’s review is a source of serious concern because of the fight being waged by opponents of LNG exports, led by Dow Chemical and its group America’s Energy Alliance. With DOE putting the brakes on LNG facility applications, Dow has used the opportunity to press forward for a limit on exports.

Dow’s position is patently self-interested. By pressing for a limit on exports, Dow is trying to keep natural gas prices – a major input price for its goods –low for as long as possible. It lobbying campaign is crony capitalism at its worst, demanding the benefit for itself at the expense of the wider economy. If natural gas producers are unable to sell to the global market, the heady production levels we’ve witnessed in recent years will be curtailed because supply far exceeds domestic demand. Drilling has already declined because at current prices, new production is uneconomical

The uncertainty over the future of LNG exports is a growing concern not just for the companies hoping to invest billions in their liquefaction facilities; it’s also a growing concern for many of our country’s allies who rely heavily on natural gas. Japan, for example, has more fully embraced natural gas in the wake of clean up from the Fukushima disaster, but relies heavily on importing it from other countries. Here in the US, where our natural gas prices are around a quarter of those abroad, we have a unique opportunity to not only boost our exports, but also to bolster the energy security of our allies.

Dr. Moniz has an opportunity to both lift that cloud of uncertainty and bolster our economy at once. As head of MIT’s Energy Initiative, Dr. Moniz was widely credited with overseeing a largely favorable report on the future of natural gas. The report acknowledged that it would be beneficial to the U.S. in terms of economic growth and energy security advances to support a global market for “liquid” natural gas. That report deserves mention as lawmakers question the nominee this week.

On exports, the next Secretary of Energy faces a simple question: are exports in the public interest? That is the only criteria DOE faces in evaluating applications for these LNG facilities. And it’s one that seems to have an increasingly obvious answer, given wide ranging economic benefits, gains in energy security to our allies, and a reduction in our growing trade deficit.

As lawmakers debate this week the credentials of Dr. Moniz to head up the Department of Energy, its important they remember a critical looming decision any future Secretary will face: when, and how much, LNG exports to approve. DOE’s own study suggests the answer is clear. Hopefully it is.