[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



 
      ENERGY NEEDS IN ASIA: THE U.S. LIQUEFIED NATURAL GAS OPTION

=======================================================================


                                HEARING

                               BEFORE THE

                  SUBCOMMITTEE ON ASIA AND THE PACIFIC

                                 OF THE

                      COMMITTEE ON FOREIGN AFFAIRS

                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 29, 2014

                               __________

                           Serial No. 113-171

                               __________

        Printed for the use of the Committee on Foreign Affairs


Available via the World Wide Web: http://www.foreignaffairs.house.gov/ 
                                  or 
                       http://www.gpo.gov/fdsys/

                                 ______




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                      COMMITTEE ON FOREIGN AFFAIRS

                 EDWARD R. ROYCE, California, Chairman
CHRISTOPHER H. SMITH, New Jersey     ELIOT L. ENGEL, New York
ILEANA ROS-LEHTINEN, Florida         ENI F.H. FALEOMAVAEGA, American 
DANA ROHRABACHER, California             Samoa
STEVE CHABOT, Ohio                   BRAD SHERMAN, California
JOE WILSON, South Carolina           GREGORY W. MEEKS, New York
MICHAEL T. McCAUL, Texas             ALBIO SIRES, New Jersey
TED POE, Texas                       GERALD E. CONNOLLY, Virginia
MATT SALMON, Arizona                 THEODORE E. DEUTCH, Florida
TOM MARINO, Pennsylvania             BRIAN HIGGINS, New York
JEFF DUNCAN, South Carolina          KAREN BASS, California
ADAM KINZINGER, Illinois             WILLIAM KEATING, Massachusetts
MO BROOKS, Alabama                   DAVID CICILLINE, Rhode Island
TOM COTTON, Arkansas                 ALAN GRAYSON, Florida
PAUL COOK, California                JUAN VARGAS, California
GEORGE HOLDING, North Carolina       BRADLEY S. SCHNEIDER, Illinois
RANDY K. WEBER SR., Texas            JOSEPH P. KENNEDY III, 
SCOTT PERRY, Pennsylvania                Massachusetts
STEVE STOCKMAN, Texas                AMI BERA, California
RON DeSANTIS, Florida       ALAN S. LOWENTHAL, California
TREY RADEL, Florida--resigned 1/27/  GRACE MENG, New York
    14 deg.                          LOIS FRANKEL, Florida
DOUG COLLINS, Georgia                TULSI GABBARD, Hawaii
MARK MEADOWS, North Carolina         JOAQUIN CASTRO, Texas
TED S. YOHO, Florida
LUKE MESSER, Indiana--5/20/14 
    noon deg.
SEAN DUFFY, Wisconsin--5/
    29/14 noon deg.

     Amy Porter, Chief of Staff      Thomas Sheehy, Staff Director

               Jason Steinbaum, Democratic Staff Director
                                 ------                                

                  Subcommittee on Asia and the Pacific

                      STEVE CHABOT, Ohio, Chairman
DANA ROHRABACHER, California         ENI F.H. FALEOMAVAEGA, American 
MATT SALMON, Arizona                     Samoa
MO BROOKS, Alabama                   AMI BERA, California
GEORGE HOLDING, North Carolina       TULSI GABBARD, Hawaii
SCOTT PERRY, Pennsylvania            BRAD SHERMAN, California
DOUG COLLINS, Georgia                GERALD E. CONNOLLY, Virginia
LUKE MESSER, Indiana--5/20/14        WILLIAM KEATING, Massachusetts


                            C O N T E N T S

                              ----------                              
                                                                   Page

                               WITNESSES

Mr. Mikkal E. Herberg, Research Director, Energy Security 
  Program, The National Bureau of Asian Research.................     7
Ms. Jane Nakano, Fellow, Energy and National Security Program, 
  Center for Strategic and International Studies.................    14
Ms. Diane Leopold, President, Dominion Energy, Dominion..........    23

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Mr. Mikkal E. Herberg: Prepared statement........................     9
Ms. Jane Nakano: Prepared statement..............................    16
Ms. Diane Leopold: Prepared statement............................    25

                                APPENDIX

Hearing notice...................................................    48
Hearing minutes..................................................    49
The Honorable Gerald E. Connolly, a Representative in Congress 
  from the Commonwealth of Virginia: Prepared statement..........    50


      ENERGY NEEDS IN ASIA: THE U.S. LIQUEFIED NATURAL GAS OPTION

                              ----------                              


                         THURSDAY, MAY 29, 2014

                       House of Representatives,

                 Subcommittee on Asia and the Pacific,

                     Committee on Foreign Affairs,

                            Washington, DC.

    The committee met, pursuant to notice, at 2 o'clock p.m., 
in room 2172 Rayburn House Office Building, Hon. Steve Chabot 
(chairman of the subcommittee) presiding.
    Mr. Chabot. Good afternoon, and welcome to this afternoon's 
subcommittee hearing. I want to thank the gentleman from 
California, Mr. Bera, for serving as today's ranking member and 
also thank our distinguished panel of witnesses here this 
afternoon for joining us. We will get to them in just a minute.
    This hearing was called to examine the growing need for 
liquefied natural gas, LNG, in Asia and the United States' role 
in supplying this energy resource to the region. As Asia's 
economy continues to rapidly grow, and its population 
increases, it will unquestionably drive the demand for energy 
ever higher. Countries in the region are looking for 
accessible, reliable, and cheap energy, and because of the 
natural gas boom here in America, the U.S. is evolving into an 
ideal choice to supply countries thirsty for this resource.
    If the U.S. chooses to become a net exporter of LNG and it 
can manage to reach agreements with major consumers, it will 
not only strengthen our strategic alliances but it will also 
aid in the recovery of the U.S. economy.
    According to the International Energy Association, global 
energy demand will increase by 43 percent by 2035 and much of 
this rising demand will be due to the growing Asian economies. 
China alone is expected to consume two times the amount of 
energy as the United States and will account for around 25 
percent of the total world energy demand. In Japan, the 
Fukushima disaster resulted in a near total shutdown of its 
nuclear reactors and as a result, it is now paying some of the 
highest prices in the world for LNG--almost $15 per unit last 
month--to make up for its energy shortfall.
    Due to these rising costs, Japan and India, in particular, 
are reviewing potential suppliers of LNG in an effort to obtain 
gas that is less expensive than that provided by current 
suppliers such as Malaysian, Indonesian, Australian and Qatari 
gas, which is linked to the price of oil--U.S. gas is not. It 
would seem to me that supplying gas that is not determined by 
the price of oil would be considerably beneficial for the Asian 
market, as well as for U.S. suppliers. To do this, I believe it 
is critical that the administration increase the pace at which 
it is working to make U.S. LNG supplies more accessible to 
countries such as India and Japan, so that U.S. supplies can 
satisfy Asia's increasing demand.
    Here in the U.S., we are producing over 70 billion cubic 
feet of natural gas per day and by 2017 we may produce more 
natural gas than we consume. Net energy imports are expected to 
fall to as low as 4 percent by 2040 and according to some 
experts, we could be completely energy self-sufficient even 
sooner.
    Just a few years ago, the U.S. required LNG import 
terminals to relieve our demand for gas; those terminals will 
now function as LNG export terminals as they undergo 
conversions and companies build their liquefication 
capabilities. We currently have a temporary export capacity of 
7 billion cubic feet per day but we have the capacity to export 
up to 38 billion cubic feet per day if all applications for LNG 
export are approved. And not surprisingly, U.S. producers are 
lining up to supply the global market with this abundant stock 
of LNG where, a large portion of these natural gas supplies 
will be sold to countries throughout Asia.
    The increase in unconventional energy production has 
already resulted in significant benefits for the U.S. economy. 
Perhaps one of the greatest impacts of this new energy 
abundance is the effect that it has had on domestic employment. 
In 2012, over 2 million jobs were either directly or indirectly 
the result of unconventional energy production. It also has 
decreased the trade deficit by more than $164 billion over the 
last 5 years. Manufacturing has been revitalized. Many small 
towns in rural regions have experienced a surge in economic 
growth. Moreover, the thriving natural gas industry has 
afforded the U.S. a strong competitive global advantage. We 
should encourage an American competitive edge--particularly in 
light of ongoing conflicts in the Middle East and Russia's 
recent behavior.
    Supporting LNG exports to Asia--the region with the 
greatest future energy demand--should be a crucial component of 
this administration's strategic rebalance toward Asia. Ensuring 
our allies' and partners' energy security will demonstrate the 
U.S.' commitment to the region. Many of my colleagues and I 
have insisted that the administration support the rebalance 
with tangible actions as opposed to thinly defined 
proclamations. Promoting LNG exports is a perfect way to do so.
    U.S. LNG also offers a safe and reliable option to 
countries in Asia which may otherwise purchase gas from states 
that often neglect the rule of law, such as Russia and Iran. In 
fact, just last week, China signed a $400 billion deal to 
import natural gas from Russia for the next 30 years. This 
follows Russia's announcement that it plans to increase its 
presence in the Asia-Pacific markets to broaden its exports and 
attract investment.
    Now is the time for the United States to seriously consider 
undertaking a more significant role in Asia's energy markets. A 
strong and engaged U.S. economic presence in Asia will ensure 
that our regional allies have a reliable access to the energy 
supply they need and will help to support our strategic 
interests.
    I think we all look forward to hearing from our 
distinguished witnesses this afternoon and I would now like to 
yield to Mr. Bera for 5 minutes to make an opening statement.
    Mr. Bera. Thank you, Chairman Chabot, and thank you to the 
witnesses for being here. This is an incredibly important 
conversation for us to have as we start to review our current 
positions but then also look at future policies on U.S. energy 
security and LNG exports.
    We know that demand for LNG exports certainly is steadily 
rising partly in--because of the necessity of coming up with 
more environmentally friendly fuel sources and we know LNG 
produces less emissions and pollutants as compared to the oil 
and coal industries.
    I also recognize as we debate and look at our policy for 
LNG exports that there is an opportunity by increasing exports 
to strengthen and stabilize our U.S. allies, and that is an 
important component of this discussion at the same time while 
reducing our nation's trade deficits.
    In addition, as we look at liquid natural gas and look at 
natural gas in general we also have to be mindful of the 
domestic opportunities that we have here in keeping our energy 
prices at a very competitive level, particularly as we set 
policies and revive a manufacturing sector here at home. You 
know, this energy renaissance does give us a real opportunity 
here to revive manufacturing and make us more globally 
competitive.
    So that is certainly another component in this. When we 
think about what LNG exports can do, you know, I am going to 
use an example of one of my colleagues, a close friend, Dr. 
Charles Boustany, who represents the Third District in 
Louisiana, and here is what it means to his district.
    Sempra is one of the three largest LNG export facilities in 
Louisiana and it was recently permitted by the Department of 
Energy to export to non-FTA countries. The estimates there are 
that they will add 130 high-paying direct jobs while retaining 
60 existing jobs.
    In addition, Sempra will be able to create an additional 
610 new permanent jobs along with 3,000 construction jobs 
during peak activity. That is not a small amount and certainly 
is an important component of this.
    That said, as I mentioned before, we have to understand 
some of the concerns as we increase LNG exports of the possible 
ramifications on gas prices here domestically in the United 
States and that does have to be a component of this as well as 
the environmental impact that additional LNG production will 
have.
    As a nation, we have got to be responsible and prudent when 
it comes to health and safety standards as well in regards to 
energy production. I do believe that we need to move toward a 
clean energy future that will protect the health of the our 
families and protect our planet.
    The increased use of natural gas both in the U.S. and 
abroad is one of those components that can help us address our 
future environmental concerns and help reduce carbon emissions 
that contribute to global warming.
    In addition, increased use of natural gas will reduce the 
levels of other pollutants and, you know, certainly, will help 
us reduce our reliance on coal and can help us with some of our 
ally countries.
    The path to clean energy will require a skilled labor force 
that works together to power a cleaner, more efficient society 
and, you know, again, as we debate LNG exports and look at this 
from multiple different facets let us certainly keep climate 
change in mind, other pollutants in mind.
    At the same time, let us make sure we are doing things 
strategically both to create domestic jobs and domestic 
employments both in the export phase but then also keep 
manufacturing in mind.
    So I look forward to the testimony of our witnesses and, 
certainly, I yield back.
    Mr. Chabot. Thank you. The gentleman yields back.
    The gentleman from Pennsylvania, Mr. Perry, is recognized 
for 1 minute to make an opening statement.
    Mr. Perry. Thank you, Mr. Chairman. Thank you to the 
testifiers for being here. Over the past 3 years, just seven of 
the applications to export natural gas to non-free trade 
agreement countries have received Department of Energy approval 
while 23 are still pending.
    If all the approved non-FTA projects were constructed and 
operating, the United States would be second only behind Qatar 
with the most LNG export capacity. Increased natural gas 
exports could also put into action the Obama administration's 
stated foreign policy goal of a pivot to Asia.
    As in Europe, U.S. LNG exports have the potential to weaken 
the market power of incumbent LNG providers to Asia such as 
Russia by increasing the negotiating power of consumers while 
providing a supply that is free from politically-based 
disruptions.
    Also, increased U.S. exports could provide partners in Asia 
and elsewhere a stable supply in the event of further violence 
in the Middle East.
    With that, I look forward to hearing the testimony and I 
yield back.
    Mr. Chabot. The gentleman yields back. The gentleman from 
California, Mr. Sherman, who is the ranking member of the 
Terrorism, Nonproliferation, and Trade Subcommittee, is 
recognized for 1 minute to make an opening statement.
    Mr. Sherman. Mr. Chairman, I enjoyed our trip to Asia and 
there is one thing I learned from Randy Weber and that is there 
are five ports in the 14th Congressional District of Texas and 
according to Randy every one of them ought to have an LNG 
export facility.
    If we were to grant all the licenses that Randy would 
propose, we would raise production of natural gas in the United 
States. We would raise the price of the natural gas in the 
United States.
    Our manufacturers would lose the competitive advantage they 
have over Asian manufacturers since they are paying about a 
third for the natural gas that the Asian manufacturers are.
    I mean, the Asian manufacturers, if we exported to Asia, 
would see a lower cost of natural gas and would become even 
more ferocious competitors.
    From an environmental standpoint, if increased natural gas 
production displaces coal that is good for global warming. I 
have got a lot of environmentalists who think it will simply 
displace conservation, that somehow everyone will live like my 
friend Ed Begley if only--if only we can stop every energy 
production and all energy exports.
    Finally, I believe in the full committee there was 
considerable discussion of how exporting natural gas to the 
Ukraine would be a way to deal with Russia, and I pointed out 
then and I should point out here the Japanese and others in 
Asia will pay at least 50 percent more for that natural gas 
than the Ukrainians are used to paying the Russians for the 
natural gas.
    So not--so far I have seen no proposals to increase our 
U.S. taxes so that we can subsidize Ukrainian purchases of 
American natural gas. That being the case, I think that if we 
are going to be exporting natural gas it will be within the 
jurisdiction of this subcommittee, and I yield back to its 
chairman.
    Mr. Chabot. Thank you very much. The gentleman yields back.
    The gentleman from California, Mr. Rohrabacher, who is the 
chairman of the Europe, Eurasia, and Emerging Threats 
Subcommittee, is recognized for a minute to make an opening 
statement.
    Mr. Rohrabacher. Thank you very much, Mr. Chairman. Let us 
just get this straight. Providing natural gas, whether it is 
through LNG or any other way, to people who want to buy it and 
need it is not a hostile act toward Russia.
    Unfortunately, too many people are basically describing 
this within that framework. Increasing the level of energy in 
the world and increasing the productivity and the actual--
facilitating the distribution of natural gas or any other 
energy source is not hostile toward any one country and in fact 
it is increasing the wealth level of all people.
    That is why I would suggest that we should be supporting 
every effort to increase whether it is liquefied natural gas or 
sales to various countries but we should also be supporting the 
various pipeline proposals that we see in various parts of Asia 
today and we should be, of course, supporting the development 
of our own natural gas resources in the United States.
    These are all positive things so let us not get too caught 
up in the strategic chess game to know that what we are really 
talking about is people having more energy to live better 
lives, whoever they are.
    Thank you very much, Mr. Chairman.
    Mr. Chabot. Thank you. The gentleman yields back.
    The gentleman from North Carolina, Mr. Holding, is 
recognized for 1 minute.
    Mr. Holding. Thank you, Mr. Chairman. As energy demands 
rapidly increase in the Asia-Pacific region because of growing 
population and manufacturing needs, Asian nations are looking 
for any opportunity to import new supplies.
    Mr. Chairman, Asia is energy hungry. With the new 
technologies unlocking once unrecoverable resources in our 
nation, America is energy rich.
    With all the talk about our rebalance to Asia, we hear a 
lot from the administration about increasing our diplomatic 
presence and strengthening our mil-to-mil cooperation with our 
Asian partners.
    Increasing our energy ties specifically through export of 
LNG should be at the forefront of the rebalance discussion 
given the geopolitical implications. I look forward to this 
hearing.
    I look forward to hearing from our witnesses today about 
the unique position we are in right now to expand our LNG 
exports to Asia.
    Thank you, Mr. Chairman. I yield back.
    Mr. Chabot. Thank you, and the Chair thanks all the members 
for their opening statements. I thought every one of them was 
quite good and I will now introduce the panel here this 
afternoon.
    We will begin with Mikkal E. Herberg, who is the research 
director of National Bureau of Asian Research's Energy Security 
Program. He is also a senior lecturer at the Graduate School of 
International Relations and Pacific Studies, University of 
California, San Diego. Previously, Mr. Herberg spent 20 years 
in the oil industry in strategic planning roles for ARCO where 
he was director for global energy and economics. He also headed 
country risk analysis and was responsible for advising 
executive management on risk conditions and investment 
strategies in regions where ARCO had major investments. Prior 
to that, he worked as the director of portfolio risk management 
and director for emerging markets at ARCO. Mr. Herberg writes 
and speaks extensively on Asian energy issues, the energy 
industry, governments and major research institutions globally 
and we welcome you here this afternoon.
    I would next like to introduce Jane Nakano, who is a fellow 
in the Energy and National Security Program at the Center for 
Strategic and International Studies. Her areas of research 
include energy security issues in Asia, global nuclear energy 
trends and global natural gas market dynamics. Prior to joining 
CSIS, she was with the Department of Energy and served as the 
lead staff on U.S. energy engagements with China and Japan. She 
was responsible for coordinating Department of Energy 
engagement in Asia and she has worked extensively with China, 
Japan, Indonesia, North Korea and the Asia Pacific Economic 
Cooperation.
    Previously, she served at the U.S. Embassy in Tokyo as 
special assistant to the energy attache. Ms. Nakano holds a 
bachelor's degree from Georgetown University School of Foreign 
Service and a master's degree from Columbia University School 
of International and Public Affairs. We welcome you here this 
afternoon.
    Finally, we have Diane Leopold, who served as president of 
Dominion Energy since January of this year. Previously, she 
held management roles in several business units. Most recently, 
she worked as senior vice president of Business Development and 
Generation Construction and senior vice president of Dominion 
Transmission. Prior to her work with Dominion, she has held 
several engineering positions at Potomac Electric Power 
Company. Ms. Leopold sits as a vice president of the board of 
trustees of the Virginia Commonwealth University Foundation and 
is also a member of the board of directors of the Interstate 
Natural Gas Association of America. She received her bachelor's 
degree in mechanical and electrical engineering from the 
University of Sussex and a master's degree in electrical 
engineering from George Washington University. She also holds 
an MBA from Virginia Commonwealth University and we welcome you 
here this afternoon, Ms. Leopold.
    I am sure that the witnesses are probably familiar with our 
5-minute rule. Each of you will have 5 minutes to testify. A 
yellow light should come on when you have about a minute to 
wrap up, then the red light comes on. If you could wrap up as 
quickly as possible, we would greatly appreciate it.
    Mr. Herberg, you are recognized for 5 minutes.

 STATEMENT OF MR. MIKKAL E. HERBERG, RESEARCH DIRECTOR, ENERGY 
    SECURITY PROGRAM, THE NATIONAL BUREAU OF ASIAN RESEARCH

    Mr. Herberg. Thank you, Chairman Chabot, Ranking Member 
Bera, distinguished members of the subcommittee. Thank you for 
inviting me to share my views on prospects for U.S. LNG 
supplies to Asia.
    It is hard to overstate how important LNG is to the energy 
and economic outlook in Asia. Asia is two-thirds of the global 
LNG market. Japan alone is more than one-third of the global 
LNG market.
    LNG meets 100 percent of Japan's natural gas needs as well 
as South Korea, Taiwan, key allies in the region. So LNG looms 
very large in Asia's economic future so I think the U.S. 
opportunity to supply large amounts of LNG is, you know, the 
proverbial win-win-win.
    It helps allies, provides more supplies, reduces the 
potential for single suppliers or few suppliers to dominate the 
marketplace and in a lot of ways it is--you know, it is clean 
energy. Places like China and India so dependent on coal, we 
need to do everything we can to encourage more natural gas use 
in Asia.
    So I think this is one of those really positive 
opportunities we have. Lots of supplies heading toward Asia 
from a variety of places. Australia is gearing up to become the 
largest LNG exporter very soon by the end of the decade.
    Russia--probably two big projects will come online in 
Russia in the next 10 years, although that is subject to a lot 
of Kremlin politics, East Africa offshore and, of course, the 
U.S. supplies.
    U.S. supplies are already benefiting Asia. There were huge 
projects coming online from Qatar in 2009, 2010 and 2011 that 
were destined for the U.S. market, which we thought was going 
to be a large LNG importer.
    Well, that gas not coming here was available to meet 
Japan's increased needs in the wake of the Fukushima crisis. 
Otherwise, Japan's problem and Asia's LNG problem would have 
been much, much worse than it turned out to be. So we are 
already--we are already benefiting the region.
    This issue of the supply in the U.S. domestic market, at 
$4.50 gas prices here and transported to Asia we are talking 
about $10 or $11 LNG supplies from the U.S. into Asia. That 
looks good when $15 is the current LNG price.
    But all you have to do is raise U.S. domestic gas prices by 
a little bit and reduce Asian LNG prices by a little bit and at 
$12 or $13 it becomes a wash. So in a sense the market--
shipping to Asia will be limited in effect by the marketplace 
at--probably at a relatively modest U.S. domestic natural gas 
price. I think that is an important element to keep in the 
discussion.
    The key beneficiaries, clearly, will be Japan, South Korea. 
Japan has contracts already for 17 million tons of U.S. LNG in 
the current projects. They are partners in four of the largest 
projects.
    They are desperately looking forward to increased supplies 
from the U.S. both as an incremental supply, as a 
diversification to a secure supply source as well as the 
introduction of Henry Hub market flexible pricing into this 
very rigid oil-linked pricing system for LNG in Asia. That is 
what gets you $15, $16, $17 LNG prices today.
    So the introduction of the new pricing mechanism is 
critical to the Asian LNG consumers, particularly Japan and 
South Korea. So I think it is important that both of them will 
benefit tremendously from the additional supply and, obviously, 
these are key strategic partners in Asia and I think that is a 
very direct benefit and strengthen our ties.
    It is not an accident that LNG exports to Japan were 
mentioned in the most recent visit of President Obama to Japan. 
It is critical on their list. I think the best way to bolster 
the impact of our LNG exports is largely let the market works 
maximize the amount of LNG going to Asia and maximize the 
development of shale gas development here in the U.S.
    Of course, with the proper regulatory safeguards I think 
that is critically important. It means lower prices, 
diversified supplies and other benefits for the region.
    And it is probably going to be a very important potential 
benefit relationships both with India and China. China is going 
to be a huge LNG importer in the future and some of this gas--
LNG will make its way to China.
    One final point--more gas, more LNG to Asia--the gas--the 
LNG market is not a global market. It is a highly regionalised 
market. But as our gas goes to Asia in significant supplies, 
that is going to at the margin displace swing producer LNG from 
places like Qatar and West African LNG producers and that gas 
is going to eventually make its way to Europe.
    So indirectly that gas can feed into a more diversified LNG 
and gas supply in Europe and we all know those issues related 
to Europe's heavy dependence on Russia. It is not one to one. 
Europe has to get their pipeline system straightened out 
because you cannot wheel gas around the region effectively 
given the pipeline constraints and national monopolies.
    That is important for Europe to get straightened up. But 
our supplies will displace and shift supplies toward Europe and 
I think that is critically important. So I will stop with that.
    I think we have got a lot of benefits that can come from 
this. With the proper regulation of the shale gas development 
we have an opportunity to really be an important source of gas 
and energy security to Asia.
    Thank you.
    [The prepared statement of Mr. Herberg follows:]
    
    
    
    
    
    
    
    
    
    
                              ----------                              

    Mr. Chabot. Thank you very much.
    Ms. Nakano, you are recognized for 5 minutes.

   STATEMENT OF MS. JANE NAKANO, FELLOW, ENERGY AND NATIONAL 
   SECURITY PROGRAM, CENTER FOR STRATEGIC AND INTERNATIONAL 
                            STUDIES

    Ms. Nakano. Good afternoon, Chairman Chabot, Ranking Member 
Bera and members of the subcommittee. Thank you for the 
opportunity to testify about the future of liquefied natural 
gas demand in Asia and the role of U.S. LNG supplies.
    It is an honor to appear before the subcommittee and 
address this very important topic. In the interests of time, I 
will provide a brief overview of my written testimony and look 
forward to providing more detail during the question and answer 
period.
    Even before the U.S. LNG shipments to Asia begin later this 
decade, the ascent of the United States as a major natural gas 
producer has already demonstrated U.S. strengths to the 
regional players.
    For example, during the supply uncertainty after the 
Fukushima nuclear crisis, the Persian Gulf gas supplies once 
destined for the United States prevented a serious supply 
shortage in Asia.
    Also, by delivering a range of macroeconomic benefits, the 
robust development of shale gas together with tight oil has 
dampened the United States in decline narrative that emerged 
after the economic recession of 2008, especially in China. 
Moreover, the U.S. new energy posture is starting to defuse the 
geopolitical undertone in Japan's energy relationship with 
Russia.
    The most likely U.S. bilateral relationship to benefit from 
U.S. LNG supplies is, in my judgment, U.S.-Japan. U.S. LNG 
supplies would help Japan address its post-Fukushima energy and 
economic security challenges and the improved economic health 
of Japan, a key U.S. ally in the region, in turn would further 
U.S. ability to advance national security objectives in Asia.
    Also, in terms of volume, Japan will likely be the largest 
buyer of U.S. LNG. Japan's large LNG import capacity, the 
uncertainty over nuclear energy and its robust investment 
commitment in U.S. shale and U.S. export projects support my 
judgment. Specifically, about a quarter of the U.S. LNG exports 
approved to date is expected to go to Japan.
    One country in Asia that serves as a significant variable 
is China, which is forecast to overtake South Korea as the 
second largest global LNG importer by 2020. However, its 
domestic shale gas potential, the future volume of pipeline gas 
import from Central Asia and Russia and the notable absence of 
Chinese investment commitment in U.S. LNG export projects 
render it difficult for me to envision China becoming one of 
the largest importers of U.S. LNG.
    As remarkable as the effects of the U.S. shale gas 
revolution are, there is an inherent danger in extrapolating 
that LNG resources accord significant geopolitical leverage to 
the United States.
    There is a limit to which privately-held and market 
allocated resources such as oil and gas could be successfully 
employed to deliver a specific geopolitical or strategic 
outcome.
    Furthermore, caution is warranted in extrapolating the 
extent to which U.S. LNG supplies may fundamentally alter the 
energy relationships between importer countries in Asia and 
their traditional gas suppliers.
    First, by early next decade the Asian LNG market is 
expected to see new volumes of supplies from new LNG projects 
in places like Australia and fierce competition may emerge 
among LNG suppliers. The pace of U.S. LNG export approval 
greatly influences the degree to which the U.S. LNG supplies 
can gain a foothold in Asia.
    Second, as a series of U.S. export projects come to 
fruition later this decade, the price differential between U.S. 
and non-U.S. gas supplies may narrow to the extent that the 
economic benefit from U.S. LNG may be negligible.
    Third, energy export is central to the economic health of 
many of the traditional supplier countries and many Asian 
stakeholders believe that the centrality of energy revenue 
combined with their vast resource levels continue to make them 
reliable trade partners.
    Finally, there are factors exogenous to the U.S. energy 
posture that are likely to greatly influence the level of LNG 
exports from Qatar and Malaysia in the future.
    A range of factors renders it difficult to forecast the 
trajectory of future LNG demand outlook for individual 
countries in Asia or the future composition of LNG suppliers to 
Asia.
    Yet the United States has an important role to play for the 
greater security of energy supply in Asia and around the world 
by continuing to espouse principles such as free trade and 
transparency that are essential for the sound working of the 
international energy marketplace and the resultant free flow of 
oil and gas.
    The stability that U.S. LNG supplies can induce and/or 
enhance in Asia is an understated yet significant asset that 
can underpin the continued U.S. leadership in the region.
    Thank you for your time and opportunity to address the 
subcommittee. I look forward to your questions.
    [The prepared statement of Ms. Nakano follows:]
    
    
    
    
    
    
    
    
    
    
    
    
    
    
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    Mr. Chabot. Thank you very much.
    Ms. Leopold, you are recognized for 5 minutes.

  STATEMENT OF MS. DIANE LEOPOLD, PRESIDENT, DOMINION ENERGY, 
                            DOMINION

    Ms. Leopold. Thank you and good afternoon, Chairman Chabot, 
Ranking Member Bera and members of the subcommittee. Thank you 
for the opportunity to appear before the subcommittee.
    I am here today because of Dominion Cove Point. This is an 
LNG import terminal that has been located on the Chesapeake Bay 
in Maryland for nearly 40 years. Thanks to the recent and 
growing abundance of natural gas supplies in the United States, 
LNG imports to the U.S. have nearly come to a halt.
    Where Cove Point used to unload about 85 LNG tankers a 
year, we now can go months without one. The story is much the 
same at most other U.S. import terminals. Rather than a 
business disaster, however, we see a once in a generation 
opportunity. It is a significant opportunity for the United 
States to benefit economically, environmentally and 
geopolitically.
    Dominion plans to invest nearly $4 billion in Cove Point to 
add export capabilities, primarily equipment to liquefy natural 
gas delivered by an existing pipeline. Ours is one of more than 
40 proposed LNG export projects in the U.S.
    For a variety of reasons, however, many experts believe 
that ours will be one of only about half a dozen to be built. 
Numerous studies have quantified the positive impacts that LNG 
exports will have on the U.S. economy. Even just a handful of 
LNG export terminals will create many thousands of construction 
jobs, hundreds of permanent jobs at the terminals.
    There will also be thousands more jobs in the manufacturing 
of the equipment. Once operational, the terminals will support 
tens of thousands of additional jobs throughout the supply 
chain of producing, processing and transporting natural gas to 
the terminals.
    Billions of dollars of new tax revenue will flow to 
Federal, state and local economies and the U.S. trade deficit 
will be reduced by tens of billions of dollars annually.
    In searching for customers, we literally circled the world. 
Ultimately, we signed 20-year contracts with Sumitomo, a 
Japanese global trading company, and GAIL, one of the largest 
natural gas companies in India and majority owned by the 
government.
    Sumitomo, in turn, contracted with Tokyo Gas and Kansai 
Electric to serve the needs of their respective customers 
within Japan. Japan needs natural gas for power generation to 
help make up for the closure of its entire nuclear fleet 
following the Fukushima disaster.
    India, the fifth largest importer of LNG, needs it largely 
for power generation, often supplanting coal and to support the 
country's rapidly growing economy.
    Given the global competition to support these markets, it 
is unlikely the U.S. will be able to supply the lion's share of 
LNG demand for India or Japan. Our facility will only produce a 
sliver of global demand. But that was fine with our business 
partners.
    What both customers told us was that they wanted a stable, 
secure, reliable source of LNG as an important part of their 
portfolio. This was not only because the U.S. offered a 
plentiful reliable source of natural gas itself but also 
because the natural gas was coming from a key political ally.
    Both countries are focused on energy security and creating 
a diverse portfolio of supply sources. In addition, they wanted 
a market where they could buy natural gas at a price not linked 
to oil. That is why they turned to the United States and 
Dominion.
    At the same time, the exports will not have a significant 
impact on U.S. prices. Export volumes will be relatively small 
in comparison to the nation's production capabilities and the 
cost of liquefying, transporting and regasifying natural gas is 
a total of about $7 per 1,000 cubic feet.
    This will allow U.S. manufacturers to keep a significant 
price advantage. Natural gas that sells in the U.S. for $4.50 
will have a delivered price of $11 to $12 in Asia.
    Finally, I would be remiss in not noting that LNG exports 
will also have environmental benefits. U.S. natural gas 
displacing coal abroad in power production can reduce 
greenhouse gas emissions by as much as 50 percent. LNG shipped 
from Cove Point alone could reduce global greenhouse gas 
emissions by millions of tons each year.
    In summary, we believe LNG exports to Asia and the Pacific 
will have a significant benefit for the United States and our 
trading partners.
    It will help the U.S. economy and trade deficit, it will 
help reduce global greenhouse gas emissions and it will 
strengthen the energy security of our allies.
    Thank you.
    [The prepared statement of Ms. Leopold follows:]
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
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    Mr. Chabot. Thank you very much, and I will yield to myself 
for 5 minutes to begin with the questioning. I would ask any of 
the folks who would like to comment to do so, relatively 
briefly, if you would.
    What U.S. policies or regulations, currently in effect, are 
limiting our ability either presently or in the future to do 
what we are talking about here today, which is trying to export 
more LNG from the U.S., create jobs here and improve our trade 
to Asia? I open that up to anybody that would like to take it.
    Mr. Herberg. Well, I don't think there is too much magic in 
this. I think it is--you know, we need to encourage the gas 
production side. I mean, think about this.
    The Marcellus gas field is--within a year or two will 
become the largest natural gas-producing field in the world, 
larger than North Dome Qatar field, the west Siberian oil and 
gas fields.
    So we have this enormous capacity to increase gas 
production. So I think policies that will encourage effective 
regulation, which provides public confidence that shale gas 
drilling can be done environmentally--in an environmentally 
sound way, that is a critical part of this to increase shale 
gas production.
    And, obviously, the permitting process, the environmental 
process, Department of Energy, FERC--this whole process is 
really a very long process that could be speeded up, I believe, 
and the market opportunity is there. It is an intense 
competitive environment. So I think those are the kinds of 
things that would make this happen faster.
    Mr. Chabot. Okay. Thank you.
    How has the Japanese evolving energy policy since Fukushima 
impacted their ability, interest, or their need to get more 
natural gas from us, and where are they now? Because 
immediately there was this almost knee jerk reaction we are 
going to shut them all down and that, apparently, has evolved 
to maybe we will shut some down, not others. Who would like to 
take that? Ms. Nakano.
    Ms. Nakano. Thank you for the question.
    Prior to the Fukushima, Japan did have a fairly diversified 
energy profile where nuclear supplied about a third of its 
power generation and then fossil fuel had probably about 50 
percent. They were looking at renewables combined, including 
hydro power as well.
    Nuclear was definitely central to their energy security 
strategy. But Fukushima very much changed the environment--both 
political environment but then also technically the 54 nuclear 
reactors had to come offline. And so the idea to promote the 
use of nuclear in its domestic power mix had to be 
reconsidered.
    Prior to--again, prior to Fukushima the idea was to 
increase its share of nuclear to about 50 percent of its power 
generation. So following Fukushima, the Japanese turned to 
cheaper sources of natural gas but particularly the U.S. They 
do have a long-standing business relationship with countries 
such as Qatar, Australia and also Russia supplies about 10 
percent of their import needs.
    But the United States looked particularly attractive to the 
Japanese because of the gas-to-gas competition--deregulated gas 
prices within the United States. Looking forward, their energy 
policy making is very much in flux and the national leadership 
hopes to come--bring some share of nuclear reactors back 
online.
    However, the public sentiment or the public anxiety over 
the safety of existing nuclear reactors still runs quite high. 
There are a couple court challenges that are in the way of 
companies and also their nuclear regulatory body to restart 
nuclear reactors.
    Mr. Chabot. Thank you. Let me cut you off there, if I can. 
I have a little less than 1 minute left and I wanted to get one 
more question in.
    Trade agreements like the Trans-Pacific Partnership, or 
TPP, cover a wide range of issues. My question is, what is the 
potential impact of TPP on U.S. LNG exports and trade in the 
Asia-Pacific region?
    Ms. Leopold, do you want to take that since--you could have 
answered the other ones.
    Ms. Leopold. I could have answered the other one as well as 
these--or this one.
    Mr. Chabot. All right. Well, who would like to take this 
one? Mr. Herberg.
    Mr. Herberg. Well, in terms of the Japanese market, all 
these approvals of non-FTA export arrangements in a sense makes 
the TPP moot in the sense of LNG exports, I believe. There is 
not any really specific elements of that.
    Assuming--you know, so Japan, South Korea is a free trade 
agreement partner so there is no issue there. These approvals 
have covered many other places like India and elsewhere that 
are non-free trade agreement countries.
    So I think from the Japanese perspective particularly, they 
see the TPP as something that is enshrines--in a sense 
enshrines the durability of U.S. commitments to export LNG 
because there is a little bit of worry that we might--if U.S. 
gas prices really spike in the future, that there be a domestic 
debate about cutting back on those LNG exports even though they 
have been approved. There is some concern of that on the 
Japanese part.
    Mr. Chabot. Thank you. And I will conclude that arguably, 
if TPP ultimately does get approved on all sides and it does 
increase the trade opportunities, the economies will hopefully 
thrive and grow, and therefore there will naturally be more of 
a need for energy to feed that growing economy. As a result, 
hopefully we will be able to export more gas to the region.
    I will cut myself off there and now recognize the gentleman 
from California, Ranking Member Mr. Bera, for 5 minutes.
    Mr. Bera. Thank you, Chairman Chabot.
    Mr. Herberg, you just touched on, I think, the complexity 
of balancing our domestic needs and domestic advantages that 
this LNG and energy revolution that is happening here in the 
United States offers us but balancing that with, obviously, 
some market opportunities abroad.
    Let me make sure I got the pricing correct here. Our 
domestic price currently is about $4.50. The current Asian 
market price is about $15.
    Is that--so, you know, when I had a chance to visit India 
this past summer and chat with some of the Indian 
multinationals and as they are making their strategic 
manufacturing decisions and so forth, a component in that is as 
some of the Asian advantage in lower payroll starts to wane and 
payroll goes up--goods that they are manufacturing to sell to 
us here domestically they really are factoring in the lower 
energy costs.
    And as they are building those factories and so forth there 
is a real opportunity for us to be very competitive, to--you 
know, when you factor in cost of transport from, let us say, 
India or China to the United States, costs of higher energy 
costs, we need to make sure we don't shoot ourselves in the 
foot here when we have this policy.
    And I think--I would be curious on your thoughts on that 
and I do know there is a benefit here as well because there are 
market opportunities overseas. So Mr. Herberg.
    Mr. Herberg. I mean, this is, obviously, an important part 
of the discussion and I think it is important to be balanced. 
But it is also important, I think, to understand the market 
dynamics of this because, yes, you have $15, $16 LNG prices 
today in Asia.
    But in effect that is an aberration. That started in 2009 
and accelerated to 2011 with the Fukushima. Remember Japanese 
LNG demand went from 70 million tons to 90 million tons in 2 
years. That was a shock on the demand side in the Asian LNG 
market.
    Now, if you look forward to 2015, 2020, 2022, you are going 
to have a lot of LNG coming to Asia from Australia, Russia, the 
U.S., elsewhere. I think there is a prevailing view in the 
industry that LNG prices are likely to come back down toward a 
more normal range of, say, $13--$12, $13.
    Now, U.S. gas prices--up to about $6 you got $6 or $6.50 
liquefaction and transportation. At about $12 or $13 LNG prices 
in Asia and $6 gas in the U.S. the investment decision to send 
gas--LNG to Asia becomes a wash. So in effect it is partly 
self-limiting and, you know, $6 gas here is not as good as 
$4.50 gas.
    But I think it is still wildly cheap on a global 
competitive basis. And so I think the market dynamics are 
important to understand here.
    Mr. Bera. I just want to make sure that this is a major 
component, you know, particularly where in my home state of 
California we are still grappling with 8 percent unemployment 
and you are still--you know, we have seen decades of loss of 
manufacturing jobs and there really is an opportunity for us to 
revive on a manufacturing basis here in the United States.
    Certainly, again, we don't want to lose the market 
opportunities overseas as well and there is--certainly, with 
our allies we certainly want to help support them. But at the 
same time, we don't want to sacrifice this competitive 
advantage. Ms. Leopold, did you want to add?
    Ms. Leopold. Yes. The two things that I would add is, as 
Mr. Herberg had discussed--Marcellus and the fact that it is 
growing--the supply is there.
    There is a very large surplus and technology is continuing 
to improve to increase the economic recoverable reserves here. 
So there is ample gas right now to meet these market needs. And 
I will echo that the international market is somewhat self-
limiting.
    There is a lot of international competition to meet these 
LNG supplies such as Australia and others that at a certain 
natural gas price the competitive advantage of having the $4.50 
gas goes away. If natural gas prices go up too much they will 
look elsewhere.
    Mr. Bera. So let us stick with this line of--you know, let 
us say prices in Asia normalize and come down to the $12 or 
$13. So if I am sitting at my natural gas company here 
domestically there is going to be overwhelming pressure to say, 
you know, I can sell here domestically at $6 or to Asian 
markets at $13.
    We do have to be very conscious that, you know, that is 
going to be a very compelling drive, that we don't want to 
sacrifice this real potential to revive the manufacturing base 
here in America. So I will just inject that into the 
conversation. Thank you.
    Mr. Herberg. Could I just make one quick comment? I have 
told my friends in Japan very often Henry Hub U.S. flexible 
pricing is no guarantee of low LNG prices because, you know, 
there is the U.S. market issue.
    But even with that, in a sense we will be wildly 
competitive even in that scenario. You can't go below $12 or 
$13 in Asia because you can't get it--nobody can really deliver 
it in there for less than that, given that huge transportation 
issue, and Europe is stuck at $9 or $10.
    So we are still going to have a huge competitive advantage 
in, I think, in what you can call a worst case.
    Mr. Chabot. Gentleman's time has expired. The gentleman 
from Pennsylvania, Mr. Perry, is recognized for 5 minutes.
    Mr. Perry. Thank you, Mr. Chairman. I will start out with 
Mr. Herberg and your comments regarding Marcellus shale. Being 
from Pennsylvania, I will note not from shale country but still 
very interested.
    One of the--we have a governor's race going on and one of 
the candidates has--that is running for governor has proposed 
an extraction tax now. Pennsylvania currently does not have an 
extraction tax. They have got an impact fee associated with the 
drilling and the production, pipelines, et cetera.
    The extraction tax potentially--I guess potentially, 
depending on the size of it or the amount of it would--but 
would it make--you talked about the Marcellus shale field being 
the largest, potentially, in the world or it will the largest 
in the world.
    It is not going to change the fact that the size is there 
but is it going to be--is that extraction tax going to be a 
deterrent to development in Pennsylvania?
    Mr. Herberg. You know, I don't know, you know, the scale 
that they are talking about for that so I don't want to get 
myself in trouble. Any incremental, you know, load on the total 
capital costs and operating costs of a project is going to 
affect somewhat the drilling. I think it all depends on the 
scale of that.
    I would just say one important issue is to deal with the 
local impacts of shale gas drilling. This is a very intensive 
industrial process. It has huge community impacts on roads and 
water supplies, and I think in some places there is real 
imbalance between where some benefits of the revenues from that 
are going and whether that is getting to these areas that are 
being directly affected by the operation, which are 
significant.
    So I think it is important for the governments to find ways 
to make sure these local areas are getting, you know, a share 
of the revenues to take care of some of the increased costs for 
all kinds of things that come out of this process.
    Mr. Perry. Okay. Ms. Leopold--did I say that right? Okay. 
Leopold. Sorry about that. Would you say that U.S. prices are 
artificially low? Just curious.
    Ms. Leopold. No, I would not say they are artificially low. 
I would say the market is working. There is plentiful supply 
and our natural gas prices are lower than elsewhere because we 
can economically drill lower.
    Mr. Perry. Okay. So there has been--based on that, there 
has been some supposition even among members of the panel here 
that exporting more or exporting to a greater degree natural 
gas, LNG, CNG, is going to absolutely without question increase 
our prices here.
    Is there--what is the validity to that claim and are there 
any facts and figures? Because I didn't hear any here on that 
side of the argument but you might have some counter.
    Ms. Leopold. The one thing I can say is that rigs have 
continued to pull back because natural gas prices are low and 
it is not enough for the producers to be profitable. So with 
natural gas prices coming up, more drilling can occur, which 
increases the supply.
    Mr. Perry. And increased supply equals what?
    Ms. Leopold. Well, there is not enough demand.
    Mr. Perry. I mean, if you used the principle of supply and 
demand, right?
    Ms. Leopold. Right.
    Mr. Perry. I mean, so it should equal----
    Ms. Leopold. Lower prices.
    Mr. Perry. Thank you. Okay. So you got that. All right.
    Are there any main concerns with the DOE's process for 
export approval to non-FTA countries and can you provide any 
examples of when an approval was denied based on public 
interest? Anybody on the panel.
    Mr. Herberg. I don't know of any, no.
    Mr. Perry. Okay. How about otherwise? Other than public 
interest?
    Mr. Herberg. I don't believe any have been denied. A couple 
of them they have approved a lesser volume than was applied 
for.
    Mr. Perry. And what is the point of that? Can you--if you 
know. What is the point of doing that? Why would they--why 
would they approve a lesser volume?
    Ms. Leopold. Cove Point had a lesser volume because it 
matched the volume that we applied for in our Federal Energy 
Regulatory Commission application. So the DOE just went to sync 
with what we requested in that application after our design 
work was complete.
    Mr. Perry. So it could do more but it has just not because 
that was the application and at that point is that--that is not 
necessarily the government's fault if there is a fault? That is 
what you applied for?
    Ms. Leopold. Correct.
    Mr. Perry. Okay. In India, with infrastructure investments 
needed in order to effectively receive and distribute large 
volumes of LNG or what infrastructure--do you know what--
because that is an emerging market? Do you have an indication? 
It is a large emerging market.
    Mr. Herberg. They suffer from a lack of natural gas 
pipeline capacity and infrastructure, port LNG terminal 
capacity and, most importantly, they maintain energy prices.
    They administer and control energy prices and hold them so 
low for natural gas that more expensive LNG coming into the 
market can't find a home and that really limits the ability to 
really raise natural gas consumption in India. They need to--
they need to deal with price reform domestically to get the 
price----
    Mr. Perry. They need to let the market dictate the----
    Mr. Herberg. They need to let the market work a little 
more. It is a wildly administered system.
    Mr. Perry. Thank you, Mr. Chairman. I yield.
    Mr. Chabot. Thank you. The gentleman's time has expired. 
The gentleman from California, Mr. Sherman, is recognized for 5 
minutes.
    Mr. Sherman. EPA just announced some regulations that the 
chamber says are going to shut down all the coal electric 
plants in the United States.
    That may be a bit overdrawn but do the analyses that our 
witnesses provide reflect that regulation assume that it is 
going to be implemented and that there is going to be a 
substantial increase in U.S. demand for non-coal generated 
electricity?
    Mr. Herberg. I can't say. It is something I work on very 
much but I----
    Mr. Sherman. So we could see a situation--you have told us 
that the price in the United States is $4.50. That could go to 
$6.50 just as a result of today's regulations and that the 
natural--use for natural gas is to generate electricity and it 
is competition with coal. So if that were true we could cancel 
the hearings. But let us go on.
    Now, Mr. Herberg, you basically have given us some prices 
in Asia, prices in the United States. I interpret from that 
that you are saying it costs about $6.50 a unit to liquefy it, 
ship it and deliquefy it or return it to a gaseous state.
    Is that pretty much the same whether you are shipping to 
Asia or you are shipping to Europe? Europe is a little shorter 
distance. Is the real cost in the liquefication and the 
gasification or is the real cost--or is there a substantial 
cost per mile?
    Mr. Herberg. The largest share would be liquefaction. Maybe 
Dominion would talk about that more.
    Ms. Leopold. Very roughly, in the total of $7 range, $3 
would be the liquefaction, $3 would be the shipping to Asia and 
$1 would be the regasification.
    Mr. Sherman. Okay. So the--so it would be a little cheaper 
to send. One public policy position we could take is to give 
licenses if you want to ship to Ukraine or to European 
pipelines that could then reverse flow to Ukraine but not to 
Asia.
    I am not sure that that is the right public policy. Are any 
of you aware of any economic--I mean, the studies from the U.S. 
Department of Energy say if we allow unfettered export we are 
going to see a one-third increase in natural gas prices.
    Are any of you aware of any economic studies as to what 
effect that has on the competitiveness of our manufacturing and 
fertilizer plants? How many jobs do we lose when we start 
paying $6, $7 a unit rather than $4.50 a unit for natural gas? 
Anybody aware of any studies on that?
    Mr. Herberg. No, I haven't seen any but----
    Mr. Sherman. I think we would also see, of course, a slight 
reduction in the cost of LNG in Asia, which would make our 
competitors just a little bit more competitive. I think the 
effect there would be a little less.
    The background memo that our staff provided for this 
hearing describes the United States as currently an importer of 
natural gas and that we will shift to a net exporter only by 
2020.
    Is that accurate and who is--which foreign countries are 
willing to sell us LNG--are willing to sell us natural gas at a 
price so low that we can keep prices at $4.50?
    Mr. Herberg. Canada.
    Mr. Sherman. Canada.
    Mr. Herberg. Yes, and----
    Mr. Sherman. And so what we could see is the Canadians will 
get tired of selling us natural gas at $4.50 and decide to 
build their own liquefication and send it and it wouldn't 
matter.
    Is there substantial discussion of liquefication or 
liquefaction in Canada and would that also be a reason to 
cancel the hearings on the theory that if all the Canadian 
natural gas goes to Asia there is no economic reason to send 
U.S. natural gas?
    Mr. Herberg. Well, the--yes, there are a number of LNG 
projects proposed on the British Columbia coast and even in the 
east for LNG from Canada. But I think, again, this is kind of a 
self-limiting process.
    At $3, Canadian gas backed up into Canada was net backing 
to the point where investment collapsed in natural gas 
development in China--I mean, in Alberta for a while but at 
$4.50 the incentives start working back. But they are seeing 
their market basically absorbed by this huge expansion in U.S. 
production.
    So yes, they have to look elsewhere for long-term future 
markets. But, again, if the U.S. price rises then that is going 
to pull Canadian gas in and this is a huge system they have 
built. So it is partly market self-limiting.
    Mr. Sherman. I am--I think I would support export if I knew 
that that would get us more jobs in the energy industry than it 
would cost us in those industries that use the comparatively 
cheap natural gas that is being used in manufacturing and 
fertilizer production.
    And, Mr. Chairman, in spite of all those comments about 
cancelling the hearing I am very glad you are having this 
hearing and I yield back.
    Mr. Chabot. Thank you. I am glad we have your approval. The 
gentleman from California now is recognized for 5 minutes, Mr. 
Rohrabacher.
    Mr. Rohrabacher. How much natural gas is used to produce 
fertilizer? Do you know? We don't. My gosh. It is a substantial 
amount of natural gas is used to produce fertilizer? But we do 
know a substantial amount of fertilizer is used to produce 
natural gas.
    I mean, you can't have fertilizer without natural gas, 
right? Or can you? Unless you got a lot of horses and cows 
around. Then it is another kind of gas.
    Mr. Herberg. The bulk uses power generation. Industrial 
petrochemicals feedstocks is where most gas goes--industrial 
use, boilers. So it is not a huge portion that would be 
fertilizer but I--you know, I couldn't give you a----
    Mr. Rohrabacher. How much of natural gas then goes to just 
energy, like electricity production?
    Mr. Herberg. That would be the bulk of it. I mean, that 
would be the largest share and even industrial processes you 
are doing heat--you know, using gas for heat generation, plant 
operations, things like that. That is energy indirectly so a 
large share of it. I don't have the numbers in front of me.
    Mr. Rohrabacher. Yes, I would sure like to know some of 
those statistics. Also, natural gas--someone told me that you 
now can turn natural gas into diesel fuel?
    Mr. Herberg. Mm-hmm. Yes.
    Mr. Rohrabacher. What is the cost of that?
    Mr. Herberg. Very high, relatively. They are doing that 
kind of thing in Qatar because they have an enormous surplus of 
natural gas--gas to liquids, you call it.
    Mr. Rohrabacher. Right.
    Mr. Herberg. Shell has a project. Malaysia has a project. 
But it is a pretty expensive thing. It produces very clean 
diesel and gasoline but at a very, very high cost relative to 
today's kind of prices.
    Mr. Rohrabacher. There is--I was just notified a few weeks 
ago about a business that was going to try to capture the 
burning--the flare-off gas in North Dakota and would then use 
it to produce diesel gas. Do you think that maybe that would be 
economically viable?
    Mr. Herberg. In small--in small kind of niche areas. You 
have a huge bunch of gas being produced in North Dakota that 
there is no pipeline capacity--take-away capacity for it so it 
gets flared.
    So if it is zero value gas essentially because it is going 
to be flared, you can make sense out of that economically to 
produce diesel or products----
    Mr. Rohrabacher. Okay.
    Mr. Herberg [continuing]. Even though at a normal kind of 
process where you are paying market price for natural gas it 
wouldn't make sense.
    Mr. Rohrabacher. Okay. How much natural gas is Australia 
producing?
    Mr. Herberg. They are exporting about 25 million tons a 
year of LNG from the Northwest Shelf--mainly Northwest Shelf 
project.
    Mr. Rohrabacher. Exactly how much are they producing? We 
don't know how much actually they are producing.
    Mr. Herberg. It is a small gas market, in effect, for 
Australia. You know, it is just a bunch of cities around this--
--
    Mr. Rohrabacher. Right. But I understand that there has 
been new oil and gas finds in Australia that are massive. Is 
that correct?
    Mr. Herberg. Yes. There is seven large gas projects being--
LNG projects being built as we speak in Australia--seven--for 
well over 50 million tons of LNG that will come on stream from 
2015 to 2022 or so--huge.
    Mr. Rohrabacher. So we are talking about huge new things in 
the United States but also our friends there to the south and 
Australia will become a major new force on the market in making 
all these calculations.
    Mr. Herberg. Absolutely.
    Mr. Rohrabacher. And I also understand that in Australia 
that they have discovered some kind of--a great water source 
underneath the ocean. Is that correct?
    So anyway, I just--I was reading some scientific journals 
where apparently there has been--underneath their ocean they 
have found a freshwater ocean. That would be--but you don't 
know anything about that?
    Mr. Herberg. No.
    Mr. Rohrabacher. Well, let me just say that fertilizer, and 
we have all of these products and as I said in my opening 
remarks we are talking about the amount of wealth that exists 
in the world and we should applaud the increase in wealth and 
applaud anything that would facilitate the distribution of 
wealth in a more efficient way because this is what will 
hopefully uplift the human condition.
    So thank you very much for your information today to put 
into our little equations that we make here. Thank you.
    Mr. Chabot. Thank you very much.
    The gentleman from Georgia, Mr. Collins, is recognized for 
5 minutes.
    Mr. Collins. Thank you, Mr. Chairman. I just have a few 
questions and just open up for the panel anybody that would 
like. Surveys suggest that the growth in LNG demand is mainly 
concentrated in China and South Korea.
    There is some other--along with some other southeast Asian 
markets. Which countries are the greatest, largest potential 
recipients of U.S. LNG exports and which countries offer the 
greatest mutual benefit for U.S. strategic interest in this 
area?
    Ms. Nakano. In my judgment, Japan will be the largest buyer 
of U.S. LNG supplies. Japan already does have a large import 
receiving capacity. But then also, unlike China, Japan does not 
have the option of importing gas--natural gas by pipelines.
    And also the current investment commitment into the U.S. 
LNG both upstream but then also export projects suggest that 
they will take about a quarter of the amount--the cumulative 
amount from the seven projects that have been approved to date 
to non-FTA countries.
    Mr. Collins. So Japan--from your position Japan stands with 
its capacity and also its infrastructure that is already in 
place would be the natural beneficiary in this?
    Ms. Nakano. Yes, and China certainly has a potential to 
become a large or one of the leading global LNG importers but 
that doesn't mean that they will be necessarily turning to the 
United States.
    Mr. Collins. Well, given the interesting political 
discussions over the sea and other issues there I think this 
provides an interesting conversation.
    I do have another question there that sort of is similar. 
How does Australia's strong energy export market with China 
affect its strategic relationship with the United States and 
does Australia see any contradiction between a strong 
relationship with China and its strong strategic relationship 
with the United States? Or is it all about the business?
    Mr. Herberg. They would like--the Australians and the 
Chinese would like to keep it all about business. But in the 
real world, as Australia's economy both in energy and minerals 
becomes more closely linked to Chinese economic prosperity and 
markets, there is a discussion in Australia about the balancing 
of the U.S. alliance with its growing dependence on China and 
this, obviously, looms in the overall kind of contest in Asia 
for influence between China and Russia.
    So there is a discussion about that in Australia. But 
fundamentally Australia remains deeply committed to the U.S. 
alliance for now.
    Mr. Collins. Well, in light of that let us chase that a 
little bit further. If there is a much more--a much heavier 
influence of U.S. LNG into this market which would maybe also, 
for lack of a better term, undercut or change that dynamic with 
Australia and China, do you think that attitude could change in 
Australia or would there be a tightening or a shifting of the 
geopolitical atmosphere there that could move that a little 
bit?
    Mr. Herberg. No, I think that is a good point. For our 
purposes and I think for Australia's, it is important that all 
the big suppliers like Australia and others have a very 
diversified slate of buyers for their output and that is the 
sensible commercial thing to do--have a broad set of buyers 
from a whole bunch of different countries and regions.
    So I think on the part of Australia they want to keep a 
diversified slate. But to the extent we create a more 
diversified slate by--with our exports into the region, I think 
that is good for all of us in terms of keeping those alliances 
in shape.
    Mr. Collins. Well, I think the alliance is in shape. I was 
also concerned, and I think it was brought up and I am not 
going to go into it here, pricing and issues with domestic 
pricing as opposed to what would be found on the international 
market, especially with the price disparities that are out 
there.
    A curious question--you brought this up and it just--it 
triggered a thought from me. In looking at the Australia, 
Japanese, the Chinese market here in this balance, with Russia 
giving and China importing more in from Russia, traditionally 
not the closest of allies or friends even in that region, how--
given what we have seen on the more eastern side with Ukraine, 
Crimea and the dependence aspect that is over there, could this 
be a balance from the U.S. perspective in dealing with China in 
this--in this market, a balance to Russia becoming a dominant 
player in the Chinese energy market? Is that--how does that 
affect the political aspect?
    Mr. Herberg. Yes. I think at the margin it does. The more 
U.S. LNG in the region, and China doesn't have to be 
necessarily a direct buyer of U.S. LNG. If we are going to 
Japan then that frees up LNG that China will be buying from 
Australia.
    Offshore East Africa will come on after 2020 region. You 
got Papua New Guinea. You have got lots of areas of supplies. 
So I think our supplies in there create a more diversified mix 
and that is a good thing.
    The closer Chinese-Russian gas relationship--the gas 
pipeline deal that was just signed--by the time that stuff 
comes on that will still only represent 10 percent of China's 
natural gas consumption.
    So I think the Chinese are very careful about diversifying 
their supply sources. They are very deliberate about this and 
the last thing they want to do is put themselves vulnerable to 
Russian pressure.
    Mr. Collins. Well, I am out of time. But, Mr. Chairman, I 
would appreciate this conversation because it not only just 
takes this with the LNG issue.
    This raises what I believe is something that we don't 
discuss enough and that is the changing geopolitical influences 
of a region that is, one, the largest growing region, the most 
populous region, and potentially the most unstable of the 
regions in the world whether it be economic, political, 
religious, other things going on here.
    So I think it has just brought up an interesting point. Mr. 
Chairman, I do appreciate it and I yield back.
    Mr. Chabot. Thank you. The gentleman yields back.
    We will go into a second round. I just have a question or 
two but I probably won't use the whole 5 minutes. Then if Mr. 
Sherman is interested, he can do that as well.
    I also wanted to reiterate something that Mr. Sherman 
mentioned and that is about our colleague, Randy Weber. When we 
were in Asia some months ago, he brought up at every meeting we 
had, whether it was Prime Minister Abe, President Park, 
President Ma, to everybody from downtown, or to the taxi 
drivers, at the places about LNG gas--the importance of it--
specifically, Texas LNG gas. So he was really doing great work 
out there trying to export something we have here and trying to 
create jobs here. So my hat is off to him for that.
    I just had one quick question here and anybody is welcome 
to take this. Maritime and territorial disputes in the region, 
mostly between China and Japan, China and Vietnam, China and 
the Philippines, and China and Taiwan, et cetera--what impact, 
if any, could there potentially be on exploration and 
development of potential natural gas resources or energy 
resources in general in the region? How much of those disputes 
have to do with that issue versus fishing rights, and things of 
that nature, and actual acquisition of land? What part of it is 
energy related? Ms. Nakano, would you like to take it? Thank 
you.
    Ms. Nakano. Thank you. In my view, energy is not the 
driver. Many surveys have indicated that there is somewhat 
limited amount of proven oil and gas reserves in East China Sea 
or South China Sea.
    However, because of these geological--I am sorry, 
geopolitical tensions there has not been really satisfactory 
amount of surveys done. So it is a bit of a--sort of a, you 
know, horse and cart issue.
    But I think that the prominence or the importance of places 
such as the South China Sea is really that it is--it is where 
the--about half of global LNG transits.
    So it will remain to be important. But as far as for the 
production of resources that may or may not be there, that is 
something that I do not think is the main reason why there is a 
tension among the countries in that region.
    Mr. Chabot. Let me interpret that if I can, or correct me 
if I am wrong. You are saying, that in your view, it is not the 
driving principal, but since tensions have prevented a lot of 
the exploration from taking place, they really don't know how 
much is there and it might potentially be a big deal but we 
don't really know that at this time, but there may be other 
things that are driving instability more than that issue right 
now. Is that correct?
    Ms. Nakano. Yes, correct. And if I may add quickly, that 
from my understanding there are some technical challenges to 
exploring the oil and gas resources there or doing a survey 
because I understand there is submarine valleys and also very 
strong currents.
    So there are also sort of technical and sort of geological 
challenges associated with further surveys there.
    Mr. Chabot. Okay. Thank you. I will yield back my time. If 
the gentleman from California has any questions you are 
recognized.
    Mr. Sherman. Okay. South Korea has the KORUS agreement and 
so you don't have the same approval process that we would to 
export natural gas to Japan. Is natural gas cheaper or is it 
expected to be cheaper over the next several years in South 
Korea than in Japan?
    Mr. Herberg. The Japanese prices are much higher than--
domestic gas prices are higher in Japan because they pass 
through the cost of these high costs of LNG. In Korea, they 
tend to administer prices for gas and oil and coal and 
electricity----
    Mr. Sherman. Administer through government subsidy?
    Mr. Herberg. Yes. Well, through government price direction 
and guidance because remember, you only have----
    Mr. Sherman. Well, you can have price correction and 
guidance but if you are a utility in South Korea and the price 
of LNG is high in part because of Fukushima you can't pay less 
on the theory that your government wants you to pay less.
    Mr. Herberg. In a very simplistic way, KOGAS, the state gas 
company, contracts for the LNG and imports it at world prices 
or Asian prices.
    Mr. Sherman. Right.
    Mr. Herberg. It sells that gas to KEPCO, the state 
electricity underwriter. KEPCO is required to keep electricity 
prices relatively low for----
    Mr. Sherman. Okay. So I shouldn't buy any stock in KEPCO.
    Mr. Herberg. KEPCO gets--KEPCO catches it on that because 
they are required.
    Mr. Sherman. Okay. In any case, looking only at the 
wholesale price or the importer's price because you can jack up 
electricity prices, subsidize them, whatever, do those who 
import that LNG to South Korea pay any less on average than 
those who import natural gas to Japan?
    Mr. Herberg. No, no. The price----
    Mr. Sherman. And so the--it is not like the South Koreans 
say great, we have got KORUS, Japan doesn't--they will have to 
pay Qatar and Malaysia a lot and we can be the sole Asian 
importer of U.S. natural gas. That isn't happening. The South 
Koreans are paying as much and signing long-term contracts to 
pay as much as the Japanese? Ms. Nakano.
    Ms. Nakano. Thank you. South Korea already has investment 
into Sabine Pass and that is the one that is already scheduled 
to start exporting as early as next year.
    Mr. Sherman. They have investment in what again?
    Ms. Nakano. Cheniere's Sabine Pass project. That was who--
which got approval back in 2011. So and from what I understand 
that contract does include some linkage to Henry Hub price. So 
down the road they----
    Mr. Sherman. But it is not that, okay, you have got the 
U.S. Government screwing up the free market. We limit or 
prohibit U.S. exports to Japan. We allow U.S. exports to South 
Korea. Therefore, there is a huge differential or a huge 
benefit to South Korea.
    As far as we know, they are paying and expect to be paying 
pretty much per unit the same as the Japanese are paying and 
the effect of the U.S. limitation on exports to Japan doesn't 
seem to be playing a main effect.
    Let us go on to another line of questions and that is I 
have dreamt that we--somehow we and the world off of its 
addiction to petroleum as a transportation fuel and there is 
one production automobile that is powered by compressed natural 
gas and its cost per mile, I am told, is half.
    I don't know if you are familiar with that statistic and 
can reflect on it but to what extent would preventing the 
export of natural gas keep prices in this country low enough so 
that we will see the development and implementation of natural 
gas-powered vehicles?
    Mr. Herberg. You know, it is a complicated relationship 
between limiting exports of LNG and the domestic prices.
    Mr. Sherman. Right. And you don't know whether your main 
effect is to limit production or to limit price.
    Mr. Herberg. Yes. You can--you can bottle up the--you know, 
the natural gas and get somewhat lower prices but you will also 
reduce investment in new supplies, and how that balance works 
out is not always very clear.
    Mr. Sherman. Is there a lot of natural gas to be developed 
in the United States that gets developed at $7 domestic price 
but doesn't get developed at $4 domestic price?
    Mr. Herberg. Yes, yes. There is a huge transfer of our gas 
supply.
    Mr. Sherman. Is that half of our potential? A quarter of 
our potential? Does any of the other witnesses have a comment?
    Mr. Herberg. I have seen studies of that. I could try to 
get those.
    Mr. Sherman. Yes. Please provide that for the record 
because----
    Mr. Herberg. They have a cost curve and my recollection is 
that something of 70 percent of the known resources or reserves 
out there are producible at $7----
    Mr. Sherman. The one question I will ask you to ask--answer 
is what will be the effect on total U.S. production if we 
eliminate our restrictions on exports.
    I believe you have already estimated the price change would 
be from around $4.50 to $6.50 but if you can refine that, and I 
am going to ask the other witnesses to also provide answers to 
the--to record to that to the extent you can be helpful, and I 
am going to yield back.
    Mr. Chabot. And all the witnesses are nodding their 
affirmative response. We thank the gentleman. The gentleman's 
time has expired.
    I want to thank all the witnesses here this afternoon for 
testifying. Members will have 5 days to supplement their 
statements or submit questions, and if there is no further 
business to come before the committee we are adjourned.
    Thank you.
    [Whereupon, at 3:42 p.m., the committee was adjourned.]
                                     

                                     

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