[Senate Hearing 114-9]
[From the U.S. Government Publishing Office]
S. Hrg. 114-9
S. 33, THE LNG PERMITTING CERTAINTY AND TRANSPARENCY ACT
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HEARING
before the
COMMITTEE ON
ENERGY AND NATURAL RESOURCES
UNITED STATES SENATE
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
on
S. 33,
THE LNG PERMITTING CERTAINTY AND TRANSPARENCY ACT
__________
THURSDAY, JANUARY 29, 2015
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Printed for the use of the
Committee on Energy and Natural Resources
______
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COMMITTEE ON ENERGY AND NATURAL RESOURCES
LISA MURKOWSKI, Alaska, Chairman
JOHN BARRASSO, Wyoming MARIA CANTWELL, Washington
JAMES E. RISCH, Idaho RON WYDEN, Oregon
MIKE LEE, Utah BERNARD SANDERS, Vermont
JEFF FLAKE, Arizona DEBBIE STABENOW, Michigan
STEVE DAINES, Montana AL FRANKEN, Minnesota
BILL CASSIDY, Louisiana JOE MANCHIN III, West Virginia
CORY GARDNER, Colorado MARTIN HEINRICH, New Mexico
ROB PORTMAN, Ohio MAZIE K. HIRONO, Hawaii
JOHN HOEVEN, North Dakota ANGUS S. KING, JR., Maine
LAMAR ALEXANDER, Tennessee ELIZABETH WARREN, Massachusetts
SHELLEY MOORE CAPITO, West Virginia
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Karen K. Billups, Staff Director
Patrick J. McCormick III, Chief Counsel
Tristan Abbey, Professional Staff Member
Angela Becker-Dippmann, Democratic Staff Director
Sam E. Fowler, Democratic Chief Counsel
Tara Billingsley, Democratic Senior Professional Staff Member
C O N T E N T S
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Opening Statements
Page
Murkowski, Hon. Lisa, Chairman, and a U.S. Senator from Alaska... 1
Cantwell, Hon. Maria, Ranking Member, and a U.S. Senator from
Washington..................................................... 2
Barrasso, Hon. John, a U.S. Senator from Wyoming................. 4
Heinrich, Hon. Martin, a U.S. Senator from New Mexico............ 5
Witnesses
Smith, Hon. Christopher A., Assistant Secretary for Fossil
Energy, U.S. Department of Energy.............................. 6
Cicio, Paul N., President, Industrial Energy Consumers of America 15
Durbin, Martin J., President and CEO, America's Natural Gas
Alliance....................................................... 37
Eisenberg, Ross E., Vice President, Energy and Resources Policy,
National Association of Manufacturers.......................... 50
Koranyi, David, Director, Eurasian Energy Futures Initiative,
Atlantic Council............................................... 60
Alphabetical Listing and Appendix Material Submitted
API
Statement for the Record..................................... 161
Barrasso, Hon. John
Opening Statement............................................ 4
Chart entitled ``21 Countries Import More Than 40% of Their
Natural Gas From Russia''.................................. 74
Boston Globe article entitled ``In face of opposition,
company to reroute gas pipeline''.......................... 94
Cantwell, Hon. Maria
Opening Statement............................................ 2
Chamber of Commerce of the United States of America
Statement for the Record..................................... 163
Cicio, Paul N.
Opening Statement............................................ 15
Written testimony............................................ 17
Responses to Questions for the Record........................ 117
Macroeconomic Impacts of LNG Exports from the United States--
NERA Economic Consulting................................... 165
Consumer Energy Alliance
Statement for the Record..................................... 167
Durbin, Martin J.
Opening Statement............................................ 37
Written testimony............................................ 39
Responses to Questions for the Record........................ 137
Eisenberg, Ross E.
Opening Statement............................................ 50
Written testimony............................................ 52
Responses to Questions for the Record........................ 145
Heinrich, Hon. Martin
Opening Statement............................................ 5
ICF International
August 29, 2014 paper entitled ``Recent Australian Natural
Gas Pricing Dynamics and Implications for the U.S. LNG
Export Debate.............................................. 169
JAX Chamber
Statement for the Record..................................... 230
Koranyi, David
Opening Statement............................................ 60
Written testimony............................................ 62
Responses to Questions for the Record........................ 158
Murkowski, Hon. Lisa
Opening Statement............................................ 1
S. 33, the LNG Permitting Certainty and Transparency Act......... 100
Smith, Hon. Christopher A.
Opening Statement............................................ 6
Written testimony............................................ 8
Responses to Questions for the Record........................ 108
S. 33, THE LNG PERMITTING CERTAINTY AND TRANSPARENCY ACT
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THURSDAY, JANUARY 29, 2015
U.S. Senate,
Committee on Energy and Natural Resources,
Washington, DC.
The committee met, pursuant to notice, at 9:34 a.m. in room
SD-366, Dirksen Senate Office Building, Hon. Lisa Murkowski,
Chairman of the committee, presiding.
OPENING STATEMENT OF HON. LISA MURKOWSKI, U.S. SENATOR FROM
ALASKA
The Chairman. I'm calling to order the meeting of the
Energy Committee this morning.
Thank you to members and thank you to those on the panel
for joining us.
As you know we've had kind of a busy week here on the
Committee. Senator Cantwell and I have logged a few hours
standing up in the chamber trying to move the Keystone bill
through, and our hope is that we're on the final run of that.
I appreciate our Committee members coming a little bit
earlier. We had initially noticed this for ten o'clock, but in
an effort to get through this important hearing and then attend
to our business on the Floor, we bumped it up half an hour.
So to our witnesses, thank you for your accommodation as
well. We appreciate it.
I want to recognize that Senator Heinrich, as well as
Senator Barrasso, who are the lead bipartisan sponsors of S.
33, the LNG Permitting Certainty and Transparency Act, will
have some remarks this morning so I'm going to keep my comments
brief.
I want to recognize them, congratulate them and their co-
sponsors, Senator Capito, here on the Committee, Gardner and
Hoeven, all members, as well as Senators Bennet, Udall, Toomey,
Kaine and Heitkamp. I appreciate the work that all of you have
done to get us here.
I have long argued that exports of liquefied natural gas
should be expedited from the United States to our friends and
our allies overseas. I made the case in my Energy 20/20 two
years ago and again in two more recent white papers, one called
``The Narrowing Window: America's Opportunity to Join the
Global Gas Trade'' as well as ``A Signal to the World:
Renovating the Architecture of U.S. Energy Exports.''
Know from the outset that I fully support the bill we have
in front of the Committee. I think it's the culmination of
years of legislative work here in the Congress. I can remember
when Senator Dick Lugar, who introduced it in December of 2012,
laid out the concept that exports for NATO members should
receive expedited treatment over at the DOE. As proposals came
forth, more and more countries were added to this prospective
list, Ukraine, Japan, India and eventually the entire World
Trade Organization.
Just yesterday we voted on Senator Cruz's WTO amendment as
part of the ongoing Keystone XL debate.
Last year legislative activity turned to the approval
process over at DOE. We saw proposals to give the Department a
time limit for authorizations, these licenses, with the clock
starting at various points, after FERC final authorization,
after pre-filing and so forth. Many colleagues co-sponsoring
this current legislation were involved in those efforts, as was
our former colleague and member of the Committee here, Senator
Mark Udall.
I think we all recognize this legislation in front of us,
S. 33, is a compromise. Compromises, almost by their
definition, are imperfect in certain ways, but I think it is
the result of some very serious work by very serious people
coming together to try to address an issue. I thank my
colleagues for all that they have done to come together on this
matter.
With that I will turn to my Ranking Member for her
comments.
STATEMENT OF HON. MARIA CANTWELL, U.S. SENATOR FROM WASHINGTON
Senator Cantwell. Well, thank you, Madam Chairman and thank
you for the hearing. As you said, we're on the Floor on a
pretty serious policy discussion on energy and we're having
this hearing this morning. I think it's obvious to everybody
we're two female Committee Chairs, but we also have two female
staff directors and I think that the fact that we're having
this hearing and the Floor debate at the same time just shows
that we're capable of multitasking when it comes to energy
policy.
So it makes for a busy day.
We're here to discuss S. 33, a bill to seek acceleration
and more certainty to the process of determining natural gas
exports and whether they are in the public interest. As we
consider this bill and how to discuss it, obviously we are
interested in taking advantage of America's abundant natural
gas and its ability to help transform our economy.
It was only ten years ago we were discussing how we would
need to import natural gas and how many new terminals we would
need to build to meet growing demand, but over the last eight
years natural gas production has increased by 36 percent.
Today's natural gas has become so plentiful and inexpensive
that we are reversing the flow and turning those LNG import
facilities into export facilities.
We're here today, I think five members of our Committee in
fact, looking for ways to help speed up that export permitting
process. I appreciate that they are doing so in a way that
respects the critical NEPA process, maintains the legal
requirements for exports to receive a public interest
determination and I would note however, that the Department of
Energy recently changed the process to approve these new
projects. The goal was to speed up the overall approval
process. As we're considering S. 33, I'm interested in finding
out whether these issues have actually been addressed.
So is the new revised DOE process actually working?
In the five months since the Department of Energy adopted
its new policy, it has issued four separate approvals for LNG
export facilities. Of the 37 applications for exports to non-
FTA countries that have been filed at the Department of Energy,
currently 32 are pending.
We must consider whether the revised process is the best
way to evaluate those projects.
Second, what are the policy implications for the fixed
deadline? I'm sure we'll get into this discussion here and
determination about the public interest.
A fixed deadline is not necessarily always in the
applicant's best interest as well. What if the authorization
can't be made in 45 days, but it could be made in 60 days or it
could be made in 90 days? It would be unfortunate the applicant
actually could get turned down simply because of the timeline
this bill lays out rather than from a public interest
determination.
Third, is it appropriate for DOE to make the public
interest decision before the FERC process is completed?
Right now DOE starts its public interest process after the
Federal Energy Regulatory Commission approval is issued. The
bill would require the Department of Energy to start its
process after the NEPA process is complete, but the FERC
approval requires more than just NEPA review. The FERC approval
process includes a robust public comment period to vet the
siting of these facilities.
So all of these are important questions that we'll have for
today's hearing.
Madam Chair, thank you so much for giving our colleagues a
chance to be here to discuss this issue.
I would say besides the five members who support this
legislation and some of which, as I said, has already been
implemented, we have great concerns about what is the impact as
it relates to pricing in the Midwest into natural gas.
Being from a hydro state, I'm always very aware of how
energy is the lifeblood of an economy and how much it has built
the Northwest economy over and over and over again. I also want
to understand how this legislation will impact our big
industrial users?
I look forward to hearing from the panelists who are here
today to testify.
Thank you.
The Chairman. Thank you, Senator Cantwell.
I want to note for the record that Senator Portman was also
added as a co-sponsor to this bill, and we appreciate his
involvement as well.
I will now turn to Senator Barrasso and Senator Heinrich
for brief comments this morning before we go to our witnesses.
As the co-sponsors of this bipartisan bill, I'd like to extend
them that courtesy.
Senator Barrasso.
STATEMENT OF HON. JOHN BARRASSO, U.S. SENATOR FROM WYOMING
Senator Barrasso. Well, thank you very much, Chairman
Murkowski. Thank you for holding today's hearing on liquefied
natural gas export legislation.
Two weeks ago Senator Heinrich and I introduced S. 33, the
LNG Permitting Certainty and Transparency Act. This bill would
expedite the permitting process for LNG exports to countries
which do not have free trade agreements with the United States.
It would require the Secretary of Energy to make a final
decision on an export application within 45 days after FERC
completes the environmental review process. In addition the
bill would provide for expedited judicial review of legal
challenges to LNG export projects. Finally the bill requires
exporters to publicly disclose the countries to which LNG is
being delivered.
Our bill ensures that the Secretary will make a timely
decision on LNG export applications and that legal challenges
to LNG export projects will be resolved expeditiously. In
short, our bill will give investors greater confidence that LNG
export projects will be permitted and built.
Our bill is carefully crafted, and it's a bipartisan
compromise. It's co-sponsored by five Democrats and five
additional Republicans. It is nearly identical to the
legislation that the House of Representatives passed yesterday
with the support of 41 Democrats. Like its House companion, our
bill offers Congress the best chance to do something meaningful
for LNG exports.
Study after study have shown that LNG exports will create
good paying jobs all across America, good paying jobs in states
like Oregon, West Virginia, Colorado, New Mexico and Wyoming.
LNG exports will also reduce our nation's trade deficit which
currently stands at $39 billion. It will even help President
Obama fulfill his goal of doubling our nation's exports which
he set five years ago this week.
Finally, LNG exports are, for the United States, a powerful
means to bring about positive change throughout the world. LNG
exports will help increase the energy security of key U.S.
allies and partners throughout Europe and Asia. LNG exports
will provide an alternative source of energy to countries which
Russia has ruthlessly exploited. LNG exports will also give
countries an alternative to energy from Iran.
In conclusion, I'd like to thank Senator Heinrich for his
leadership on this bill. He's been a great partner to work
with. I'd also like to thank Senators Gardner, Hoeven, Capito
and Portman, members of this Committee, as well as Senators
Heitkamp, Kaine, Bennet, Udall and Toomey. Finally, I'd like to
thank the witnesses for their willingness to testify here
today. I look forward to the testimony.
Thank you, Madam Chairman.
The Chairman. Thank you, Senator Barrasso.
And again, thank you for your long leadership on this issue
and that of Senator Heinrich's as well. We'll turn to you,
please.
STATEMENT OF HON. MARTIN HEINRICH, U.S. SENATOR FROM NEW MEXICO
Senator Heinrich. Great. Thank you, Madam Chairman, for
holding this hearing.
I want to say I very much appreciate the work of Senator
Barrasso and his staff in working with us putting together this
bipartisan bill, and I'm incredibly pleased to join my
colleagues, Senators Gardner, Heitkamp, Hoeven, Kaine, Capito,
Bennet, Toomey, Udall and Portman, in sponsoring this bill. It
just doesn't get much more bipartisan than that around here
these days.
As the Chair mentioned, our bill follows directly from the
work in the last Congress of our former colleague, Senator Mark
Udall and in the House also by our new colleague, Senator
Gardner. My home state of New Mexico, some of you know, ranks
seventh in the nation right now in gas production. The main gas
producing region in New Mexico is the San Juan Basin in the
Northwest part of the state around the city of Farmington,
Aztec.
The good news is we have large reserves of natural gas;
however, the current surge in gas production has depressed
prices to less than three dollars per million BTU negatively
impacting the economies of domestic gas producing regions
including Northwestern New Mexico.
I fully support the measured and cautious approach being
taken by Secretary Moniz and Assistant Secretary Smith at the
Department of Energy. It makes sense for DOE to complete its
review of an application for exports to non-FTA countries only
after the NEPA review has been completed.
In addition, recent studies show that the industry can
fully support modest levels of exports of LNG with minimal
impacts on consumers while boosting the nation's economic
output and jobs in states like Senator Barrasso's and mine.
I co-sponsored this bill because I believe it will help
stimulate job opportunities for my state's gas industry while
fully preserving both FERC's environmental and safety reviews
and DOE's determination of public interest including the
authority to approve or deny applications to export LNG to non-
FTA countries.
Though our bill allows DOE to continue to independently
review each application, it will also provide much needed
additional certainty and predictability to the industry to
market LNG to non-FTA countries, in Europe and Asia. The bill
will also provide much needed transparency by making available
to the public the countries to which LNG has been delivered.
Thank you again for holding this hearing, and I look
forward to hearing from our witnesses today.
The Chairman. Thank you.
Now we will turn to our panel. We'll begin this morning
with Mr. Smith and just go down the row. I will introduce
everyone at the outset here, and then we'll move to five minute
presentations followed by questions from the members.
We first have Mr. Christopher Smith, who is the Assistant
Secretary for Fossil Energy at the Department of Energy. Thank
you, Mr. Smith.
Mr. Paul Cicio, who is President of the Industrial Energy
Consumers of America, welcome.
Mr. Martin Durbin, who is President and CEO of America's
Natural Gas Alliance.
Mr. Ross Eisenberg, who is with the National Association of
Manufacturers.
Our last panelist this morning is Mr. David Koranyi, who is
the Director of the Eurasian Energy Future Initiative at the
Atlantic Council.
Welcome to each of you. We can begin with you, Assistant
Secretary.
STATEMENT OF HON. CHRISTOPHER A. SMITH, ASSISTANT SECRETARY FOR
FOSSIL ENERGY, U.S. DEPARTMENT OF ENERGY
Mr. Smith. Thank you, Chairman Murkowski, Ranking Member
Cantwell and members of the Committee. I appreciate this
opportunity to be here to discuss the Department of Energy's
program regulating the export of liquefied natural gas and to
answer questions about S. 33, the LNG Permitting Certainty
Transparency Act.
Since 2010 when we began receiving long term applications
to export LNG to non-FTA countries, the Department has
demonstrated its commitment to protecting the public interest.
As you know we conduct a thorough public interest determination
process, as required by the Natural Gas Act, one that's
expeditious, judicious and fair. That process includes ample
opportunity for public input in order to evaluate if an export
is in the public interest. A determination allows balancing a
range of important factors including economic impacts,
international dynamics, security of natural gas supply,
environmental concerns and market dynamics and developments.
I testified before this Committee last July, and at the
time we had just announced a new procedure for processing LNG
applications. I told you that by focusing our efforts on the
projects that completed FERC's safety evaluation process that
reviewed that it would help us to make our decision making more
effective and efficient and that it would allow the Department
of Energy to focus on those projects that were most mature and
therefore, most likely to be constructed.
Since the announcement of the new procedures FERC has
completed its decision making process on two projects. The
Department promptly issued a licensing decision for each of
those applicants. And in total the Department has approved 5.74
billion cubic feet per day in final, long term authorizations
to export to lower 48 LNG to non-FTA countries from four
proposed liquefaction facilities.
We've issued thorough orders that can stand up to the
scrutiny that they are sure to receive, and we've done it
within days of the project getting signed off from FERC. I
believe that this demonstrates our commitment to act
expeditiously and effectively in addressing the Department's
responsibilities under the Natural Gas Act requirements.
In conclusion, Madam Chair, I appreciate the Committee's
interest in discussing this very important issue with the
Department of Energy, and I look forward to this discussion. We
understand the significance of this issue as well as the
importance of getting these decisions right.
With that, I'd be happy to answer any questions that the
Committee might have.
[The prepared statement of Mr. Smith follows:]
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The Chairman. Thank you, Mr. Smith. Mr. Cicio.
STATEMENT OF PAUL N. CICIO, PRESIDENT, INDUSTRIAL ENERGY
CONSUMERS OF AMERICA
Mr. Cicio. Chairman Murkowski, Ranking Member Cantwell and
members of the Committee, thank you for this opportunity to be
here today.
My name is Paul Cicio, and I'm the President of the
Industrial Energy Consumers of America. We are an industrial
consumer advocate.
IECA is not opposed to LNG exports; however, today there is
no energy public policy decision more important than whether or
not to approve an LNG export facility for 20 to 30 years. The
reason is that all risks associated with the export of LNG fall
on the consumer. The larger the LNG export volume, the larger
the cumulative risk.
Australia has over a 200 year supply of natural gas which
is more than twice that of the U.S., yet today because of
unfettered LNG exports domestic prices have tripled because the
Australian government has failed to protect the consumer.
Manufacturers are shutting their doors. Power plants are
converting from gas to coal, and we do not want to see that
happen here long term if policy makers do not fully implement
the Natural Gas Act.
The DOE sponsored NERA report illustrates that LNG exports
create winners and losers. It explains how higher natural gas
prices can be expected to have a negative effect on output and
employment, particularly by sectors that use large amounts of
natural gas. And that is us.
Figure 12 of our written testimony is directed from the
NERA report and shows how exports result in loss of labor,
income wages, capital income and indirect taxes. Combined these
accelerate wage disparity, and the net economic gain at its
peak is a mere $20 billion in 2020 and declines from there. The
bottom line is that the bulk of the population is negatively
impacted to the benefit of a few raising questions about how it
can be in the public interest. Despite this the NERA report was
used to justify several export applications.
In their wisdom the Congress passed the Natural Gas Act.
And they did so with two things in mind, the cost of LNG
exports to consumers and implications to trade. Congress
understood that unlike so many other tradable products, natural
gas is different because consumers do not have a substitute and
it is not renewable. Congress felt a responsibility to act in
their behalf to protect the unknowing consumer, who does not
have the ability to understand the long term implications of
LNG exports.
For this reason the Natural Gas Act includes a provision.
It's called the Public Interest Determination, and it's
completed for each application to export to non-free trade
countries.
However, the Government Accountability Office September
2014 report says that the DOE has not defined public interest.
That is a glaring omission, if not a legal issue. If the DOE
has not defined public interest, how is it that they can make
informed decisions on behalf of 72 million natural gas
consumers and 145 million consumers of electricity?
Without a definition of public interest how much public
hardship can be inflicted before the DOE denies the next
application?
The definition of public interest is not a macroeconomic
number, like the so called net economic benefit number of the
NERA report. The real definition of public interest was
pioneered by Justice Brandeis. ``The public interest is that
which produces the most good for the most people.''
Finally, the Natural Gas Act provides for ongoing
monitoring and adjustment to an LNG application. The Natural
Gas Act specifically anticipates that adjustments to LNG
exports would be in the public interest when it states that DOE
``may from time to time after opportunity for hearing and for
good cause make such supplemental order in the promises as it
may find necessary and appropriate.'' So the Natural Gas Act
creates an obligation for the DOE to monitor and to do economic
impact assessments at regular intervals to be sure that exports
do not harm the economy and jobs long term.
However, contrary to the Natural Gas Act, the DOE has
stated that it does not plan to monitor impacts and make such
adjustments. To not do so implies that U.S. policy is designed
to protect the capital investment of LNG exporters and not U.S.
manufacturing assets.
In closing we urge the support of this Committee to conduct
oversight and require the DOE to conduct rulemaking to define
public interest, create up-to-date decision making guidance, to
condition applications for monitoring, conduct economic
assessments at regular intervals and be prepared to protect the
public. We urge the DOE from refraining from further approvals
until such time it makes these necessary rulemakings.
Thank you.
[The prepared statement of Mr. Cicio follows:]
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The Chairman. Thank you, Mr. Cicio. Mr. Durbin.
STATEMENT OF MARTIN J. DURBIN, PRESIDENT AND CEO, AMERICA'S
NATURAL GAS ALLIANCE
Mr. Durbin. Good morning, Chairman Murkowski, Ranking
Member Cantwell, members of the Committee. Thank you for the
opportunity to appear before you this morning.
America's Natural Gas Alliance strongly supports S. 33 as a
means to establish a timely and certain review process for LNG
export facilities. This will send a strong pro-infrastructure
signal to the investment community and a clear message to our
allies and adversaries that the U.S. is determined to play a
leadership role in global energy markets. Given the sheer
magnitude of U.S. shale gas resources there's no question that
our nation can be a global energy leader without sacrificing
our domestic advantage. Now is the time to seize this
opportunity.
While some have raised concerns regarding supply and price,
the markets and experience speak for itself. As recently as
2009 the U.S. Energy Information Administration forecast that
natural gas prices would rise to 13 dollars by 2035. Just this
year, though, or last year in 2014, in multiple independent
projections EIA put that figure below six dollars. If we look
at where prices are today, it's going to be hard to get there.
In fact right now in the dead of winter, peak season for
natural gas demand, prices are less than three dollars at Henry
Hub and even lower if you're in Pennsylvania. So the markets
are screaming for new and diversified demand outlets for
natural gas. LNG exports offer a prime opportunity to send
critical signals to the markets that these outlets are on the
way. This in turn will help maintain and grow production so our
nation can take full advantage of the promise our shale gas
abundance holds for our economy, environment and energy
security.
The U.S. is now the world's leading producer of natural
gas. With this in context, the U.S. consumed 26 trillion cubic
feet or TCF of natural gas in 2013. The most recent supply
projections show a range of technically recoverable gas using
today's technology from two thousand two hundred to more than
three thousand five hundred TCF. The only remaining uncertainty
around natural gas supply is where's the top?
As technology continues to advance reserve estimates
continue to grow. As a result public and private sector experts
agree that the U.S. has enough natural gas at reasonable prices
to sustain substantial increases in domestic consumption and
significant levels of exports. Global market dynamics will
limit both the size of our export opportunity and the number of
facilities that ultimately receive financing. As a result EIA
projects that natural gas exports will account for less than
ten percent of demand for U.S. natural gas by 2040.
Those same global market dynamics also underscore the sense
of urgency. LNG facilities cost billions of dollars and take
several years to construct. Unless we act quickly to provide
greater certainty in the approval process we miss the
opportunity to become an integral player in international
markets.
Far from competing with domestic interests, LNG export
markets will strengthen the U.S. economy. Already, the U.S. is
experiencing a manufacturing resurgence thanks to the ready
availability of abundant, affordable natural gas. What is less
widely known is that the natural gas liquids found within
natural gas are an essential feed stock to many industries led
by plastics and chemicals.
Simply put, more dry gas production for export means more
natural gas liquids for American manufacturers. In fact, as of
this week the chemical industry alone has identified 220
announced projects representing 137 billion dollars in
potential investment all linked to natural gas. So as markets
scream for demand, exports provide a win/win opportunity.
Of course LNG export terminals are just one aspect of
energy infrastructure. Timely approvals of new and expanded
pipeline projects also require the priority attention of policy
makers at all levels. As several members of this Committee know
firsthand, this is particularly true in the Northeast where
expanded pipeline infrastructure would help consumers and
unlock the kinds of natural gas fueled manufacturing
opportunities we see flourishing in so many parts of the
country.
I thank Senators Barrasso and Heinrich and the bipartisan
co-sponsors of S. 33 for working to ensure America's
competitive advantage. I appreciate the Committee drawing
attention to these issues and look forward to our continued
work together to build this energy revolution into a
sustainable, economic, manufacturing and environmental success
story for the nation.
Thank you.
[The prepared statement of Mr. Durbin follows:]
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The Chairman. Thank you, Mr. Durbin. Mr. Eisenberg,
welcome.
STATEMENT OF ROSS E. EISENBERG, VICE PRESIDENT, ENERGY AND
RESOURCES POLICY, NATIONAL ASSOCIATION OF MANUFACTURERS
Mr. Eisenberg. Good morning, Chairman Murkowski, Ranking
Member Cantwell and members of the Committee. On behalf of the
National Association of Manufacturers, the largest industrial
trade association in the United States, I'm pleased to share
our views on S. 33, the LNG Permitting Certainty and
Transparency Act. This is a bill that the NAM supports.
Two years ago I had the privilege of coming before this
Committee to talk about the exact same issue we're here to talk
about today. At the time the Department of Energy had placed
all license applications on a temporary hold while it studied
the macroeconomic impact of exporting LNG, and that study
actually forecasted that the U.S. would gain net economic
benefits from doing so.
The NAM at the time urged the Committee that the free
market will find equilibrium here and that exports of LNG
should be governed by principles of free trade and open
markets.
The NAM also urged the DOE to provide LNG license
applicants an up or down decision as expeditiously as possible
to avoid market distorting barriers to trade.
Now some witnesses at that hearing took the opposing view
calling it a question of validity of the DOE study's findings
and warning of constrained natural gas supplies, ``unfettered''
LNG exports and skyrocketing natural gas prices. Now fast
forward two years to today and the doomsday predictions really
just have not come true. Proven natural gas reserves increased
by ten percent in 2013 setting another new record.
We don't have anything even remotely resembling unfettered
LNG exports because only five of the terminals out of 37 are
under construction. The overwhelming numbers of economists who
have looked at this issue, including the DOE itself, have all
repeatedly concluded the LNG exports and a strong domestic
manufacturing sector can coexist. As of last night the Henry
Hub spot price for natural gas stood at $2.92 which is a full
38 cents lower than the day I was here to testify on this issue
two years ago.
And throughout, the nation's natural gas boom has sparked a
manufacturing comeback. That's a wonderful story. Study after
study has confirmed and continues to confirm that manufacturers
are investing in the United States thanks to a competitive,
abundant and secure supply of energy.
Manufacturers in Arkansas, California, Colorado, Iowa,
Louisiana, Maryland, Minnesota, Nevada, New York, Ohio,
Oklahoma, Pennsylvania, Texas, Utah, Virginia and many others
are already taking part in the LNG supply chain to support the
terminals that are under construction.
Dominion's Cove Point LNG facility in Maryland will create
14,600 jobs in manufacturing, service and other sectors across
the supply chain.
Cheniere's $12 billion Sabine Pass project, which is quite
possibly the largest capital project in Louisiana history, will
support the livelihoods of up to 18,300 Louisiana residents at
peak construction at an average of nearly 6,400 Louisiana
workers over 8 years.
Now to put 6,400 workers in perspective there's actually 14
individual parishes in the State of Louisiana that have fewer
than 6,400 residents employed. The project's supply chain for
Sabine Pass contains 54 manufacturers in 17 different states.
This is just the tip of the iceberg as many other manufacturers
across the United States have made investments in their own
businesses to position themselves to participate in LNG
exports.
At NAM we applaud the DOE for taking a hard look at the
inefficiencies within its own process and trying to fix them.
While two license decisions happened relatively quickly after
the new procedures went in place, we once again do find
ourselves in a situation where the approvals are starting to
lag. For Cove Point, a project that received conditional
approval as far back as 2013, we're now approaching the end of
the fourth month of deliberations on a final license.
So the NAM therefore believes that S. 33, the LNG
Permitting Certainty and Transparency Act, is both timely and
warranted. This truly bipartisan, heavily negotiated bill
ensures that the free hand of the marketplace rather than
bureaucratic inertia will govern international trade by
providing a 45 day deadline on the DOE to approve or deny
pending LNG export applications. It does not impact the
economic, environmental or safety studies that the FERC and
other agencies are required to conduct, nor does it remove any
other relevant regulatory requirement.
By eliminating unnecessary delays, the bill would protect
against running afoul of our international obligations under
the WTO. It would provide a clear resolution to the outstanding
questions surrounding the regulatory approval of the
infrastructure necessary to allow the export of a product, and
that's a principle that domestic manufacturers strongly
support.
Developers looking to build an LNG facility must subject
themselves to basically running a gauntlet of a long, complex
and multifaceted permitting process. At a minimum they should
be able to rely on some amount of certainty that once they've
gone through that process and received all their permits and
approvals that the DOE will quickly decide on a final license
to export. S. 33 provides this certainty while ensuring that
all environmental laws will be complied with to their absolute
fullest extent.
Manufacturers support S. 33, and we urge the Committee to
approve this legislation.
Thank you.
[The prepared statement of Mr. Eisenberg follows:]
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The Chairman. Thank you, Mr. Eisenberg. And finally, Mr.
Koranyi.
STATEMENT OF DAVID KORANYI, DIRECTOR, EURASIAN ENERGY FUTURES
INITIATIVE, ATLANTIC COUNCIL
Mr. Koranyi. Thank you, Madam Chair. Thank you, Ranking
Member Cantwell, members of the Committee. I am honored to
appear before you today to discuss the LNG Permitting Certainty
and Transparency Act geopolitical implications.
I will make three brief points in support of the act.
Point number one, European energy security is a matter of
national security for the United States.
As Mr. Putin continues his aggression against Ukraine that
threatens the Trans Atlantic community as a whole, energy
import dependence points to a strategic vulnerability of key
allies especially in Central and Eastern Europe. As a Hungarian
I witnessed firsthand the devastating effects of the 2006 and
2009 Russia/Ukrainian gas crises in the region. We cannot be
sure that another cutoff does not happen, if not this year,
then the next.
Furthermore, compromising energy security and corruption in
the energy sector are at the heart of Moscow's strategy to
divide our alliance and render it ineffective. OPEC deals cut
with the Kremlin question a country's ability to conduct an
independent foreign policy that is boasting their national and
in the allied interest. This is especially unnerving as the
European Union needs unanimity to uphold or extend sanctions
against Russia, a critical element in an allied strategy to
deter further aggression; therefore, lessening European
dependence on Russian natural gas is vital.
The good news is that Europe is finally stepping up to the
plate, but Europe cannot succeed without the help of the United
States. Europe has access to multiple sources of piped gas as
well as LNG supplies. Yet in addition to the risks associated
with supplies from Russia current and prospective, pipe
supplies from both the south and the southeast face their own
challenges due to the turmoil in North Africa and across the
Middle East.
Most LNG supplies outside the U.S. are not without risk
either. LNG exporters such as Nigeria and Yemen are facing
terrorist and insurgent activity. Producers such as Egypt and
Indonesia have to grapple with increasing domestic demand that
limit their export capabilities, and Qatar is the biggest
energy producer to date. Its LNG tankers have to pass through
the Strait of Hormuz and the Suez Canal, both potential
liabilities.
Meanwhile U.S. LNG supplies do not face such geopolitical
qualms. U.S. LNG would provide a reliable and competitive
alternative to the allies in Central and Eastern Europe. U.S.
LNG would introduce much needed additional liquidity to the
global gas markets, complement European measures forcing
Gazprom to act in a competitive manner and send a critically
important message of strategic reassurance to a region that is
under the most serious threat since the end of the Cold War.
Point number two, even if not a single drop of gas makes it
to Europe, which I believe is a very unlikely prospect, U.S.
LNG exports will nevertheless substantially improve European
energy security including that of Ukraine. U.S. LNG is
admittedly no panacea. In and of itself it will not solve
Europe's energy security problems nor will it push Russia to
its knees, but clarity in the LNG export licensing procedure
would put a downward pressure on gas prices and accelerate the
interconnection of the European gas markets well before, or
even in the absence of, a single American gas molecule reaching
Europe. That is because LNG markets are global. Markets are
shaped by the future expectations and the mere existence of a
credible alternative would incentivize infrastructure
development and put pressure on the dominant supplier, Gazprom.
LNG recertification terminals enabled both Greece and Lithuania
recently to secure substantial price discounts from Gazprom.
Finally, unhindered U.S. energy exports, in general, and
LNG exports in particular, are critically important for the
credibility of the United States foreign and trade policy.
Historically the U.S. has been promoting transparency and open
markets and opposing resource nationalism to the great benefit
of the whole world. Introducing that transparency into the
export licensing procedure would be critical to bolster trust
in America's global leadership.
Thank you, Madam Chair.
[The prepared statement of Mr. Koranyi follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The Chairman. Thank you. Thank you all this morning for
your testimony and comments. We greatly appreciate it.
We'll now begin questions from the members. I would ask
members to be sure to limit your time to five minutes as we've
got a lot of folks to get through, and we've got votes that are
theoretically going to begin around 11 o'clock.
Mr. Smith, I would like to start with you.
Reading through both your written testimony and the
comments you've provided this morning, you've outlined the
steps that DOE has taken that really get us to a point where
there is less time between the approvals. I appreciate what you
have done with the realignment.
Your testimony states that this legislation is ``not
necessary.'' Now this is not saying that you don't support the
legislation. I certainly understand that. Under your leadership
and with Secretary Moniz, you've issued several final
authorizations.
Again, I appreciate the comments and the direction you're
taking, but I think we here in Congress need to be thinking
long term. Secretary Moniz has made very clear that he wants to
work through this process, but I worry that perhaps a future
Secretary of Energy might not be as favorable to LNG exports as
we have seen coming out of this Secretary and the
Administration.
So the question that I would ask you very directly is
whether or not you think S. 33, as it is written, is workable
and achievable?
Mr. Smith. Well, thank you, Madam Chair, for the question.
First of all, we understand the intent and interest of this
legislation. In fact, as I listen to many of the comments that
have been made here in opening statements, we share many of
these drives, many of these core values of transparency,
efficiency, of making prudent public interest determinations.
So I think we have a lot in common in terms of what we want to
accomplish, and we understand the intent of the legislation.
In fact, the changes that the Department has made to our
internal process have been along exactly those same lines to
make sure that we're making good, solid, public interest
decisions that withstand scrutiny. So we think that we are
currently moving in that direction, and we're using the current
statute in a way that protects the public interest.
That said, your direct question is about the workability of
the legislation that's being proposed. Certainly if this
legislation is passed as is currently written the Department
will be able to accomplish the mission. We will, as always,
accomplish the letter and spirit of the law and we believe this
is a solution we will be able to comply with.
The Chairman. Well, I appreciate that. So what you're
telling me is you can do it. You have been doing it. 45 days is
workable?
Mr. Smith. Yes, Senator. Again, if this is the legislation
that's passed in the current form.
The Chairman. Understood.
Mr. Smith. That we can comply with the regulation or the
law.
The Chairman. I appreciate that.
Let me ask you a question regarding LNG and Alaska. As you
know the facility there on the Kenai Peninsula has been
exporting LNG since 1969. Some forget that Alaska has been
engaged in the export business for a long, long period of time.
Granted, these have been small amounts, but it has been a
process that has been without interruption. It's been the
longest export contract that we've had in the country. I think
it has laid the ground work, most certainly, for things to
come.
Of course we also have the bigger project, the Alaska LNG
project that, I believe, merits a conditional authorization
from DOE on the basis of what the Department itself has
described as these ``unique'' features of an Alaska project.
Not only will the project require the liquefication facilities,
but you've got an 800 mile pipe that we're dealing with.
So the question for you this morning is whether it is DOE's
understanding that this legislation would in no way affect
Alaska LNG's eligibility for a conditional authorization to
export to non-FTA countries? Further that S. 33 will, in fact,
impose a 45 day deadline for the project to receive a final
authorization after it has completed the environmental review?
Mr. Smith. Thank you for the question, Madam Chair.
So, I've actually visited the Kenai facility in Alaska and
spent time on the North Slope. We've got a keen understanding
of the opportunities and some of the challenges with all of
those projects.
It is my understanding that we've already stated that we
have held the right to do a conditional authorization for
projects coming out of Alaska. It's my view that this bill, as
written, would not change that. We would still have the ability
to issue a conditional authorization for both of these
projects, particularly the North Slope project, which has some
additional complexities that might require a conditional
authorization.
In addition, as we read the law as currently written it
doesn't appear to make any distinction between the lower 48 and
Alaska in terms of the time limit that it would impose on the
Department.
The Chairman. Okay. Thank you. I appreciate that, and I
also appreciate you going up there and spending some time. I'll
turn to my Ranking Member.
Senator Cantwell. Thank you, Madam Chair. I want to be
clear. I like the natural gas juxtaposed to what we're
discussing on the Floor which, I think, is a dirtier source of
fuel, and I definitely like exports. But I like something even
better than those two. I like cheap, domestic sources of
energy.
So I think part of this discussion is how we ensure that
the U.S. economy takes best advantage of this. I have a bunch
of different questions, and maybe I can just cue it all up and
you guys can go from there.
Mr. Durbin, if you could just talk a little bit about the
domestic natural gas markets and some of the other uses that
are going to come into the picture like heavy duty fleet trucks
and the potential for the maritime industry. We're very, very
excited about the transition of the maritime industry to
natural gas as a fuel source, again, to comply with
environmental issues in places like L.A., Long Beach and all up
and down the coast. So how do we get that right?
Mr. Cicio, what price point impacts your business? During
the Enron crisis, and again, those were very exaggerated rates,
but the aluminum industry and several other mineral industries
just had no choice. The price fluctuation came and guess what?
Those factories shut down forever.
So these long term contracts get locked in on export at say
a preferential rate for a long period of time because the
nature of those contracts. Then the domestic market sees this
fluctuation based on that international market, not locked in
to long term contracts. What price point do you start worrying
about the impact to industry?
My guess is it's a lot narrower than people might imagine.
Then the doors shut, and the factory is not open again. It's
not like you turn the lights back on. This is what we saw in
the Northwest. Aluminum plants shut down forever and forever.
Okay? This is very important to Midwest industry issues.
The third point is, Mr. Smith, I just don't know what
happens when you get this list and you say, okay, alright, here
we are. And we're not done. Denied. Okay? So is that denied and
now you're back at the bottom of a hundred permit list or
denied and maybe in two years I'll think about you again?
So my question is the denial part of this legislation is a
good idea in concept, but I think what it might actually mean
on projects that really shouldn't be denied is an interesting
question. I wonder if you have a process?
So as quickly as people can answer that would be
appreciated.
Mr. Durbin. Senator, if I could, to start where the markets
are for natural gas going forward. It's fairly clear. EIA has
come with some very good projections on what they think the
demand increase will be in these areas.
We think there may be some additional opportunities as an
industry, but nonetheless, first is power generation. I don't
think there's any question that we're going to continue to see
natural gas grow in the power generation market.
Second is the industrial and manufacturing. Again,
petrochemicals are going to be a huge part of that not only
because of the dry gas itself but because of the natural gas
liquids that we're producing and that's been increasing.
Third is in transportation. It's over the road, rail, and
marine. I will tell you that even if we're wildly successful
there it barely moves the needle as far as demand goes.
We're all for it. We're pushing for it. We want to see it
happen everywhere we can, but that's not a huge demand draw.
Exports, of course, is last.
Senator Cantwell. Okay, Mr. Cicio, on the price?
Mr. Cicio. My energy intensive consumers consume about 75
percent of all the natural gas of the entire manufacturing
sector. Their operating costs range from about 20 percent
energy to as much as 80 percent of the cost of making anything
from plastics, chemicals to fertilizers, cement, steel,
aluminum, plastic, glass.
There's two parts to the answer to that question. There's
no specific price point.
First on the table is the fact that natural gas is
subsidized and regulated in so many countries across the world
that is kept at a low price. For example, China may buy--last
year they bought LNG at $16, but they were providing that gas
to their non-residential consumers, manufacturers, at $1.78.
Alright?
So when we come to this issue, we are not looking short
term. We're looking long term because the fact is there are
uncertainties. In the domestic market in terms of what price
point can producers produce gas? That can impact investments.
No one forecasted the price drop of crude oil. That was a
surprise, and that's impacting investment in oil and gas going
forward. That will impact the supply. No one forecasted it.
So we can't answer the question what is the price point,
but what we do know is from 2000 to 2008 the price of natural
gas increased by over 200 percent in the United States. That
was over a 20 percent increase per year, and over that time
frame we lost 44,000 manufacturing facilities.
Now those plant shut downs were not entirely because of
energy, but they were a major part of the plant shutdowns.
Senator Cantwell. Thank you. Mr. Smith, that's a pretty big
question. Our time is over, but we can either get a short
answer or a longer written answer. However, Madam Chair, do you
want to proceed?
The Chairman. Very quickly.
Mr. Smith. I can give a quick answer.
I think it's important to emphasize that when we look at
each one of these applicants we are looking at each of these
applicants on a case by case basis. Each of the orders is a
long, detailed document that we've endeavored to write in good,
clear, common sense English that has to address all of the
points that are made by the interveners in each of the cases.
So we get varied comments. Some strongly pro, some strongly
against. And depending on the comments that we get, we have to
address each of those comments and make our public interest
determination based on a variety of factors. What we do
subsequent to that would depend on the individual case. So
there's not a rubber stamp. There's not a particular answer
that comes out of a spreadsheet. It would depend on the case.
Senator Cantwell. Thank you.
The Chairman. Thank you. I'm now going to turn to Senator
Barrasso, followed by Senator Heinrich, going a little bit out
of order with the early bird rule, as the sponsors of the bill
for their questions and then we'll go to those who are next in
line which would be Senator Stabenow after that. Senator
Barrasso.
Senator Barrasso. Thank you, Madam Chairman.
Mr. Smith, just following up. You correctly state the
intent of S. 33 is to add greater regulatory assurance to the
application, to the applicants for the LNG exports. And as you
said, the Department does share the goal of transparency and
certainty of process.
One of the areas that we disagree a bit is the Department
is committed to act expeditiously, but I don't think we've
gotten those results because the DOE has given final approval
to only five LNG export applications. There are 33 export
applications pending at DOE. A dozen have been pending for more
than two years. An additional 13 have been pending for more
than a year.
So could you explain a little bit this discrepancy that
we're seeing here?
Mr. Smith. Well, thank you, Senator. First of all, I concur
that, as we understand the intent of the legislation, I think,
there's some agreement.
In terms of how the process currently operates. The way the
Department is operating is that there are two important things
that a particular exporter needs in order to build a plant.
They need to have authorization from FERC that shows that
they can build the plant in a way that's safe. So they have to
be able to build the plant. They also need authorization from
the Department of Energy to actually export the molecules. And
those two together create a project.
Our process now says that we look at a particular applicant
after it's completed that FERC process to demonstrate that they
can actually build the plant safely. In that aspect we've moved
very quickly. Essentially as soon as these projects have come
out of the queue, out of the FERC process, we've moved very
quickly. And in the case of one of the applicants we acted the
next day, within 22 hours.
So I think we've demonstrated that our intent certainly is
to move quickly, but we also have to act in a way that's
judicious and write these orders in a way that withstands the
scrutiny that they're sure to receive. There's a variety of
views that we have to balance.
Senator Barrasso. So is it fair to say that the Department
of Energy would be able to comply with the deadline that's set
in the bill?
Mr. Smith. That's my view, yes.
Senator Barrasso. Thank you very much. Mr. Koranyi, it's my
understanding there are 21 countries now that import more than
40 percent of their natural gas from Russia. And we have a list
of those.
[The information referred to follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Senator Barrasso [continuing]. In your testimony you stated
that the United States is in an excellent position to improve
liquidity on the global LNG market thereby improving conditions
for Central and Eastern European countries to access LNG and
that an accelerated process, you go on to say, of LNG export
licensing would put downward pressure on gas prices in Central
and Eastern Europe well before even a single molecule of
American gas might even reach Europe. So would you further
explain how U.S. LNG exports can help European nations even if
U.S. LNG is actually not shipped to Europe?
Mr. Koranyi. Thank you, Senator. That's an excellent
question. It actually already has because the mere fact that
the United States no longer imports in large quantities LNG
from outside the U.S. actually put a downward pressure on
European pressure already. One of the reasons why Gazprom had
to renegotiate long term natural gas supply contracts in Europe
and in Central and Eastern Europe as well is that these
countries built up LNG terminals, reclassification terminals,
and they have access to this global energy market. And because
supplies from Qatar, supplies from Nigeria, from other places
that were supposed to go to the United States ended up in
Europe and put a downward pressure on prices. So this has
already happened in the past couple of years.
Looking forward if there are additional quantities on the
international gas markets, LNG markets, that will put a further
downward pressure on these prices, especially if Central and
Eastern Europe will manage to complete its regional market
integration and integrate well into the rest of the EU. So
there is a single, unified European energy market.
Senator Barrasso. Thank you. Mr. Eisenberg, you stated that
the overwhelming number of economists who have looked at this
issue, including the Department of Energy itself, have all
repeatedly concluded that LNG exports and a strong domestic
manufacturing sector can co-exist. Could you expand on your
comments for that?
Mr. Eisenberg. Thank you, Senator. That's a really
excellent point. I've read most of the studies at this point.
I'm not an economist, but I know a lot of very smart ones, and
I've read most of them.
The list is pretty long. They've all basically come out to
the same place which was NERA. IHS Global Insight, ICF
International, Deloitte, NERA, again, Baker Institute at Rice
University, Brookings, they all come to the same spot.
If I could read you something--NERA actually updated the
study that it did for the EIA or for the DOE a couple years
ago. The last page of the Executive Summary has the title,
``U.S. Manufacturing Renaissance is unlikely to be harmed by
LNG exports.'' They say, ``Our analysis suggests that there is
no support for the concern that LNG exports, even in the
unlimited export case, will obstruct the chemicals or
manufacturing renaissance in the United States.''
At the end of the day we're also seeing this is in real
life on the ground. Everybody is winning here.
Senator Barrasso. Thank you. Thank you, Madam Chairman.
The Chairman. Senator Heinrich.
Senator Heinrich. Thank you, Madam Chairman.
Mr. Durbin, you've heard the claim that U.S. liquid natural
gas exports could result in the kind of inflated LNG prices
that we've seen in Australia or that Australia has experienced.
Could you talk a little bit about and explain to the panel why
the Australia example is not directly analogous to the U.S.
markets, particularly in light of the traumatic differences in
market size?
Mr. Durbin. Sure. I appreciate the question, Senator. I
would say it would be like comparing apples and oranges, but
I'm not even sure they're both fruits.
If you look at the size of the economy, our NGDP, we're
more than ten times greater. Our production of natural gas is
more than 11 times greater. The infrastructure that we have in
the U.S. for being able to produce natural gas is just--there
is no comparison which allows us to be able to produce the gas
at a much lower cost.
I think the real important point here is that right now
what Australia is experiencing is because they're exporting
literally 50 percent. In fact, more than 50 percent of what
they're producing, they're exporting. Even in, you know, the
most--but in the EIA projections show that we'll be exporting
only nine percent, between nine and ten percent of our
production in 2040.
So I think there really is no comparison to make there and
no threat that the United States would end up experiencing the
same type.
Senator Heinrich. My understanding is that our market is
roughly about 40 times the size of Australia, and we're talking
about much lower levels of overall exports, correct?
Mr. Durbin. That's correct.
Senator Heinrich. Yes. Mr. Smith, I want to turn to you
real quick. If it were enacted, if this legislation is passed
and signed, would you expect our bill to change the number of
applications for exports to non-FTA countries that eventually
would be approved or disapproved by DOE?
Mr. Smith. Well, thank you for the question, Senator. I
honestly think it would be impossible for me to determine,
based on the language, if this is going to impact the number of
final applicants. It would depend on the applicants, on the
conditions at the time, et cetera. So I would demur from making
any prediction or forecast because these are case by case
evaluations that we make in a way that's very serious.
Senator Heinrich. Right. As you know, our bill also
requires DOE to publish the list of countries that receive
shipments of liquid natural gas from the United States. Do you
have a view as to whether or not that would be important
information for the public to have access to?
Mr. Smith. We think that more transparency is good. So we
have endeavored to create a process that's open, that is
transparent and that makes all this information available to
potential interveners. So we think that is important.
Senator Heinrich. Great. I'll have one last question for
you, and then I will yield back the remainder of my time.
One of my interests is making sure that we continue to grow
jobs while reordering our energy infrastructure to recognize
the challenges that we have with carbon pollution and climate
change. Natural gas has a unique place within those changes. We
have limited capacity right now to do electrical storage, for
example, but natural gas allows us to see them together.
Different sources of energy in more real time much more
effectively than old fashioned coal generation just because of
how fast you can ramp up and down the turbines.
Do you want to talk a little bit about your thoughts on how
relatively low natural gas prices that we have experienced with
current policies will affect the ability to deploy those other
sources of clean, renewable energies, for example, solar and
wind power?
Mr. Smith. Well, thank you, Senator. So I'll focus on the
natural gas portion. That's the technology program that I
oversee.
One general comment that I'll make is that these are long
term, important and decadal challenges. And so we don't manage
our technology programs based on the short term fluctuation or
the futures curve. I mean, we think these are important
existential challenges, that development of the technologies
that are going to drive the clean energy economy of the future.
All of these solutions, from wind to solar to natural gas
to enhanced geothermal and nuclear, remain core and important
parts of the Department of Energy's technology program.
That said, we have seen big fluctuations in natural gas
prices that have come from a variety of sources, and that is
something that we have to take into account. We look at the
importance of price when we look at our public interest
determination. They impact the price it can have on consumers,
on manufacturers and a lot of the issues that you've heard here
on the panel.
So that is something we're focused on. We think that it is
very important. But over time as you look at our research and
development program normally in the area that I manage which
deals with fossil energy but throughout the Department of
Energy we certainly have a commitment to making sure that we're
pushing those technologies here in the United States that are
going to be important for the clean energy country of the
future.
Senator Heinrich. Thank you, again.
The Chairman. Senator Capito and then Senator Stabenow.
Senator Capito. Thank you, Madam Chair, and I thank the
Ranking Member, and I thank the witnesses for being here today.
I'm very pleased to be here and also to be a co-sponsor of
Senator Barrasso's bill. Many people think that the shale boom
is occurring in the Western states, like Senator Barrasso's
home state of Wyoming. But that is not the case, as we know.
The Eastern United States and my home state of West
Virginia have been blessed with vast shale gas reserves, and we
are just discovering, really, how massive they are.
If I could illustrate the point for a few minutes let me
share with you a few facts from the December 2014 Department of
Energy report on oil and gas reserves in the United States.
In 2013 West Virginia surpassed Oklahoma to become the
third largest shale gas reserve state. West Virginia also had
the second largest discoveries of natural gas reserves behind
only Pennsylvania. In fact, a full 70 percent of the 2013
increase in proven gas reserves is because of West Virginia and
Pennsylvania and the Marcellus shale play.
We have more than enough gas to power both an industrial
renaissance back home in West Virginia and to export liquefied
natural gas. Supplying LNG to our friends and allies decreases
their dependence on often hostile regimes in the Middle East
and Russia, as we've heard from the testimony, and as a result
will increase our own national security, not to mention a huge
economic boon to certain areas of the country and certainly my
state of West Virginia.
I'd like to start with a question for Mr. Smith. Just
really briefly, as you know the Cove Point LNG facility in
Maryland has received a finding of no significant impact on
November 5, 2014. That was nearly three months ago. Can you
give this Committee an idea of when the DOE expects to provide
final approval of the Cove Point LNG application?
Mr. Smith. Thank you for the question, Senator. So under
our current process we move on these applications in the public
determination once they've completed the FERC process. That
includes all of the deliberations that FERC has to make
including the final notice for rehearing in that process. So we
watch these as they go through the FERC process. It's our
expectation that that would probably be concluding, probably,
in the February time frame.
And so, depending on FERC finishing that process, that
would allow us to move forward with our final determination.
Senator Capito. Thank you. Thank you.
As we all know the estimates of what the actual reserves
are is sort of a moving target. It starts slow. It started
slower, and it seems to be expanding greatly.
I like the way Mr. Eisenberg framed it that everybody's
winning, but I'm curious to know from you, Mr. Eisenberg and
Mr. Durbin, as these estimates of the vast resource change, how
do your projections on the economic impact they will have and
job creation and manufacturing resurgence? How does that change
in your estimates and how closely are you monitoring that as we
look at what the vast reserves actually provide?
Mr. Eisenberg. Our policy, and frankly the will of the
manufacturers that I speak for, is to have a stable, secure and
consistent supply of natural gas and so because we use it not
only for electricity but also as a feed stock.
Senator Capito. Right. Right.
Mr. Eisenberg. For the many things we do. That's a lot of
what I do for a living. That's basically, you know, we need to
keep an eye on policies that are coming out of Washington, the
states and places like that to make sure that manufacturers can
still continue to do what they do. And so, obviously, yes, the
supply matters significantly.
We are now staring at a situation where EIA every single
year tells us we have more and more and more.
Senator Capito. Right.
Mr. Eisenberg. And so we're very, very optimistic and
continue to be optimistic.
Senator Capito. Okay. Mr. Durbin, do you have a response to
that?
Mr. Durbin. Yes, and I've got it in my written testimony, a
chart that EIA puts in there for showing the difference in the
projections on reserves from 2009 through today and I mention
that. And again, the point is it's dynamic.
Senator Capito. Right.
Mr. Durbin. And what we're saying every year, it's
increasing. But I think what's really important about this--
even this morning EIA put out a new paper, a new report, or I
should say a statement. I'm talking about the vast increases in
ethane crackers and propane facilities.
Senator Capito. Right.
Mr. Durbin. All driven by these natural gas liquids that
are being produced with these greater reserves.
Senator Capito. Right. We're seeing that in West Virginia
certainly. I should mention that the Brazilian chemical
manufacturing company, Odebrecht Braskem, is looking to site a
major cracker in West Virginia which will have major residual
economic benefits to that region, and hopefully a resurgence of
our chemical industry which has shrunk quite a bit over the
last several years because of the usage of the natural gas as a
feed stock.
You know, I understand, Mr. Smith, just quickly when you're
looking at these wells, I think my time is up and I know we're
under. As a good former House member I know that I should quit
when the red light comes on, so thank you. [Laughter.]
Senator Capito. I'll learn. I'll learn to talk through it
eventually I'm sure. [Laughter.]
The Chairman. We like that part of it, Senator Capito. You
are more than welcome to this Committee. With that we'll turn
to Senator Stabenow and I thank you.
Senator Stabenow. Well, thank you, Madam Chair. You know,
this is a big deal here. We have this great new resource for us
in America that's giving us an edge that we haven't had in a
long time in other areas, and how we make this decision is
really, really important.
I appreciate very much different states, different
perspectives, but this is a big deal. And I want to first say
to Mr. Smith, thank you for DOE not only taking seriously the
need to move forward, but understanding that you need to update
your study on economic impact for America and the fact that you
are doing that. I don't know why we wouldn't wait for that to
happen if we want to make sure we're doing this the right way.
So, but I'm going to thank the Secretary and thank you for
doing that.
We know jobs are created when we build export facilities,
right? But we also know, according to the Charles River
Associates, using natural gas to increase American
manufacturing output is twice as valuable to the overall
economy as just jobs in general and creates eight times more
jobs than exporting. So I don't know why we are not very
concerned about what Mr. Cicio is saying here.
You're the end user, right? You're the guys that buy it.
You're here, and you're buying it for industrial consumers.
We also have a whole lot of consumers concerned about
heating oil and costs and so on. So the consumers, as you said,
are taking all of the risks on this. I'd like you to expand a
little bit more on this from the standpoint of leveraging this
great resource. I get it from an oil and gas standpoint. You
want to sell to the highest user, price. I get that. China says
we'll take it for $16 rather than American producers at $4 or
$5, and I get that. But from an American standpoint, what I'm
hearing, Mr. Cicio, when you're saying that, China buys it for
$16 last year and then turns around and subsidizes it so their
folks pay $1.78. So now they're paying $1.78 and you're paying
$16.
How is that good for American jobs? I'm desperately
concerned about manufacturing jobs and getting that eight times
leverage here for America. I don't want a China first policy
which I'm afraid this is. I want an American first policy.
So if you could speak to that, and then also on Australia.
To me it's not the size of the country, it's how the government
handled the issue which is exactly what this bill does. This is
Australia-like in terms of the bill, and I am very concerned.
I appreciate differences, but I have to say, to me and
history, folks are going to look back at this and decide what
were we doing here in terms of Americans and American jobs?
Mr. Cicio. Well, thank you for that question. When we come
to this issue we are not thinking short term about and
particularly looking at the NYMEX and seeing three dollar
prices out for the next several years. That is not the point.
We are looking out long term.
And there's references to how much gas we have, okay? Now
we look at ten years out. And when we look at the EIA
technically recoverable resources, we have 58 year supply. We
don't have 100 year supply.
So, in terms of jobs, you are correct. We can take that gas
and create eight times more permanent jobs than if you export
that gas. We recently looked at the permanent jobs created by
the export terminals. Great. Any job is a good job, okay? Make
no mistake. But construction jobs are short term. These
terminals, the seven terminals first up, create 1,890 permanent
jobs. When that gas goes offshore, it's gone. Okay?
All we're doing here is--let's emphasize that we need to be
looking long term. Each approval puts new demand on the
marketplace that will, every study says the same thing,
increase the price of gas. And it will increase the price of
electricity.
We cannot forget that there's two parts. We can understand
that, as I said earlier, manufacturing is subsidized in these
countries that we are competing with, the real world.
And so we have to be sensitive. It's not just the price
that we're paying here in the United States that matters to
manufacturers who compete around the world. So we need to come
to this with great care.
Now for those of you who feel that we never have to worry
about affordable supply of natural gas then you should be all
for putting in place the full implementation of the Natural Gas
Act that has these cautions, that ongoing review of these
terminals. These applications monitoring and the DOE having a
requirement to revisit that and be sure that it's not impacting
the economy because if you feel we have so much gas then you
know then that trigger will never happen. So you should be
supportive and not afraid of fully implementing the Natural Gas
Act.
The Chairman. Senator Portman.
Senator Portman. Thank you, Madam Chair. I appreciate your
having this hearing today, and thanks to the witnesses for
giving us some great testimony. I represent Ohio which is a
state that didn't used to be viewed as a great natural gas
producer. Now we are, thanks to the Marcellus shale find and
also Utica, most significantly, Utica right now.
We're also a great manufacturing state, and we're proud of
that heritage.
I appreciate the fact that the National Association of
Manufacturers is here supporting this bill. The Chamber of
Commerce supports this bill. I support this bill. I'm a co-
sponsor now, because I've looked at all the alternatives. I
think this is the best balance.
To Senator Stabenow's point, DOE does have the ability to
review these plans and approve or disapprove based on the
impact to the American economy. And that's in this legislation.
It's a balanced approach. And again, that's why so many
manufacturers are supporting it.
Also I will tell you Ohio does a lot of manufacturing for
facilities including LNG export facilities. I noticed in your
testimony this morning you talked about Chart Industries, who
testified in the Ways and Means Committee, an Ohio-based
manufacturer that's involved in the LNG supply chain. It's
going to help us with the manufacturing as well, but I do think
it's important that we have a balance in the legislation.
I'm really interested in the legislation because of a
broader interest that I have. I think this regulatory regime we
have in this country is putting us behind in so many ways. Back
in the good old days you could get a green light to produce
something, make something, move forward with a project in the
United States of America pretty quickly. Now we're ranked 41st
in the world in the dealing with construction permit category
by the World Bank.
We're getting worse. Other countries are getting better.
Germany is something like number eight. South Korea is
something like number 12. Capital is flowing to different
places around the world and not coming here because of the time
it takes to permit something.
Yesterday I introduced legislation with Senator McCaskill
that we also introduced last year that's bipartisan, a balanced
approach to how do you get at some of this permitting.
Senator King is a co-sponsor of that legislation. He's got
an incredible background in this having been a governor, but
also in the private sector dealing with permitting.
What I like about this legislation is it doesn't take away
DOE's approval authority, but it does say you've got to do it
within 45 days. So it's a certainty.
I appreciate what Mr. Smith said today about the fact that
this legislation can be implemented by DOE. That it's enough
time given the run up to that to be able to understand whether
this is an appropriate project or not.
The legislation that we introduced will help more broadly.
This legislation is specifically with regard to LNG exports,
but I think it's part of a bigger effort we've got to undertake
in this Congress and, by the way, consistent with the 2006 and
2012 transportation bills. Our legislation pretty much mirrors
that in terms of how the permitting and how the litigation
reforms work and so on.
So, Mr. Eisenberg, let me ask you a question. Can you speak
some more on the importance of the requirement in the bill that
DOE does approve or deny these pending permits within the 45
days of a completed NEPA review? Again, Mr. Smith has indicated
to you he could live with that. I assume you would agree that a
deadline like this gives DOE ample time to review the
application, but also is giving investors some certainty that
this project is actually going to be completed. Is that
correct?
Mr. Eisenberg. That's absolutely correct. Thank you. We
poll our members very regularly. And I want to be clear about
who we represent. We represent 14,000 members, and that is
small manufacturers, medium sized manufacturers and large and
energy intensive manufacturers that are also represented by Mr.
Cicio's group.
On balance, we are for regulatory certainty for free trade.
Regulatory certainty is actually the number one priority of our
membership right now as we poll them quarterly. It came up the
most. It was the most frequently cited answer.
There are two types of regulatory certainty. There's
regulatory certainty on the front end making sure the
regulations that are put in place that are new are reasonable,
and there's regulatory certainty on the back end to make sure
that when you apply for a permit you can get it.
Your legislation that you recently introduced, the
legislation in the RAPID Act in the House, these mirror all
sorts of other legislation and laws that are in place at the
states at the federal level that would impose a deadline or
shock clock or something like this that say you can please,
please uphold the law but do it in a quick, expeditious
fashion. That is the closest thing to what our policy at the
NAM wants on this which is just a quick up or down decision on
an export license.
Senator Portman. Let me ask another question to you, Mr.
Smith and anybody else who wants to chime in.
I think there is some misunderstanding. And again, I really
appreciate the leadership Senator Barrasso and Senator Heinrich
have brought to this. There is some misunderstanding that this
is the only permit that's needed, but the LNG export
application is not the only federal permit. What other federal
permits are you aware of that projects like this are required
to get? And is that in addition to any local or state permits
that might also be required? Mr. Eisenberg or Mr. Durbin or
anybody else?
Mr. Eisenberg. So sure. Like I said, you have to run a
gauntlet to get these things. It takes about two years before
you even pre-file to scope out the site and all of these kinds
of things. Then you have to go through NEPA which on average, I
believe, takes about three and a half years by recent studies
by the government. It can take longer. It can take less.
But you have all of that time that you have to then have
basically, have every single agency check the box and make sure
that everything is compliant with environmental laws, with
economic interests. That is part of the NEPA process. You do
examine the economic impact.
And then you get a final decision. So and once you get
that----
Senator Portman. By the way, are there other deadlines
associated with those permits?
Mr. Eisenberg. On NEPA, absolutely not. There actually are
none, and you can actually sue on it for it falls under the six
year civil statute of limitations. So you can sue, basically,
forever to delay these things internally. That's part of why
the Senate is debating Keystone XL right now.
Senator Portman. Okay, and with regard to state and federal
permits? Mr. Durbin or Mr. Smith or others who want to chime
in?
Mr. Durbin. Absolutely. The Cove Point in Maryland,
Dominion, is the perfect example where, in addition to
everything they're doing at the federal level, there are many
state permits they have to get as well.
Senator Portman. My time is expired. I appreciate the
indulgence, Madam Chair, and I appreciate your testimony today,
gentlemen.
The Chairman. Thank you, and we turn to Senator Hirono.
Senator Hirono. Thank you, Madam Chair. Senator Heinrich
asked Mr. Smith a question regarding if we could create
administrative or regulatory certainty in the time frame for
approvals that wouldn't we expect more applications, and Mr.
Smith didn't want to reply.
But I'd like to ask the other panelists whether you think,
in very brief answers, please, whether you think there would be
more applications if we create certainty as this bill does.
Mr. Durbin. I don't believe the number of applications is
going to be affected by the timeline. It's going to be affected
by companies that believe they were going to be able to get the
financing, be able to line up customers. Again, these are very
long term, very expensive propositions.
So, I think those that are moving forward, knowing that
there is some certainty at the end, after a very long,
extensive and again, but a predictable process at FERC. By the
way, during that entire FERC process DOE is one of the
cooperating agencies, so they're a part of that effort as well.
Senator Hirono. Just for clarification, it sounds as though
the FERC process is a much longer process than what DOE has to
do once FERC approves.
Mr. Durbin. Indeed.
Senator Hirono. Is that correct?
Mr. Durbin. It is a longer process, but DOE is part of that
process. And to DOE's credit during that--this entire time, not
on a case by case basis, but they have been engaged in the
studies that have been raised several times here with NERA to
look at the broader national interest, the economic impact and
those are ongoing.
So that's why our feeling is having gotten through the FERC
process they've got the basic, you know, they've got the
foundational items they need, at that point, to then in a very
timely and specific way, make a determination.
Senator Hirono. So I think the rest of you will agree that
it's the FERC process that's really the big question mark, and
you wouldn't expect additional or increased applications as a
result of this bill. I don't want to open a can of worms, but
are you okay with the FERC process?
Mr. Durbin. Again, I'll speak for ANGA. We believe that the
end for the companies that we've worked with. As I've said,
it's a long, expensive, comprehensive process--but it's a
predictable process.
Senator Hirono. Okay.
Mr. Durbin. It's one they're familiar with and so there
have not been big complaints about the FERC process.
Senator Hirono. Thank you. Let's move on.
I do have one note of caution though about exporting
natural gas, because it has to do with our ability to predict
what is going to happen. After all about ten years ago we
thought we would actually be importing natural gas, so it gives
me pause.
Also a state like Hawaii, where we're looking to import
liquid natural gas, I would love for the industry to help us
figure out how we can do that and meet domestic needs in a cost
reasonable way. But that's not for this hearing.
I understand that the extraction of gas does create a
byproduct, the methane, and that there are methane leaks, and
methane is an extremely potent greenhouse gas that contributes
to climate change. So I would like to ask this of Mr. Durbin.
Assuming that LNG exports increase and therefore there will be
more extraction activity, are there efforts by gas producers to
reduce methane gas emissions during the production process?
Mr. Durbin. Thank you, Senator, and I'm glad you asked the
question because the answer is an emphatic yes. Now let me tell
you what's already happened.
If you just look at EPA's own data, so this is nothing from
the industry, on methane emissions from natural gas producers.
If you go from 2006 which was kind of a peak to the emissions
we saw in 2012, okay? The reduction of methane just from
natural gas producers was 39 and a half percent. Now the dates
are important here. 2006 was before the shale gas revolution,
so in those six years we've added thousands of wells. We've
increased production by over 25 percent during that time. Yet
methane emissions from natural gas production have been reduced
by 39 and a half percent, and that's going to continue because
it is in our interest to capture the methane. Methane is
natural gas. That's what we're wanting to sell.
It's also just the continued improvements in efficiency and
innovation in technology in the industry that have us today
where the most productive natural gas well in the country, in
Northern Pennsylvania, is producing 30 MCF a day. Ten years ago
the most productive well in the United States produced only
five. So the numbers are just for relative scale. We are
producing a heck of a lot more gas and at the same time methane
emissions are plummeting within our industry.
Senator Hirono. So I take it that you would not be in favor
of EPA of regulating methane emissions from this activity?
Mr. Durbin. Well, to be clear, it is regulated by EPA under
current NSPS through volatile organic compound. So--the current
regulations, you know, we're having all these reductions under
current regulations. I would argue that EPA does not need
another new regulation.
Senator Hirono. Thank you. I think my time is up.
The Chairman. Thank you, and we are now going to turn to
Senator Gardner. I will be excusing myself from the Committee
right now. We're going to start votes here very shortly, and
Senator Cantwell will be here for a period of time.
We want to make sure that we get through all members and
have an opportunity before the panel, so it's going to be a
little bit choppy from here on out. I apologize that I won't be
able to hear your further comments, but please know how much I
appreciate what you have provided the Committee today. This is
a very important issue. I think we recognize that. And again, I
appreciate the level of cooperation that we have had. I think
we have a compromise bill that will be helpful to the country.
With that, I will turn to Senator Gardner, and he will be
followed by Senator Franken.
Senator Gardner. Thank you, Madam Chair, and thank you
also, Ranking Member Cantwell, for the hearing today. Thanks to
our witnesses for your time.
Over when I was in the House of Representatives we
introduced H.R. 6, the Domestic Prosperity and Global Freedom
Act, that we passed with overwhelming bipartisan support. One
of the things that made that bill so successful was many of the
statements made today by the witnesses including conversations
that we had with people like Dr. Orbaan from Hungary and others
who recognize the national security implications of a strong
and vigorous opportunity for the United States to share in our
energy security with our partners around the globe.
So today we are talking about Senate bill 33, a very short,
straight forward piece of legislation, granting approval for
LNG export applications already pending or languishing,
depending on how you look at it, at the Department of Energy.
It's not too often that we share in these kinds of
opportunities where you have a bipartisan bill that will create
jobs, create energy security, and add to our national security,
all at the same time. Something that I wish we could do more
of.
I do believe this has the opportunity to create a number of
American jobs across this country including in Colorado, my
home state, one of the nation's leading producers of both oil
and natural gas and renewable energy as well.
Mr. Smith, a question for you just to start with.
Dr. Paula Gant with the Department of Energy testified last
Congress, the 113th Congress, that the Department of Energy is
keenly interested and invested in the energy security of our
allies and trading partners. Do you think American LNG exports
add to the energy security of our allies?
Mr. Smith. Well, thank you for the question, Senator. So we
look at a variety of factors including international aspects. I
would say that currently the fact that we are importing less
LNG than we had expected is already impacting global markets
and that's benefitting our allies and trading partners. The
fact that U.S. producers are potentially out negotiating
contracts in advance of any terminal being built has an impact
on global markets. So we think that all those things are
positive, and those are things that we explicitly care about
and note in our applications.
Senator Gardner. Okay. Reading between the lines it is
clear that you believe the Department of Energy believes that
exporting LNG adds to the energy security of our allies?
Mr. Smith. We believe it has an impact, yes.
Senator Gardner. Mr. Koranyi, you believe in the same
position, correct?
Mr. Koranyi. Absolutely, and that actually goes back also
to Senator Barrasso's question as far as the future is
concerned. So we have this past benefit of diverting energy
supplies that were supposed to come to the United States.
Also looking into the future, if you look what the
traditional wisdom says that because Asian gas prices are
higher most of the supplies will go to Asia. I'm not really
sure about that.
If you look at Cheniere's contracts, a bulk of those
actually are going to European countries, European natural gas
suppliers. They will provide gas to Spain, and they will
provide gas to the UK.
Asian gas prices, since last February, came down by 47
percent. So the gap between European and Asian prices is not
that big. If there is another cutoff from Russia through
Ukraine, then that very quickly could send up European natural
gas prices. So to sum up, yes.
Senator Gardner. Mr. Smith, again, you, in response to the
question by Senator Barrasso you had mentioned that, or I
believe maybe it was the Chairman, you had said that the 45 day
timeframe in S. 33 was workable. Is that correct?
Mr. Smith. That's our view. We could comply with the law.
Senator Gardner. Do you have the same view about
Representative Johnson's bill in the House that moved through
the House yesterday? I think it's a 30 day timeframe.
Mr. Smith. I haven't compared the details, but overall I
can say that the 45 day limit in this bill is something that we
could comply with.
Senator Gardner. Okay. Mr. Durbin, Dr. Daniel Yergin
testified in front of Congress that the United States is demand
constrained, not supply constrained. This was testimony last
Congress, again, when it comes to natural gas. In Colorado on
the Western Slope the Piceance Basin has been suffering due in
part to the overabundance of natural gas supplies. Would you
agree with Dr. Yergin that the U.S. is demand constrained and
not supply constrained?
Mr. Durbin. Absolutely, and if anything it's a matter of
infrastructure that we need to be focusing on that.
Senator Gardner. If we are demand constrained, as you said
that we are, does that lend itself to having too much supply
and therefore drive down investment in new production?
Mr. Durbin. Absolutely.
Senator Gardner. And is that something S. 33 could achieve,
as well as giving our production investment opportunities a
chance to once again flourish and make new investment?
Mr. Durbin. Yes, by making clear that we have a new, robust
demand outlet here. It will provide consistency. It will
provide the incentive and the motivation for the industry to
continue the production not only in the gas for exports, but
for the natural gas liquids and everything else is going to
drive the manufacturing here in the United States.
Senator Gardner. Well, I too want to keep in line with the
spirit of Senator Capito and the House coming over here, when
the red light comes on. Once again I want to express how
important this legislation is when it comes to national
security. I know last Congress there was significant debate
amongst people whose states have put moratoriums in place on
practices like hydraulic fracturing, who voted for the LNG
export bill knowing full well that our potential to export LNG
is only available because of our opportunities to utilize
techniques like hydraulic fracturing. They understand and
recognize the importance of an abundant supply of energy that
we can share with our allies and what it means for national
security. I hope that that continues to be a part of this very
important debate.
Senator Barrasso [presiding]. Thank you, Senator Gardner.
Senator Franken.
Senator Franken. Well, I'll pick up from Senator Gardner
there. We're able to do this because of hydraulic fracturing,
and I want everyone here to understand who developed that
technology and who is responsible for that. It's the taxpayers
of the United States.
Mr. Durbin talked about how in 2009 projections of the
supply of natural gas going out were so low that the prices
were going to be very, very high and mentions that now they're
much lower than the projections.
We're hearing Senators talk about discoveries of reserves
of natural gas in their state as if this is just a discovery
that happened out of nowhere.
This is because of the taxpayers doing investments in
research, into three dimensional, micro-seismic imaging done in
Sandia National labs. Please listen to this because I say this
over and over again in this Committee. This whole renaissance
in natural gas is due to research done by the Department of
Energy, paid for by the United States taxpayers and projects
done with the oil and gas industry in horizontal drilling.
Understand this didn't come out of nowhere, and let's have
some historical context here. Who paid for this? Who is
responsible for this unbelievable renaissance? The American
taxpayer, and that includes the Minnesota taxpayer.
Now, do you know how much natural gas we produce in
Minnesota, just as an estimate? Mr. Durbin.
Mr. Durbin. I am not aware of natural gas production in
Minnesota, Senator.
Senator Franken. Zero. This does us no good whatsoever.
This does Minnesota no good whatsoever.
The EIA just says this is going to increase the price of
natural gas. This is going to increase the price of electricity
to every Minnesotan, of heat to every Minnesotan, the cost of
operations to every Minnesota manufacturer. This does my state
no good whatsoever.
Now I would appreciate it if those from the other states
who will benefit--the benefits of this, the jobs, the GDP
growth and the jobs will be very concentrated by sector and
region.
Mr. Durbin, you represent the natural gas producers. I
would venture to say that your sector will benefit from it the
most. Don't you think?
Mr. Durbin. We certainly are benefitting from it, Senator,
but I would argue with your contention and say that the entire
nation has been benefitting from this. If we didn't have this
natural gas revolution----
Senator Franken. The nation has been?
Mr. Durbin. If you didn't have the production, the prices
where they are, you wouldn't have manufacturers in Minnesota
that would be able to take advantage of it.
Senator Franken. So you should be thanking the taxpayers of
Minnesota.
Mr. Durbin. I don't think----
Senator Franken. Don't reward them by raising----
Mr. Durbin. I don't take question with either your
contention of DOE's role in helping us get to this point.
Senator Franken. Okay. I only have a little bit of time,
sir. The point is there's no benefit at all for the people of
Minnesota in sending this abroad. This is what will happen is
this will benefit--the steel workers are against this.
At Minntac in Minnesota they mine iron ore and make pellets
called taconite. They heat those pellets up to 25 hundred
degrees Fahrenheit with natural gas. This is going to drive up
the cost of natural gas.
This is going to hurt Minnesota. This is why the steel
workers are against it, the United Steel Workers. Manufacturing
creates eight times as much jobs. Yeah, if you export a natural
resource the people who produce that natural resource benefit,
but it doesn't do anything like the kind of--create the kind of
jobs that we, in Minnesota, have created because of this
technology that we, taxpayers in Minnesota, helped to promote.
So I just want this perspective. And going forward, I know
my time is up, but I've been here a little longer than Senator
Capito.
So I just want, going forward, for members when they talk
about this natural gas renaissance to understand where this
came from. Aside from this subject on natural gas when we're
talking about renewable energy, when we're talking about all
energy, let's understand the role that research, basic research
and applied research, have played in our nation in making sure
that we are energy independent.
Thank you.
Senator Barrasso. Thank you, Senator Franken. Turning to
Senator Cassidy let me just remind the Committee and point out
that the Committee heard concerns about natural gas prices two
years ago.
Prices have fallen since then, and the Obama Administration
has issued three separate studies showing that natural gas
prices will remain low with LNG exports. The Administration's
most recent study shows that prices will remain low even if the
Department of Energy approves four times the amount of LNG
exports that's already approved, so at least four additional
studies have confirmed the Administration's findings.
Senator Cassidy.
Senator Cassidy. Yeah, to speak of the pervasiveness of the
benefits of fracking. I have an article right here where
Minnesota actually produces much of the frack sand. So the
price of fracking sand has increased much to the benefit of
Minnesotans and Wisconsins. The benefit of this was George
Mitchell taking the DOE research, but actually commercializing
this. He even goes to Minnesota which is really good.
I have a couple questions though. One related to that, one
to another.
In Haynesville this is about jobs. Let me tell you there
are families struggling because they don't have jobs. We know
there's going to be a downturn in employment in the oil patch
because of the falling oil prices.
I'm interested if we can increase the jobs in natural gas
production because of an exportation. Haynesville shale is in
North Louisiana, and that play has decreased production because
it's dry gas. That's not what the people want to make
petrochemical products.
Mr. Durbin or Mr. Smith, do you all have an idea of how
many jobs will be created if we could unshutter those closed
down wells in places like the Haynesville and begin to ship
that dry gas to markets that actually want dry gas? Mr. Durbin,
any idea of how many jobs would be created by that?
Mr. Durbin. Well, I don't have the specifics to that, but I
know there have been several studies. In fact, NAM had one done
with PricewaterhouseCoopers that show with expanding natural
gas development we could create a million jobs in the
manufacturing sector across the country. So there's no question
that by providing for these exports you have now a much more
certain demand outlet for this product, and we're very
fortunate here in the U.S. that natural gas prices and oil
prices are largely decoupled.
Senator Cassidy. So if we increase that production, by the
way, we'll also be decreasing the demand for steel pipe which
is produced in places like Minnesota, Ohio, et cetera, correct,
fair statement?
Mr. Durbin. We'd be increasing demand, yes.
Senator Cassidy. Absolutely. Mr. Smith, it seems this has
been a great hearing, but I have a perception, it may be false,
but there's a certain kind of languidness about the approval of
some of these permits. Now that may be a perception. I, myself,
I'm happily married which means I speak of my perceptions, not
of what I know, okay?
So that said, when I look at the FERC and DOE processes
FERC says I understand under DOE there's a statement that they
want to look at the life cycle, the increase in life cycle
methane emissions if exportation requires increased production
of gas. FERC says in their approval process they cannot
ascertain that, therefore they do not consider it.
The fact that DOE would consider something which FERC says
is an imponderable to me makes me wonder if they're just,
before I throw all the bells, that they're almost inviting
litigations by those who wish to retard this process. So why
would DOE consider something which FERC considers an
imponderable?
Mr. Smith. Well, thank you for the question, Senator. For
aside, I certainly challenge the characterization of
``languid'' as a process. The most recent authorization that we
issued, we literally issued one day after the FERC process was
completed.
Senator Cassidy. As I would say to my wife, I apologize.
[Laughter.]
Mr. Smith. Duly noted. Thank you, Senator. So in terms of
the FERC process and DOE/FERC process, I think it's important
to consider the fact that we are looking at two very different
considerations, two very different decisions.
The job of FERC is to determine if the plant itself can be
both safely built and the print of that plant itself is
consistent with the values of safety and environmental
sustainability. So that's what FERC looks at. Can the applicant
build that terminal on that footprint?
Senator Cassidy. Don't you also consider the life cycle, if
there would be an increase in the life cycle release of methane
or greenhouse gases relative to increased production?
Mr. Smith. So that is what the Department of Energy looks
at, and the Department of Energy is looking at giving the
applicant the ability to actually export the molecule.
Senator Cassidy. Correct.
Mr. Smith. We have to look at all the things that would be
impacted, all the things will be part of a public interest
determination of giving the applicant that ability to export
that molecule. And that includes a lot of things that are
surrounding----
Senator Cassidy. But particular consideration is going to
be full of assumptions. For example, Mr. Durbin has pointed out
since 2006 there's been a dramatic decline in emissions. So you
have to predict what in 2022 will be the rate of emissions.
Mr. Smith. Right.
Senator Cassidy. You also have to guess the market. You
also have to guess the transportation of its life cycle and how
much is through pipeline and how much is through whatever.
So it seems, again, an imponderable. But the fact that it's
a variable with lots of variables makes me wonder why is it in
there?
Mr. Smith. Well, Senator, you're actually very nicely
framing the challenge of this incredibly important public
interest determination. These are decadal investments. The
decisions that companies make now in terms of spending billions
of dollars to build plants are going to have an impact on our
economy, on our environment, on job creation, on a lot of
things we care about for a very long period of time. In its
very nature a lot of that does involve a lot of diverse views.
I hear from Mr. Cicio's members. I hear from Mr. Durbin's
members. And they have different views.
Senator Cassidy. But that----
Mr. Smith. But we do have to consider a lot of different--
--
Senator Cassidy. But really we don't know which of those is
correct. So if we have a variable in which we cannot possibly
know with any kind of the r square, the statistical analysis of
the correlation is going to be huge.
Mr. Smith. Right.
Senator Cassidy. And so therefore you are picking a number
which is subject to political considerations. Do we want to
approve this or not? I think that would be the fear. And we can
prove one which has a big number of methane release or one that
says no, this is the glide path. We think it will come to down
to your lower number.
Mr. Smith. Well, Senator, our job is to make good public
interest determination. And one thing that I'd point everybody
to is when we issue an order it's not a sticky we put up on the
wall that says yes or no. We actually issue a very complex
document that has to take into consideration all of the
arguments that have been made by all of the different
stakeholders that intervene in this process.
They include Mr. Cicio's members. They include Mr. Durbin's
members. They include all of the diverse ideas that we've heard
here in this very hearing.
Our goal is to write an order that's clear, that's
consistent with the letter and spirit of the law and that's
going to withstand the scrutiny that it's sure to receive.
Our goal at the end of the day is that should we approve a
particular applicant that they can look at that order and that
applicant has the confidence and go and spend the multiple
billions of dollars that it takes to build that terminal
because they can see that we've had a thorough process that's
consistent with the letter and spirit of the law.
It does require us to think about assumptions, but make
those assumptions clear and explicit in a way that withstands
scrutiny.
Senator Cassidy. Well, I'm out of time, way over. I yield
back. Thank you.
Senator Barrasso. Senator King.
Senator King. Thank you, Senator. First I want to say I'm
good with regulatory reform. I like bills that generally lay
out clear regulatory guidelines and time. I'm also good with
natural gas.
So good with it, in fact, that I don't want to blow an
advantage that this country has. I have been to factories,
gentlemen, and looked in the eyes of people who have lost their
jobs to Asia, to other parts of the world, to Mexico. And they
looked at me and said, how did you let them ship my jobs away?
We have no advantage on wages. We have no advantage on
labor protections. We have no advantage on environmental
protection. We have today an advantage on energy costs. I
cannot understand this discussion that will inevitably lead to
higher energy costs.
Mr. Eisenberg, I can't understand an organization called
the National Association of Manufacturers supporting this
program. This bill, maybe. I understand because this is really
a regulatory bill. But the larger issue is what really concerns
me. Right now if you export, if we export to China, add in the
cost of transportation, the cost of liquefication, un-
liquefication, you're talking $10 dollars. China is paying $12
or $13, so we're giving them a 30 percent cut in their energy
cost. I just don't get it.
Now Mr. Durbin, you testified that you thought projected
out 10 years, 20 years, 30 years, I think you said 2040, nine
percent would be all we'd be talking about. Would you accept a
friendly amendment to this bill that the limit that the
presumption of the public interest would be reversed if the
export was more than nine percent of domestic production?
I believe you when you say it, but I subscribe to President
Reagan's admonition, ``Trust, but verify.'' I trust the
industry when they said, oh, we only want us to do just a
little bit. It's not going to really affect the price that
much. And there's endless supply. And it's all going to happen.
Okay, fine. Let's put it in writing. Ten percent I'll go
with. Nine percent is what you said. So maybe that's where we
ought to start the negotiation.
I think this moment will be looked back at, at a time when
Americans say what were you thinking when we have, what I call,
America's second chance at manufacturing, but we're going to
give it away. Mr. Durbin.
Mr. Durbin. Sure.
Senator King. There's a question in there somewhere.
Mr. Durbin. Yeah, and I'm happy to answer it. I think the
problem is we're posing a question as an either/or that we can
only have this abundance of natural gas domestically for our
manufacturing or we can export it. We have both. We can do
both. The issues that certainly manufacturers in New England
need to be concerned about is pipeline constraints, getting
those pipelines. And I----
Senator King. Oh, that's a separate issue.
Mr. Durbin. I know you're a very strong supporter of that,
and I appreciate that.
Senator King. Our natural gas prices were the highest in
the world last winter, the world.
Mr. Durbin. Exactly. So I mean----
Senator King. That's a pipeline problem.
Mr. Durbin. But if you look at the estimates, not industry
estimates, but the government estimates about how much
production is going to increase, what demand is going to--how
demand is going to increase, going out to 2040. We are going to
be outstripping consumption and demand here all along.
Senator King. That's fine. All I'm saying is put it in
writing.
Mr. Durbin. But I think the other aspect of----
Senator King. Accept a cap on the export so that we don't
end up with Australia. We're producing 75 BCF a day. In the
queue is 38 BCF a day for export. That's more than half, and
that's what you said was the problem. You said, oh that will
never happen, that's Australia.
But that's what worries me. If there's no limit here and
there's no definition of the public interest in the statute
that these guys are administering, I'm just saying let's define
it.
Mr. Durbin. I'd say the limit is being provided by the
global markets. We're not going to be exporting ten, 15, 20,
whatever, or the----
Senator King. Why not if they're going to pay 12 or 15 over
there, why wouldn't we?
Mr. Durbin. Because the markets--if we're going to be
exporting that much it's going to be because gas prices here
are so low and we have enough to provide it to those markets
that they're willing to pay.
I mean, you can see the global market dynamics right now
are going to influence the number of facilities that are going
to be built, and that's always been the case.
Senator King. Mr. Cicio, what do you think?
Mr. Cicio. Look at Australia, alright? So, okay, the scale
is different. I agree with what was said earlier, but the
government did not provide the necessary safety nets. The
resources that they have in Australia were contracted out under
long term contract to ship LNG offshore to customers at higher
prices.
Senator King. And once you do that you're locked in.
Mr. Cicio. Those are--yeah. And so the reserves were not
available for the Australian consumer anymore, and that's why
prices went up and the Australian consumer now is being asked
to pay an equivalent net back price to that LNG price that they
would sell to Japan or South Korea or China. And so, again,
think long term here.
Senator King. That's----
Mr. Cicio. Again if there's lots of resources everybody
should support putting the necessary full implementation of the
Natural Gas Act in the safety net for the consumer.
Senator King. Well, thinking long term it seems to me a
simple solution is to cap the amount of exports as a percentage
of domestic production. Then you can say, okay, there will be
some effect on gas prices, but it isn't going to be
catastrophic like it was in Australia.
There's one law Congress can't repeal, the law of supply
and demand, and if you increase demand Economics 101 says the
price is going to go up. So you can't deny that the price is
going to go up. That's the whole point.
But the question is how far is it going to go up? I realize
you've got to have a price that's sufficient to call forth the
production and open the wells and all those kinds of things. I
don't know exactly where that number is, but if we take an
action here in this Congress to just open the door and end up
with an Australia situation, shame on us, in my opinion.
Thank you, Mr. Chair.
Senator Barrasso. Well, thank you very much, Senator King.
And before turning to Senator Daines, I want to, without
objection, put into the record an article from the Boston Globe
by Jay Fitzgerald, December 5th, 2014 outlining the concern
with natural gas in New England last year related to inadequate
pipeline capacity to get the gas to where it needed to go.
Senator King. Absolutely. I'm fully in agreement with that,
on that problem. Thank you.
Senator Barrasso. Thank you.
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Senator Daines. Thank you, Mr. Chairman. I remember back in
the 70s I was going to high school and in the early 80s when I
was going to college studying chemical engineering and hearing
the concerns about someday we're going to run out of oil and
what that might mean to the United States and mean to the
world. Here we sit today as we've shifted from what used to be
a scarcity mentality, certainly, on oil and natural gas. Now
we're in an abundance mentality.
The Bakken formation bleeds into Montana. We are seeing
firsthand what's going on with hydraulic fracturing, with oil
production, with natural gas production, and I can tell you we
would like to produce more natural gas in Montana. Our natural
gas production has declined for lack of demand, and this
intersection of the demand and also the transmission issues and
the pipeline issues that the Senator from Maine was painfully
aware of last winter. I believe as we move to an abundance
mentality, as we gain more production which increases the
supply chain and pipelines ultimately the person who wins is
the American consumer.
As we've seen what's happened with oil where with the drop
in oil prices we're going to go from $3100 per average
household expense of oil to $1900. That's $1200 a year for the
average American household as a result of what's happened here
in America and the shale play.
The geopolitical implications are significant. I saw
Senator Barrasso's chart. I was struck by the dependency of the
European nations on Russia for natural gas.
I remember when I was serving back in the House in the last
term getting letters from leaders from the European nations who
were looking to America for energy leadership. How can we now
start supplying natural gas to Europe instead of the dependence
upon the Putin regime? So I'm very excited about where this
might lead to.
In terms of global competitiveness I was a manufacturing
guy for years. I had a day job in the private sector for 20
years before I came up here. I looked at operations in China. I
managed an operation to Asia/Pacific.
What these mean? Low energy and low natural gas prices and
the ability to export is great for global competitiveness to
bring these manufacturing jobs back to America. We can't
underestimate, I think, the national security implications as
well. This is a very exciting discussion. It's been a great
hearing for me.
But I was struck, Mr. Eisenberg. You made a comment, and I
guess let's bring it back to the scope. I've been up here at 40
thousand feet. Why are we here in this hearing today? Because
we're looking at the permitting process. That's the scope of
this legislation. How do we create more certainty in this
uncertain process about permitting? Mr. Eisenberg, I believe
you said that regulatory uncertainty, was it the number one
issue?
Mr. Eisenberg. Currently it is the most cited issue that
our members would like to see Washington fix right now.
Senator Daines. Number one issue of your manufacturers?
Mr. Eisenberg. Yes.
Senator Daines. So I guess with my engineering background I
look at what problem are we trying to solve here today. I know
we've been circling the globe on a lot of things in this
hearing, but we're looking at regulatory uncertainty, the
number one issue for manufacturers in jobs here in this
country.
Mr. Eisenberg. That's correct, and I would take it one step
higher. We're talking about free trade also, right? I mean,
this is the intersection of two sets of policies. This is
energy policy, and this is trade policy.
And to Senator King's last point, the reason the NAM came
out the way we did on this and we are not for or against
anything. We were founded 120 years ago, so the manufacturers
could find markets to export to. We believe that you're either
for free trade or you're not, and we are.
Imposing some sort of delay or cap or something like that
would stand in the way of exporting just about anything whether
it's a Honda Civic or a Bic razor blade or energy, and that is
why we've come out the way we have on this issue which is at
the end of the day on balance free trade wins.
Senator Daines. Well, I think we will have further debates
about the merits of increasing exports in natural gas or not,
but this legislation is about creating a regulatory certainty
in an uncertain environment. I think we want to keep the
conversation focused there because that's what we're going to
be voting on, on uncertainty and the regulatory process.
Mr. Eisenberg, could you expand, perhaps, on the resources
that are spent on the exporting permitting process including
NEPA and how important certainty is for both energy security
and the American taxpayer?
Mr. Eisenberg. So this is, obviously, not an inexpensive
process. No manufacturer would take on this without knowing
it's going to cost you quite a bit both in terms of the upfront
costs to actually do the environmental studies and all of the
research and all the background, but also the cost of delay,
right? I mean, at the end of the day time is money and the
longer it takes--the more you are spending to not do this.
So obviously as you said, permitting certainty is what
we're looking for. We're just looking to make sure that the
rules of the road are there. That if we comply with them, we
get an up or down answer so that we can control those costs and
we can expect those costs and we know, going in, that there is
an end of the road to this problem.
Senator Daines. Alright. And Mr. Chairman, I too was taught
in the House you don't run red lights, so I guess my time is
up.
Senator Barrasso. Well, I appreciate that, Senator Daines,
because in terms of certainty I am certain that the voting has
started on the Floor of the Senate. And I am certain it is on
the Daines amendment. It's being voted on right now, and I'm
certain that there are certain people on this panel that don't
want to miss that vote.
Thank you very much. I appreciate all of the witnesses for
being here today. This hearing is adjourned.
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[Whereupon, at 11:31 a.m. the hearing was adjourned.]
APPENDIX MATERIAL SUBMITTED
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