Stop the Delay: Export Our Gas Now

The Department of Energy recently approved the third liquefied natural gas (LNG) export application under review at the Energy Department after 823 days of review.    Despite assurances from President Obama and Energy Secretary Moniz that the administration will act quickly on these applications, nineteen liquefied natural gas (LNG) export permits remain in regulatory limbo.  The piecemeal approach to approving applications makes little sense from economic, financial and trade perspectives.

There is widespread support in Congress for fast-tracking LNG permits through the bureaucratic maze. In fact, recently a bi-partisan group of 34 Senators wrote to Secretary Moniz urging his agency to speed up the review process, evaluate multiple permits at once in the next round of reviews, and prioritize projects that are clearly commercially viable. One application has been pending for more than 650 days.  Yet, last month Energy Secretary Moniz declined to adjust the Department’s process for reviewing LNG export applications, citing further delays if the queue was reevaluated.

The benefits of LNG exports are established and America is in need of immediate action. The collective export capacity of the terminals currently on hold totals 25.61 billion cubic feet (bcf) per day. If only half of that were exported, it would generate $15.6 to $73.6 billion annually between 2016 and 2035, according to ICF International.

This bureaucratic delay is also hampering the significant economic and trade benefits of natural gas exports.  America is racing against several other countries – including Russia and Iran – to bring natural gas exports to the international energy market as at least 63 LNG projects are in various stages of construction around the globe.

Even if all of the applications are approved by the DOE, only a fraction of the LNG terminals will actually ever be operational. Considering that the natural gas extraction and export business requires enormous financial investment (roughly $3-6 billion or more per terminal), sales agreements with global purchasers, and years of planning and construction rife with potential for bureaucratic delays and lawsuits; even those projects that proceed with both flawless execution and error-free good fortune will require a minimum of five years from green light to production flow.

As dictated by the Energy Policy Act of 2005, the regulatory process for seeking LNG export approval is complicated and onerous.  While the export authorization comes from DOE itself, the construction and operations mechanisms of LNG terminals are governed by the environmental and safety regulatory body at FERC, or, the Federal Energy Regulatory Commission.

FERC established a “pre-filing” process – meaning before an LNG export application can even be submitted there must be a six-month period during which 13 separate “resource reports” are reviewed by as many as 20 individual federal and state agencies.

Those 13 FERC-required resource reports address a host of “conceivable” issues from water use and quality to “socioeconomic impacts,” “cultural resources” and “aesthetics,” to Polychlorinated Biphenyls (PCB) Contamination, wildlife and vegetation.  Exactly two of those required FERC reports address “geological resources” and “engineering and design material.”

This is just a thumbnail sketch of the “pre-filing” process.  Extensive Environmental Assessments follow, and if applicable, Environmental Impact Studies too.  Both are carried out in accordance with the National Environmental Policy Act.  Only when compliance with that body has been achieved can a formal application be submitted.  And only then may land acquisition, site design and engineering plans commence.

Application submissions – one addressing LNG export to countries with which we enjoy Free Trade Agreements (FTA), the other to those we don’t – soon follow.

At any time during this review process, DOE and FERC have the power to establish, at their discretion, additional compliance requirements – drawing from the Clean Water Act, the Clean Air Act, the Endangered Species Act, and the National Historic Preservation Act.  These may, or may not, require the involvement or approval of other agencies at the federal, state, or local level.

The impact of LNG exports on the U.S. economy has been analyzed extensively by the federal and individual state governments, independent think tanks, and, of course, the energy industry itself.  All have reached the same conclusion, articulated here by a study commissioned by DOE: “Across all these scenarios, the U.S. was projected to gain net economic benefits from allowing LNG exports.”

Proposed in the Pacific Northwest, Gulf Coast, and eastern U.S., these LNG export terminals if approved will bring economic output to far more than export states.  It will bring exponential increases in employment, GDP, and tax revenue to producing states like Arkansas, Colorado, North Dakota, Ohio, Oklahoma, Pennsylvania, West Virginia, and more.

“Timing is everything” is not just a well-worn business cliché.  It is also a fundamental business precept.  For the LNG export business, the right timing – as regulated by the natural market forces of supply and demand – is now.  America’s economic and security interests are clear.  There is no reason why the Department of Energy cannot review multiple permits at once and take immediate action and allow the process to move forward.

Margo Thorning, Ph.D. is senior vice president and chief economist with the American Council for Capital Formation and director of research for its public policy think tank.  She is author of the new report,Liquefied Natural Gas: Why Rapid Approval of the Backlog of Export Applications is Important for U.S. Prosperity.