[Senate Hearing 116-328]
[From the U.S. Government Publishing Office]
S. Hrg. 116-328
EVOLVING GLOBAL NATURAL GAS MARKETS,
THE INCREASINGLY IMPORTANT ROLE OF
U.S. LIQUEFIED NATURAL GAS,
AND THE COMPETITIVE OUTLOOK
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON
ENERGY AND NATURAL RESOURCES
UNITED STATES SENATE
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
__________
JULY 11, 2019
__________
Printed for the use of the
Committee on Energy and Natural Resources
Available via the World Wide Web: http://www.govinfo.gov
______
U.S. GOVERNMENT PUBLISHING OFFICE
37-810 WASHINGTON : 2021
COMMITTEE ON ENERGY AND NATURAL RESOURCES
LISA MURKOWSKI, Alaska, Chairman
JOHN BARRASSO, Wyoming JOE MANCHIN III, West Virginia
JAMES E. RISCH, Idaho RON WYDEN, Oregon
MIKE LEE, Utah MARIA CANTWELL, Washington
STEVE DAINES, Montana BERNARD SANDERS, Vermont
BILL CASSIDY, Louisiana DEBBIE STABENOW, Michigan
CORY GARDNER, Colorado MARTIN HEINRICH, New Mexico
CINDY HYDE-SMITH, Mississippi MAZIE K. HIRONO, Hawaii
MARTHA McSALLY, Arizona ANGUS S. KING, JR., Maine
LAMAR ALEXANDER, Tennessee CATHERINE CORTEZ MASTO, Nevada
JOHN HOEVEN, North Dakota
Brian Hughes, Staff Director
Kellie Donnelly, Chief Counsel
John Crowther, Senior Counsel
Tristan Abbey, Senior Professional Staff Member
Sarah Venuto, Democratic Staff Director
Sam E. Fowler, Democratic Chief Counsel
Renae Black, Democratic General Counsel
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
Manchin III, Hon. Joe, Ranking Member and a U.S. Senator from
West Virginia.................................................. 10
WITNESSES
Winberg, Hon. Steven E., Assistant Secretary for Fossil Energy,
U.S. Department of Energy...................................... 12
Arriola, Dennis V., Executive Vice President and Group President,
Sempra Energy.................................................. 23
Hart, Dr. Melanie, Senior Fellow and Director for China Policy,
Center for American Progress................................... 36
Riedl, Charlie, Executive Director, Center for Liquefied Natural
Gas............................................................ 90
Tsafos, Nikos, Senior Fellow, Energy and National Security
Program, Center for Strategic and International Studies........ 102
ALPHABETICAL LISTING AND APPENDIX MATERIAL SUBMITTED
Arriola, Dennis V.:
Opening Statement............................................ 23
Written Testimony............................................ 25
Responses to Questions for the Record........................ 141
Hart, Dr. Melanie:
Opening Statement............................................ 36
Written Testimony............................................ 38
Responses to Questions for the Record........................ 142
Industrial Energy Consumers of America:
Comments for the Record...................................... 149
Manchin III, Hon. Joe:
Opening Statement............................................ 10
Murkowski, Hon. Lisa:
Opening Statement............................................ 1
White paper entitled `` `With Powers So Disposed': America
and the Global Strategic Energy Competition'' dated 7/11/19 3
Riedl, Charlie:
Opening Statement............................................ 90
Written Testimony............................................ 92
Responses to Questions for the Record........................ 145
Tsafos, Nikos:
Opening Statement............................................ 102
Written Testimony............................................ 104
Responses to Questions for the Record........................ 146
Winberg, Hon. Steven E.:
Opening Statement............................................ 12
Written Testimony............................................ 14
Responses to Questions for the Record........................ 137
EVOLVING GLOBAL NATURAL GAS MARKETS, THE INCREASINGLY IMPORTANT ROLE OF
U.S. LIQUEFIED NATURAL GAS, AND THE COMPETITIVE OUTLOOK
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THURSDAY, JULY 11, 2019
U.S. Senate,
Committee on Energy and Natural Resources,
Washington, DC.
The Committee met, pursuant to notice, at 10:02 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. Good morning, everyone. The Committee will
come to order.
We are meeting this morning to examine the evolving global
natural gas markets, the increasingly important role of U.S.
liquefied natural gas (LNG) as well as the competitive outlook
for LNG.
American natural gas production has literally changed the
game. We say that a lot around here about that, but it has been
a game changer. Our production has soared to levels that many
never even thought possible, and that was just about a decade
ago. This, in turn, is boosting our economy as well as our
national security. It is providing a long-term, low-cost, low-
emission source of energy for our manufacturers and residential
consumers alike, and we have such a massive resource base that
we can send substantial volumes abroad.
We are now leading the world in natural gas production.
Hopefully soon we will also lead in exports. Global demand for
LNG, we know, is increasing. More U.S. LNG export facilities
are coming online and more of our friends and allies around the
world are building import facilities.
For the first time since the 1950s, we are now a net
exporter of this abundant resource. Our production is driving
the formation of a global spot market for natural gas. So
again, the dynamic around natural gas, around LNG, is just
extraordinary.
The consensus among experts is that LNG will continue to be
a major driver of demand growth well into the next decade, from
developed countries in Europe to fast-growing economies like
India. A few of those experts are with us on today's panel.
They are here to tell us what is driving these trends, where
they may be headed, and how U.S. LNG fits into the equation.
We know that we are dealing with a very, very competitive
global market, what I have referred to as a ``narrowing
window'' of opportunity. I use this term quite frequently and
it seems that I have been using it for a long period of time
but it is, I believe, a ``narrow window'' of opportunity to
establish leadership in the global gas trade. I hope we are
going to hear ideas this morning on how to make our exports
even more competitive.
I am particularly excited, coming from Alaska, about the
role that my state can play. The Federal Energy Regulatory
Commission (FERC) has just released the draft EIS for the
Alaska LNG project, a great opportunity to move some tremendous
reserves of conventional gas on the North Slope to market. It
is a pretty important milestone for us in the federal
permitting process, and we continue to recognize that Alaska's
gas is a remarkable resource that will add to the energy
security of the U.S. and our allies.
As we look at our growing exports, we should also look at
the ways that the U.S. can support imports by other countries
to advance both our economic and our security interests. I have
started to do that. So today, members will see at their seats a
new white paper that we are releasing this morning. We have
entitled it, ``With Powers So Disposed.'' This references a
quote from President George Washington's farewell address.
[The white paper ``With Powers So Disposed'' follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The Chairman. So quite a few years back, but you are at a
point in time where certainly President Washington could never
have envisioned super-cooled methane molecules being shipped
around the globe in giant tankers, but he did foresee that the
American Government would have to work to open up opportunities
for its businesses with other nations in a way that promotes
both market forces as well as our national interests.
The paper effectively lays out a framework to strengthen
America's geopolitical posture by sharpening our tools of
economic statecraft. I think we are very uniquely positioned
here in the Congress to provide a level of strategic direction
to federal departments and agencies that are operating in this
area.
Just one example is the EXIM Bank, the Export-Import Bank
of the United States. It is nearing the sunset of its current
authorization in September. This framework that you have in
front of you is certainly going to guide my participation in
that discussion.
For those who are sitting out there, the report is
available on our Committee website, and I would be happy to
refer you to energy.senate.gov. But stay tuned for more. I
think as this conversation proceeds, we are going to have, kind
of, an uptick in interest on these very important matters.
I want to thank our witnesses for joining us here today. I
look forward to your testimony, as well as your insight on this
very, very important topic.
With that, I turn to my Ranking Member, Senator Manchin.
STATEMENT OF HON. JOE MANCHIN III,
U.S. SENATOR FROM WEST VIRGINIA
Senator Manchin. Thank you, Madam Chairman, and thank you
for convening the Committee today to discuss U.S. LNG and its
role in the global marketplace. And I want to thank each and
every one of the panelists here for trying to help us through
this.
There has been an exponential growth in domestic natural
gas production over the past decade, driven in large part by
research and development from the Department of Energy (DOE).
There is potential for more, including opportunities in my home
State of West Virginia which sits on top of an ocean of energy,
the Marcellus, Utica and now we find the Rogersville shales.
Production has increased as has the volume of natural gas
exports. In fact, the United States became a net natural gas
exporter in 2017 for the first time in 60 years which is pretty
special. That is important for our economy and for geopolitical
balance around the world.
Several more LNG export projects are expected to be
completed in the coming years. Once completed, U.S. LNG export
capacity is expected to reach nine billion cubic feet per day
by the end of 2019, making our country the third largest
exporter behind Australia and Qatar.
The U.S. Energy Information Administration (EIA) points to
a near doubling of exports over the year before. U.S. LNG
exports were made to 33 countries in 2018. Nearly 60 percent of
those exports were shipped to just four countries: South Korea,
Mexico, Japan and China.
The Department of Energy has approved over 20 billion cubic
feet per day in export capacity with another 20 billion cubic
feet per day in pending applications.
The U.S. LNG industry is also growing and reshaping
regional markets toward a global one through more flexible and
shorter-term contracts championed by U.S. businesses. I am
encouraged by this growth and the geopolitical and diplomatic
benefits of increased LNG exports from the U.S., particularly
to our allies and friends in Europe.
But I also want to touch on a topic which concerns my
colleagues and me deeply. That is the use of energy as a
geopolitical weapon by countries such as China and Russia.
Energy can be a tool for democracy, but it can also be a
weapon.
Russia has for years relied on their energy resources to
exert influence and exact concessions. Central and Eastern
Europe are relying on Russia for approximately 75 percent of
their gas import needs. Russia, in turn, uses this reliance for
political coercion and influence, and that is why I oppose the
Nord Stream 2 pipeline. We have got to get back in the game and
lead in order to promote American energy and independence and
serve as a bulwark against Russia and Chinese aggression.
I serve on the Armed Services Committee and previously
served on the Intelligence Committee. I want to be very clear
on the fact that nations have and, if allowed to, will continue
to use their energy resources and infrastructure as
geopolitical leverage in times of conflict and in times of
peace to pressure our allies and try to divide us. It is
unacceptable to me that our European allies can be held hostage
by another nation because of its monopoly on natural gas.
Fortunately, U.S. natural gas is abundant and it is much
more attractive for our allies in Europe to buy from a
democracy than it is from an authoritarian regime.
Meanwhile, China is buying up energy and natural resources
around the world from large parts of Africa, Latin America to
Asia, to right here in the United States of America.
For certain commodities, including the critical minerals
vital to energy technology, China has become the price setter
and exerts enormous influence on rare earth minerals. They have
also moved strategically to vertically integrate manufacturing
in certain energy sectors--such as solar panels--to capture the
economic value before selling into U.S. and other markets.
That is why I support the Appalachian Storage Hub, for
example, to create industry and jobs around our natural gas
liquids here at home rather than shipping them all to China. I
just don't believe that we should be granting the Chinese
government unfettered access to our natural resources when that
access is not reciprocated. Both China and Russia use energy
resources and show willingness to manipulate U.S. energy
resources to advance their long-term strategic positions.
In a time when all countries need to focus on solutions to
the common threat of climate change, including the use of
natural gas to lower greenhouse gas emissions, gaming the
global energy economy only benefits our adversaries.
With that, Madam Chairman, I look forward to hearing from
our witnesses today and having a vital, important discussion.
The Chairman. Thank you, Senator.
We will now turn to our witnesses. Again, we appreciate
that you have all joined us here this morning at our
invitation.
We will lead off the panel this morning with Steven
Winberg, who is the Assistant Secretary for Fossil Energy at
the Department of Energy. Nice to have you here, Mr. Winberg.
Mr. Dennis Arriola is the Executive Vice President and the
Group President for Sempra Energy. Thank you for being here.
Dr. Melanie Hart is the Senior Fellow and Director of the
China Program at the Center for American Progress. We look
forward to your input this morning.
Mr. Charlie Riedl is the Executive Director at the Center
for LNG.
And finally, Mr. Nikos Tsafos, who is the Senior Fellow for
the Center for Strategic and International Studies, CSIS, as we
know around here.
We thank each of you for your participation here this
morning.
Just for your information, we are scheduled to have a
series of three votes at about 11 o'clock this morning. Senate
time is less than certain around here, so we will see how that
goes.
But what we would like to do is get your testimony here. We
will have an opportunity to ask questions. I think you will see
members coming and going. Don't take that as an indicator of
lack of interest, just that there is a lot going on this
morning. We will continue to move the Committee even through
those votes, but we will give you more updates as those come.
We will begin with you, Mr. Winberg, and ask that you try
to keep your comments to about five minutes. Your full
statements will be included as part of the record.
Good morning.
STATEMENT OF HON. STEVEN E. WINBERG, ASSISTANT SECRETARY FOR
FOSSIL ENERGY, U.S. DEPARTMENT OF ENERGY
Mr. Winberg. Good morning.
Thank you, Chairman Murkowski, Ranking Member Manchin. It's
always good to be here to be with you. And it's my pleasure to
appear before you today to discuss the status of the natural
gas market and the work being done by the Office of Fossil
Energy to support record-setting, U.S. natural gas production.
I had the opportunity this morning, Senator Murkowski, to
read ``With Power So Disposed,'' and the Department of Energy
stands ready to assist in whatever way we can.
As Senator Manchin said, the United States is now the
world's largest producer of both natural gas and crude oil.
Each month we're setting new record levels of production. The
surge in natural gas production amounts to an increase of over
60 percent from 2009, and this year's production is on pace to
exceed last year's by nearly 10 percent.
The LNG exports, we are now in our third consecutive year
as a net exporter of natural gas and the EIA estimates that the
United States will be an overall net exporter of energy next
year. These exports are reducing our trade deficit by billions
of dollars each year and increasing our national security.
U.S. LNG cargos have landed in Europe, Asia, Africa, the
Middle East, South America, North America and the Caribbean, 36
countries in total. And U.S. LNG, so far in 2019, has exceeded
55 cargos through April of this year. Asia has been the top
importing region of U.S. LNG over the last three years, but
much of the LNG this year has been going to Europe.
At the same time, natural gas has become the primary fuel
used in electricity generation responsible for fuel in over 35
percent of the power generated in the United States in 2018.
The increased use of natural gas has helped lower energy-
related carbon emissions to levels not seen since the late
1980s. According to EIA, U.S. energy-related carbon dioxide
emissions will be four percent below 2018 levels in 2050 as the
use of natural gas in the United States continues to increase.
The Office of Fossil Energy works on both the research and
development of natural gas technologies as well as the
regulatory space. For R&D, we strive to enhance U.S. economic
and energy security by managing and performing research that
maximizes the efficient and environmentally sound production in
the use of natural gas and other fossil fuels. In our
regulatory program, we support the development of policy
options that benefit the U.S. public by ensuring access to
adequate supplies of affordable and clean energy.
The Administration and DOE have also made it a top priority
to highlight the economic benefits of the Appalachian
petrochemical industry made possible by the surge in natural
gas production in the region. Industry has estimated that an
Appalachian petrochemical industry can support a total of five
ethane crackers, 100,000 jobs and contribute to the
revitalization of the region.
These petrochemical plants would also bring in tax revenues
to communities, provide opportunities for hard working
Americans to fundamentally transform their lives and give our
nation the opportunity to diversify its energy and
petrochemical production.
DOE remains committed to working with stakeholders at all
levels of government, industry and academia to promote these
developments.
There's no doubt that natural gas has transformed our
nation and the world for the better. It has grown our economy.
It has created countless American jobs and made our air
cleaner. Further, increased LNG exports also have given our
allies a secure source of energy. Natural gas has proven to be
and will continue to be a vital part of the Trump
Administration's commitment to an all-of-the-above approach to
energy.
So I thank you for the opportunity to appear before you
today. I look forward to your questions.
And finally, I want to thank my wife, Ann Winberg, and our
daughter, Rebecca Burns, for being here with me today. It's
always good to have family backing you up.
Thank you.
[The prepared statement of Mr. Winberg follows:]
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The Chairman. That is great. Thank you, Assistant
Secretary, and we welcome your family as well.
Mr. Arriola, welcome.
STATEMENT OF DENNIS V. ARRIOLA, EXECUTIVE VICE PRESIDENT AND
GROUP PRESIDENT, SEMPRA ENERGY
Mr. Arriola. Well, good morning. Thank you, Chairman
Murkowski and Ranking Member Manchin and Senators that are
here, part of the Committee. Again, I'm Dennis Arriola. I'm the
Executive Vice President and Group President for Sempra Energy.
Sempra is based in San Diego. We've been in the natural gas
business for over 150 years, and we're the largest utility
holding company in the United States with nearly 20,000
employees and serving more than 40 million customers worldwide.
Sempra is a leader in North America's growing LNG export
market, and we're pursuing five strategic LNG export
opportunities in North America with access to both the Atlantic
and the Pacific Basins. Our projects include two in Louisiana,
one in Texas and two on the West Coast of Mexico that together
could export 45 million tons of American LNG in the future.
And so, this morning what I'd like to do is just spend a
couple minutes on the U.S. natural gas supply and how we see
its impact to the American economy, how LNG exports can reduce
our trade deficits and benefit our foreign relations and the
environmental benefits of LNG.
As mentioned, the U.S. became a net exporter of natural gas
in 2017 for the first time since 1957. And that's really, it's
thanks to American ingenuity and to the shale gas revolution.
The supply of inexpensive natural gas is expected to increase
to 90 billion cubic feet per day in 2020, which is a 30 percent
increase from 2017. And this growth in natural gas is good for
American consumers, our industries, for electric generation,
but also for international buyers of LNG. And today, the U.S.
accounts for about 22 percent of the global gas production and
is on track to be the largest exporter of LNG by 2024, maybe
sooner.
Growing natural gas production and LNG exports are having a
strong, positive impact on our country and have the potential
to add millions of jobs throughout the entire value stream to
the U.S. economy. And we've seen this firsthand with the
economic benefits at our Cameron LNG export facility in
Hackberry, Louisiana. On May 14th, we produced our first LNG at
our Cameron facility and we had the honor of being joined by
the President of the United States, diplomats from the EU and
Japan as well as by some of your colleagues. Senator Cassidy
was able to attend as well. And then on May 31st, the first
tanker departed Cameron with American LNG for the world market.
So we're really proud of that moment.
The U.S. economic impact from Cameron LNG is estimated to
be $336 billion over the life of the project and should
generate about 53,000 direct and indirect jobs annually over 20
years which is equal to about 1.1 million job years.
At our Port Arthur LNG project in Texas, which we're
developing, we estimate the economic contribution at nearly
$290 billion, or slightly over $11 billion annually over 25
years, with an average of nearly 5,700 direct and indirect jobs
in Texas and about 41,000 nationally through 2043.
So it's clear, LNG exports create a lot of jobs, good
paying jobs, here in our country.
Now today, Asia accounts for about 70 to 75 percent of LNG
demand and Europe about 15 percent. And while most, not all,
but most of the U.S. export capacity exists today or is being
developed in the Gulf Coast region, it takes an LNG tanker
about 21 days to travel to Asia through the Panama Canal. That
is impacting our competitiveness.
However, Sempra expects to cut that to 12 days or even less
by developing two projects at our import facility in Baja,
California, and Mexico. And when they are completed they will
connect with pipelines from Texas to form, what we're calling,
the Permian to Pacific Highway, and American LNG will be more
competitive in Asia as a result.
Now, ten Asian countries account for over 80 percent of our
trade deficit, and they happen to be countries that also need
LNG. So exporting LNG, not just to China, which is the largest
importer in the world, but to countries like Japan, South
Korea, Vietnam, India and others, could be a true game changer
for our trade deficit and since they all buy LNG, why not buy
from the United States, as long as we're competitive?
Now at the same time, LNG trade can strengthen our
relationships with foreign governments by providing
alternatives to Russian gas. And so, Sempra has signed a 20-
year LNG agreement with a Polish oil and gas company and we
have preliminary agreements with several major natural gas
companies in Europe and Asia. As a result of these contracts,
the U.S. is going to benefit and the LNG exports will benefit
our partners as well.
More than half of the countries in Asia have air quality
challenges and need cleaner natural gas from LNG to displace
less clean resources and combat climate change. So, the trend,
obviously, is to phase out coal-fired power. Natural gas is a
logical substitute because it's a comparatively low cost and
environmental benefits and it emits 50 percent of the carbon
dioxide of coal. And it also complements the growth of
renewable resources like wind and solar. So as part of an
overall portfolio, natural gas makes sense.
In conclusion, the role of LNG exports in the U.S.' global
energy leadership, I think it's larger than any of us can
actually imagine and it's going to continue to grow. Sempra
Energy is focused on helping our country realize its full
energy potential by being a leader in the LNG energy export
market.
I appreciate the opportunity to be here and look forward to
your questions.
[The prepared statement of Mr. Arriola follows:]
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The Chairman. Thank you, Mr. Arriola.
Dr. Hart, welcome.
STATEMENT OF DR. MELANIE HART, SENIOR FELLOW AND DIRECTOR FOR
CHINA POLICY, CENTER FOR AMERICAN PROGRESS
Dr. Hart. Thank you, Chairman Murkowski, Ranking Member
Manchin, Senator Stabenow, thank you for the opportunity to
testify here today.
I've worked as a China analyst for nearly two decades, and
I am here to weigh in on China's role as a potential export
destination for U.S. LNG.
As you know, China is a growing importer and there is
tremendous speculation about the potential for large volume,
U.S. LNG exports to China. Some analysts argue that exporting
U.S. LNG to China will help rebalance the U.S.-China trade
deficit, generate American jobs and help China transition away
from coal. I'm here today to share a different view.
Arguments calling for the U.S. to export large volumes of
LNG to China, unfortunately, reflect some deep
misunderstandings about the way global LNG markets work and
very deep understandings about China's national interests and
how Beijing intends to pursue those interests.
I would like to focus my opening remarks on four key
points.
First, transporting U.S. LNG to China is prohibitively
expensive. There is currently not a strong commercial business
case to do so in large volumes.
China does not desperately need U.S. LNG. They're already
importing LNG from 17 different nations and the shipments they
receive from the U.S. are among the most expensive in their
supply chain. That is simply because the Gulf Coast is located
far away from China's import locations, farther than China's
other major suppliers.
It takes a tanker, when transporting natural gas to
Shanghai, a tanker from the U.S. Gulf Coast must sail 10 days
longer than one from Qatar and 15 days longer than one from
Western Australia. As a result, shipping costs from the U.S.
Gulf Coast to China are twice those from Qatar and almost three
times those from Australia.
What we have to understand is that if China chooses to buy
large volumes of U.S. natural gas, they are paying a price
premium to do so. For that reason, we have to question what
their intentions are in paying that price premium when they do
have 17 different suppliers to choose from.
Secondly, the most bullish analysis of U.S.-China LNG trade
potential are hoping that long-term infrastructure investment
projects will make the trade economically feasible. Those are
projects where a Chinese investor would come in, invest
billions in a U.S. natural gas project and gain access to the
gas it produces for a 10 to 20 year time horizon.
Unfortunately, those deals are simply out of step with current
market trends. The market is shifting toward short-term
contracts, particularly in Asia and particularly with the
Chinese purchases.
Also, technical innovations are making it possible to use
floating gasification and floating liquefaction and floating
re-gasification terminals so that we don't have to spend $50
billion to develop a natural gas export facility. And anyone
assessing the feasibility of those high-dollar, long-term,
Chinese projects that require Chinese investment should
question why we aren't considering some of the more flexible,
cheaper alternatives that are emerging on the market.
Third, at best, U.S. LNG would be a short-term fix for
China. Chinese leaders do not intend for their nation to be
dependent on the United States for its energy supplies. In
fact, the U.S. Energy Information Administration estimates that
China may have more shale gas reserves than the United States.
China is not doing a very good job at developing and exporting
those reserves, but Beijing is determined to turn that around
and to follow the U.S. example. We should not underestimate the
probability that that determination will become reality given
the amount of money that they're willing to invest in doing so.
China is already the third largest global shale producer behind
the United States and Canada. We should not put all of our eggs
in the basket of expecting China to be a massive importer of
LNG for decades to come.
Fourth, if Chinese leaders use state funds to pay a price
premium for U.S. LNG that they do not need and do not intend to
utilize over the longer term, they will expect something in
return and we need to understand exactly what that is.
At a minimum, even if Beijing's intentions are completely
pure, large export deals would increase U.S. economic
dependence on China at a time when it could not be more clear
that that dependence brings growing risks. U.S. states,
companies, workers and families whose livelihoods depend on LNG
shipments to China or continued Chinese investments in large
development projects, could one day find themselves in the
exact same situation that our soybean farmers are in today.
The United States should think twice before needlessly
deepening our economic dependence on our biggest competitor. If
China agrees to purchase U.S. LNG in large volumes or invest
hundreds of billions of dollars in U.S. natural gas projects in
exchange for the U.S. agreeing to back down on core trade
complaints or any other critical U.S. national interests, a
deal of that nature could undermine U.S. economic security for
decades to come.
Thank you again and I look forward to your questions.
[The prepared statement of Dr. Hart follows:]
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The Chairman. Thank you, Dr. Hart.
Mr. Riedl.
STATEMENT OF CHARLIE RIEDL, EXECUTIVE DIRECTOR, CENTER FOR
LIQUEFIED NATURAL GAS
Mr. Riedl. Good morning, Chairman Murkowski, Ranking Member
Manchin, Senator Stabenow. Thank you for allowing me the
opportunity to testify this morning. My name is Charlie Riedl,
and I am the Executive Director at the Center for Liquefied
Natural Gas, or CLNG.
CLNG represents the full LNG value chain providing us with
unique insight on the benefits LNG brings to the U.S and global
economies. CLNG operates within the Natural Gas Supply
Association, a national trade association that's represented
U.S. gas industry for more than 50 years. This gives us a deep
understanding of the entire U.S. natural gas supply portfolio.
I appreciate the opportunity to address the Committee about
the evolving global natural gas market and the many
environmental and economic benefits of U.S. LNG exports.
America's abundance of natural gas has led to our emergence as
a world-class exporter of energy, creating U.S. jobs, growing
our economy and significantly strengthening global energy
security, all while reducing emissions and pollution.
The United States' vast supply of natural gas is the very
reason we're here this morning and able to have this
conversation about LNG exports. Without it, we would likely be
having a conversation this morning focused on LNG imports.
It is this supply, growing by the year, that underpins the
benefits we can achieve with exports. Technological
breakthroughs in the oil and natural gas industry have
unleashed an energy renaissance establishing the United States
as the world's largest natural gas producer.
As I speak today, the U.S. natural gas resource has reached
an all-time high according to the U.S. Potential Gas Committee.
Amazingly, those increases are up 69 percent since 2005
according to EIA, all while prices of natural gas have fallen
64 percent over that same time period. So new domestic supplies
of affordable natural gas have created this competitive
advantage for U.S. manufacturers as well, leading to greater
investment, industry growth and new jobs. And exports forecast
that an additional industrial investment of roughly $135
billion to build 59 new projects and 11 expansions between now
and 2022.
According to studies from the Department of Energy, the
exports will not compete with the manufacturing sector here in
the United States. And it's important to understand that any
new LNG exports will be met by new natural gas production.
So to better illustrate how quickly the U.S. has moved
being a net exporter of natural gas, we really only need to
look back 11 years. In 2008, the EIA's Annual Energy Outlook
forecasted that by 2030 the United States would need to import
roughly 8 billion cubic feet of LNG per day. Fast forward to
the 2019 Annual Energy Outlook and the forecast is vastly
different. We will be exporting by 2030, 13.5 BCF of LNG per
day. That's a swing of 21.5 BCF without having any material
impact on the net price of natural gas here domestically.
So what we're finding is that LNG exports can and will
react to the global marketplace. Worldwide demand for LNG
export today is approximately 37 billion cubic feet and it's
projected to increase to around 67 billion cubic feet per day
by 2035.
U.S. LNG exports create numerous environmental and economic
benefits for the United States and global consumers. I'd like
to focus the remainder of my remarks this morning focused on
those two areas.
A 2014 study conducted by the Department of Energy found
that LNG exports could reduce global greenhouse gas emissions
by displacing more carbon intensive fuels for importing
nations. Those further studies have also shown how natural gas
and renewables are ideal partners for improving air quality and
emissions.
A prime example of where that's taking place is in India
where it's believed some 400 million people lack access to
reliable electricity. So to date, we've sent 36 cargos to India
which is roughly 120 BCF of gas, and what we've seen in that
time period, since 2016, the Cove Point facility has served
that market and what we're seeing is greater adoption of
natural gas for electricity generation there cleaning up the
air.
In-depth research by the Department of Energy in 2015 and
again in 2018, found that exports are a net benefit to the U.S.
economy. That study by the Department of Energy found that
results--the increase in the U.S. household incomes and their
welfare. The Department study determined that increased
production will drive investment to revitalize economically
depressed regions that bring thousands of jobs to the area.
The promise of more LNG facilities in the United States
also brings the promise of a new era benefiting the U.S.
economy and our environment. Our enormous natural gas resource
base is ideally positioned to help the United States compete on
a global level for the LNG market share and still providing an
environmentally and economically affordable, advantageous fuel
source for the U.S. customers.
U.S. LNG exports benefit everyone with billions of dollars
in investments and thousands of dollars of good paying jobs
here at home while creating a cleaner future for our world.
In closing, I commend Chairman Murkowski and the Committee
for their leadership and steadfastness in championing LNG.
We're committed to helping find solutions to address our energy
needs and I look forward to your questions.
Thank you for the opportunity this morning.
[The prepared statement of Mr. Riedl follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The Chairman. Thank you, Mr. Riedl.
Mr. Tsafos, welcome.
STATEMENT OF NIKOS TSAFOS, SENIOR FELLOW, ENERGY AND NATIONAL
SECURITY PROGRAM, CENTER FOR STRATEGIC AND INTERNATIONAL
STUDIES
Mr. Tsafos. Thank you, Chairman Murkowski, Ranking Member
Manchin, members of the Committee. Thank you for the
opportunity to speak to you today.
As everyone has attested to, we're living in a
transformational moment in global gas markets and the United
States is at the center of that transformation. And so, the
first thing I want to do is actually commend this Committee
because its leadership and the actions that have taken place in
this town over the past few years have made that possible.
What I want to leave you with is four things.
Number one, the global gas market is changing. There's no
doubt about that. But that change is sometimes caricatured. The
headlines don't quite do justice to the complexity of this
system. So in my view I wanted to share four profound shifts
that are taking place in the global gas market that, I think,
should guide our thinking and our decisions.
The first shift is complexity. Twenty years ago, this used
to be a simple system, a handful of producers, handful of
consumers. Today we live in a world where about 20 countries
export LNG and about 40 countries import it. This is an
immensely more complicated system.
The second shift is in structure. We have more transactions
that take place in the short-term and spot market, and that is
a very encouraging trajectory. At the same time, the long-term
market still dominates and if you look at the spot market for
LNG it's about four percent of all the gas used in the world.
So it's important to focus on that market, but it's also
important to understand the broader context in which that
market exists.
The third shift is in pricing. Even in 2018, less than half
of the world's gas was priced according to market principles,
what we call gas on gas competition. Regulated pricing, oil
indexation are still very important. The price that Asian
consumers pay for LNG still tracks the price of oil very well.
It's important, whenever we talk about pricing, to look at the
details, to look at the nuance because the headline stories
sometimes don't do justice to what's really happening.
The fourth shift is in geography. We have a monumental
shift where Qatar, Australia and the United States are going to
be the top three suppliers with Russia emerging as a clear
fourth. China has become the largest source of incremental LNG
in the world. It's overtaken South Korea. In a few years, it
will overtake Japan. So what happens in China is going to have
a profound impact on this market, and we have to think about
what that means. My point from these shifts is relatively
clear. Change is taking place. That change is sometimes
evolutionary, not revolutionary and we should understand and
embrace the complexity of the system.
The second observation I want to make is about the current
moment that we are at. We have a lot of gas on the market.
Prices are really down for spot LNG in Asia, in Europe.
At the same time, companies are investing for the new wave
of supply. But this new wave is going to be a lot more
competitive. It's going to be a lot more diverse. It's going to
be Qatar. It's going to be Russia. It's going to be Canada.
It's going to be East Africa. It's going to be Southeast Asia.
One of the key challenges will be to find a role for the United
States to compete in that marketplace. Companies will change
business models. They'll turn to states for support. We'll have
geopolitical drivers for decisions. And so, this is going to be
a very competitive market.
The third observation I want to leave you with is about
institutions. We desperately need a common basis from which to
talk. This means data, better data, publicly accessible data,
data that everyone can rely upon to have a good conversation
about what's happening in natural gas. We have questions from
oil. When we talk about oil, we all can look at a certain
number of reports and have a common foundation for discussion.
We don't have the same thing for global gas. We really need it.
The second aspect of institutions is a conversation on gas
and energy security. Different regions have different
understandings of gas security, and I think it's incumbent upon
the United States, through its partners and the International
Energy Agency, to revitalize the conversation on how to measure
gas security and also how to enhance it altogether.
My final observation is about enhancing and supporting U.S.
LNG exports and my observation has been that if you want to
build LNG anywhere else in the world, you can probably get the
U.S. Government to help you. If you try to buy U.S. LNG you're,
kind of, out of luck.
And so, I think we really need to have a better
conversation about sharpening the tools that the U.S.
Government already has--the BUILD Act, the EXIM Bank--and
trying to figure out ways to get countries that want to import
LNG, U.S. LNG, or just gas more broadly, give them the tools
and the resources they want and need to make that possible.
Thank you very much for your time, and I look forward to
answering your questions.
[The prepared statement of Mr. Tsafos follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The Chairman. Thank you, Mr. Tsafos.
Great perspectives here this morning, so we will begin with
our questions. As I mentioned, when votes start we will just,
kind of, figure it out from there.
I want to start my questioning by focusing on Alaska,
because none of you have talked about it. We recognize that
when we think about the strength of our natural gas in this
country, we have extraordinary resources down there in the
Gulf. We talk about how that is poised to move out in a
significant way.
Mr. Tsafos, you recognized the good work of the Committee
here in moving forward with an expedited process to help
facilitate some of these exports.
Alaska is sitting up there. We have not been able to move
out on our natural gas pipeline or a way to get our gas to
market. But the recognition is that we have an opportunity to
be a serious and a substantive contributor in this more global
discussion because our market is not in the Lower 48. Our
market is Asia.
Dr. Hart, you mentioned that one of the challenges when we
think about United States' natural gas, LNG, going over to
China is that it is expensive to move it from the Gulf. The
time involved is more considerable than bringing it up from
Qatar. If you are bringing it down from Alaska, it is seven to
nine days, I am told. One of the advertising points that we
have coming out of Alaska is we don't have any chokepoints, and
we don't have pirates. There is no Strait of Hormuz that we
need to worry about. But as Dr. Hart has pointed out, our gas
is going to be more expensive, at least right now, given the
design of our project, because of the geographic realities that
we are dealing with in advancing, whether a gas line or some
alternative to move.
So I want to talk about ways that Alaska LNG can be more
competitive, and I would ask your views on that, Mr. Tsafos.
And more specific, what do you think about the potential
Chinese investment in the project?
Then I would like to go to you, Dr. Hart, for your views on
this. It doesn't sound like you are necessarily advocating a
ban on LNG imports to China, but you are certainly urging great
caution. I would like your very specific views on the potential
Alaska LNG project because of the agreement that our state
signed with China, a Memorandum of Agreement to buy Alaskan
gas.
So Mr. Tsafos and then Dr. Hart.
Mr. Tsafos. Thank you, Senator.
When I think about Alaska I think about two challenges. One
is getting the permits, and the second is getting the math to
work.
The Chairman. Right.
Mr. Tsafos. So----
The Chairman. We are working on the permit part.
Mr. Tsafos. I'm very heartened on the permits, and I think
there's a tremendous amount of work that has happened on that
front.
I think the economics, in reality, are very difficult. In
2012, when the oil companies proposed to the state to jointly
develop this project, this was a very different LNG market. The
market has changed.
I think there is a, sort of, very narrow, commercial window
in which this project can be successful.
I expect to see----
The Chairman. How narrow do you define?
I won't hold you to it, but I am curious to know how much
time you think, given all that is happening globally.
Mr. Tsafos. I apologize. I don't mean time.
The Chairman. Okay.
Mr. Tsafos. The window of time always moves. So, that's----
The Chairman. Fair enough.
Mr. Tsafos. The window that I'm talking about is the
commercial margin. Can you make money delivering this gas to
Asia?
And as you know very well, Alaska's challenges are in part
the gas has a lot of CO2 and a very long pipeline
and those are the two main things that shadows the
competitiveness of the project. So I look forward to see what
the new governor, kind of, puts forward in terms of how to
structure this project. I think there's a structure that can
work.
My view, having worked on the Alaska project in a previous
capacity, has been that there's a role for the state to take a
leadership position as long as the risk and the reward are
appropriately distributed.
Which brings me to my comment on China. The concerns that
I've had in the past about a possible Chinese involvement in
the project has been that the structures that were discussed
put a lot of risk on the state maybe and the Chinese weren't
bearing as much of the risk. So I think a successful model has
to find a way for everyone to bear their fair share of risk and
not for the project to have been made possible by one party
taking a disproportionate lot of risk.
The Chairman. Dr. Hart.
Dr. Hart. Thank you very much for the question.
As I understand the Alaska project, there is a preliminary
agreement between the State of Alaska and three Chinese state-
owned enterprises, that would be Sinopec, China Investment Corp
and Bank of China. As I understand the project, the Chinese
firms would, in theory, bankroll the pipeline infrastructure in
Alaska in exchange for guaranteed access to 75 percent of the
gas produced over the lifetime of the project.
I have a few concerns. I'll outline some of my concerns
about that.
The first is that these are state-owned enterprises. They
answer to the Chinese Communist Party. They answer to China's
national interests. Right now, as part of the U.S.-China trade
war, we see how the Chinese Communist Party is leveraging
American business, American state, American worker dependence
on the Chinese economy, on Chinese market access in a bid to
bring the U.S. to heel and pressure the U.S. to back off.
Personally, I do not agree with the way that the United
States is pursuing its trade interests right now, but it is an
opportunity to watch China use the levers that it perceives it
has over the United States and it clearly uses those levers
strongly. And so, we should be very cautious about allowing a
Chinese state-owned enterprise to control that degree of
decision-making and financial resources in an American project.
Currently, the United States, the U.S. Congress--CFIUS--has
allowed Chinese state-owned enterprises to have a minority
stake in natural gas projects and oil projects. We have never
allowed a state-owned enterprise to have a majority stake in a
U.S. natural gas project. So that is something to think about
very carefully.
Second, my understanding is that multiple commercial oil
and gas firms have walked away from that particular project
because of the costs required to bring it online. I would
question why is it that a Chinese state-owned company is
willing to pursue a project that individual, commercial
companies viewed as not commercially feasible? We should have a
lot of oversight over--ideally, we would have an open bidding
process for all development projects in the United States and
those would go to the best commercial bidder. If it wasn't
something that was feasible commercially, but it's something
that the Chinese Communist Party is willing to invest in, that,
to me, speaks of more interest than commercial ones being
involved in the deal. And so, that is something that would
require a very serious U.S. Congressional oversight, in my
opinion, to make sure that we aren't making a deal that would
be bad for the United States over the longer-term.
Third----
The Chairman. I am going to have to ask you to wrap here.
Dr. Hart. Sure.
Third, the finances. We would need a lot of oversight over
that. We have examples from Sri Lanka and other countries about
the risks of being in debt to China for infrastructure
projects.
And then fourth, because of those risks I think we cannot
have too much oversight for investments of that nature.
The Chairman. Well, we probably have some differences here
in terms of the role that China would play outside of the
financing, but I appreciate your views on it and I would like
to talk to you a little bit more about it.
Let me turn to Senator Manchin.
Senator Manchin. Thank you, Madam Chairman, and thank all
of you for being here. Again, I have tremendous concerns about
China and Russia and their roles, geopolitical roles. Real
quick, just a yes or no, and then I am going to go directly,
Ms. Hart, to you, but do you all have the same concerns? Do you
have doubt about what Russia and China are trying to do in the
geopolitical arena with this energy they have? Do you all
believe China is a threat?
Mr. Winberg.
Mr. Winberg. Certainly Russia is a threat with the Nord
Stream Pipeline you mentioned, Nord Stream 2.
Senator Manchin. Yes.
How about China?
Mr. Winberg. I think with respect to China the Trump
Administration is addressing a lot of the issues that were just
talked about with respect to structural, fundamental structural
changes that need to happen between our two countries and how
we do business, things like force technology transfer.
I was on the negotiating team over there in November and
again in January, and they are very interested in U.S. LNG, but
we do need to fix the structural challenges that we have.
Senator Manchin. Let me go right into this, if I can then.
Are we, as Americans, allowed to go into Russia and buy
their resources, develop their resources and control the flow
of their resources back to the U.S.?
Dr. Hart?
Dr. Hart. I can't speak to Russia but we are definitely
not----
Senator Manchin. China, I mean China.
Dr. Hart. ----allowed to do so in China.
In fact, China's information about their shale gas
resources is classified. So our companies are also not even
allowed to fully assess what they have in the ground to
understand how they might weigh in as a potential exporter over
time.
Senator Manchin. You would think that in reciprocation, we
would reciprocate.
You know, China is coming, and I wonder if you all know
about this deal that they want to make with West Virginia, my
State. They said they are going to invest $83 billion over 20
years. You can imagine that type of carrot being swung out
there, tremendous for a small state. Our budget is only $4
billion a year. They are going to invest $83 billion.
What would be their interest? We cannot find out one iota
what the MOU is. I have asked them directly, their energy
company, but we cannot get a direct answer about their
investments. My gut tells me they want the LNG. They want
propane, ethane, and butane, which we do not have CFIUS review
on, to take away our building stock, you know, for our
manufacturing. And I can't believe that this Administration
would allow in any way, shape or form, that type of project to
go on.
There is another problem, American Ethane. American Ethane
is owned by a Russian oligarch and what they are doing here in
America to take out our building stock. I don't know why we
haven't stepped up and just absolutely slapped a stop and
decease order on this. Do you have any comments on this, Doctor
and anybody else?
Dr. Hart. Well, on the issue of U.S. access in China, I
would like to remind the Committee that President Obama
actually signed a shale gas cooperation agreement with China in
2009, and that agreement was intended to give U.S. companies
access to China's shale sector. Unfortunately, that access
wasn't exactly forthcoming. So there is an agreement on the
books and it was not fully honored by the Chinese side. Their
geological data is still classified. We do not have anything
like reciprocal access in the Chinese market.
And regarding the project with American--with the project
in Beaumont, Texas, you know, I actually come from that town so
I have a lot of personal and professional concern in the
project.
Senator Manchin. Is that with American Ethane?
Dr. Hart. Yes.
I would very much like to know many more details than have
been released publicly. For example, they're counting on the
Chinese counterpart to build cracker facilities in China to
take the ethane.
Senator Manchin. They are not going to build the crackers
in Texas or West Virginia to store here, no interest?
Dr. Hart. They have no interest to do that, indeed. And I'm
not clear that they have even received the permits to build
those facilities in China. So even that may not be feasible.
Senator Manchin. Mr. Winberg, do you--I am sorry, Mr.
Arriola?
Mr. Arriola. Sir, I wanted to address your point on Russia,
specifically.
You know, we did sign a contract with Poland. Poland didn't
want to solely rely on Russia.
Senator Manchin. Correct.
Mr. Arriola. And what we're finding is other countries,
like Germany, like Croatia and Greece, are building LNG import
terminals because they don't want to just deal with that one
country.
So we think having U.S. LNG available to Europe is giving
them optionality that's good from a competitive standpoint, but
it's also good from an energy independence standpoint for those
countries.
Senator Manchin. Mr. Tsafos, do you have any input on this
whatsoever since you are looking at the market from a little
different view?
Mr. Tsafos. Yeah, I don't see it the same way. I mean, I
think if you look at the European energy system, there's a lot
of things happening----
Senator Manchin. Do you not see the threat from China and
Russia, with their intent, especially China?
Mr. Tsafos. I have a lot of concerns about China,
absolutely.
Russia, I have some concerns. I think sometimes we
overstate the concerns and I think there's, maybe, easier ways
to neutralize those concerns. That's the very brief.
Senator Manchin. Mr. Riedl, real quick, anything?
Mr. Riedl. Sure.
So I think from a standpoint from Russia I think what we're
seeing with the projects from Nord Stream 2, as you referenced
earlier in your opening remarks, there is, you have to look at,
sort of, the broader European market and the decline in gas
supply and their fields that they've historically relied on.
And to follow up on what Mr. Arriola was saying, the idea
that U.S. LNG provides an alternative or a different outlet for
these buyers in Europe really decreases the opportunity for
Russia to behave in a manner that they have in the past. So
it's, sort of, it creates an accountability issue for Russia to
behave accordingly.
Senator Manchin. Your concern with China?
Mr. Riedl. From a Chinese perspective, I think that when we
look at what's happening, as Mr. Winberg, or Secretary Winberg,
was saying, the issue with China that we continue to, sort of,
be aware of is how they want to participate in these projects,
right? And their participation in these projects thus far has
been purely from a buy side. So as we look at what they're
looking to buy, LNG from the United States or other
competitors, really the only opportunity that we would look at
is how competitive can U.S. gas be into those markets?
Senator Manchin. You are not concerned about the security
of our nation or basically what their intent is?
Mr. Riedl. So, I look at that from a----
Senator Manchin. Basically dollar and cents?
Mr. Riedl. For now, we get it from an LNG perspective only
which is why we're here to talk about it. I look at it from
that standpoint.
Senator Manchin. Thank you.
The Chairman. Senator Lee.
Senator Lee. Thank you, Madam Chair. Thanks to each of you
for being here.
Anytime we are having an inquiry, as we are today, into
evolving global natural gas markets or the role that the United
States might play in those markets, I think, we have to
evaluate honestly what domestic laws we might have on our books
that might have an impact on global LNG markets.
We have a lot of testimony that we have heard today and,
Mr. Riedl, I appreciate that you referenced the fact that, in
your testimony, the United States has an abundant supply of
natural gas.
Unfortunately, and as MARAD has noted, the United States
has no U.S.-flagged, LNG-specialty carriers that are,
themselves, compliant with the Jones Act. As a result, there
are some severe limitations in how LNG can be transported
between U.S. ports. This ends up having a very significant
impact, not only on our domestic supply and our domestic
markets but also on international markets as well.
Mr. Riedl, is it true that the lack of LNG-specialty
carriers has forced some states and U.S. territories to have to
import gas from other countries, even in--including Russia, to
meet their energy needs, notwithstanding our abundant supply of
natural gas?
Mr. Riedl. That is accurate, Senator.
There is a concern as it relates to the Jones Act that does
not allow gas to leave from, say, Cheniere's facility in Sabine
Pass and travel to other destinations within the United States.
Senator Lee. In addition, it seems that these requirements
are forcing us to consider more expensive solutions. Solutions
that in many cases threaten to inhibit our own energy needs
domestically. Does this end up affecting the price for
consumers?
Mr. Riedl. Ultimately you look at a region like the
Northeast where they are constrained from a pipeline issue of
natural gas, yes, that could be an impact on the price of gas
there.
Senator Lee. Alright.
Because natural gas is very valuable to us. We have it in
great supply. We consume a lot of it. We produce even more of
it, and we are slight net exporters of it.
But in order for it to benefit American consumers in the
way that it should and for us to be able to develop this
resource, we have to be able to get it from Point A to Point B.
Sometimes our own domestic laws interfere with our ability to
do that.
Given these circumstances, do you think we should reform
our 100-plus-year-old cabotage laws, especially the Jones Act,
so as to give us more flexibility, the kind of flexibility that
we need for LNG transport?
Mr. Riedl. Absolutely. I think that if you look at
scenarios, as you're outlining, of the ability to move gas,
especially into areas that are either pipeline-constrained but
are heavily reliant on natural gas, especially for heating or
electricity generation, the ability to do so--we've got a
facility here in Maryland, just down the street in Cove Point,
that I think would be a very logical opportunity to move LNG
that is coming out of the Marcellus in that large play, move
gas from the Marcellus into the Northeast where they are
pipeline-constrained. And it is an alternative until pipelines
and infrastructure are developed in the United States to reach
those markets.
Senator Lee. In fact, what would be the argument against
doing that? In other words, why, on what planet, in what
universe would it make sense for us to keep those laws and to
not even amend them so as to allow for a commodity that
Americans produce in great abundance and rely on in great
abundance to be transported from one U.S. port to another
without a Jones Act-compliant ship that doesn't even exist?
What could be the plausible public policy justification for
keeping such a law and not creating an exception to a law like
that?
Mr. Riedl. That's a great question and one that I think is
probably one, as we look at it from trying to answer that
question. I don't know but I've got a real good one for you as
I think about the opportunity that exists and the cost
associated.
The GAO actually took a look at this and the cost of
building an LNG carrier in a U.S. shipyard was so cost
prohibitive that delivering gas, to your point, it's cheaper to
bring it from other countries than our flag vessels. So when
you think about that from the point that you were making, a
security standpoint, it doesn't make good sense.
Senator Lee. International trade is important in energy and
in so many other areas. We believe in international trade.
Sometimes it makes sense to import certain things from another
country.
One thing, Mr. Riedl, and Madam Chairman and to all my
colleagues who are here, that makes no sense is for us to be
importing gas from Russia to New England simply because of a
100-plus-year-old law that makes no sense. That law needs to be
reformed. I would prefer that it be repealed altogether. At a
minimum, it needs to be amended so that we can send natural gas
from one U.S. port to another without a U.S.-flagged, Jones
Act-compliant ship, capable of transporting such shipments,
that today does not exist.
Thank you, Madam Chair.
The Chairman. Thank you, Senator Lee.
We will turn to Senator Stabenow. I am going to run off and
go vote. When Senator Stabenow has concluded, Senator Gardner,
you will have an opportunity to ask your questions. But I
should be back in a couple minutes.
Senator Stabenow.
Senator Stabenow. Well, thank you, Madam Chair, and thank
you for the hearing and to all of our witnesses.
I want to talk about something else that I have concern
about, whether or not it makes a lot of sense and this is from
the standpoint of the State of Michigan, a great manufacturing
state and, specifically, I want to ask a few questions that
build on what Senator Manchin talked about in terms of ethane
which is a critical feedstock for American manufacturers.
In November 2017, President Trump presided over a series of
trade agreements with Chinese companies. One of the biggest was
a $26 billion deal to supply liquid ethane to China, a critical
feedstock for American manufacturers that we certainly don't
want to go up in price in terms of American jobs.
There is no question that China is interested in access to
U.S. ethane and is intent on increasing its ownership stakes in
this critical feedstock as a way to bolster its own
manufacturing sector and attract new manufacturing investments
in their country, of course, being able to do finished products
and then sell them back to the United States.
This is a relatively new dynamic. U.S. exports of ethane
have increased 37 percent over just the last two years. It
strikes me that before we continue this trend, now is the time
for us to think hard about how further increasing exports of
this critical feedstock for American jobs and manufacturers is
done and the significant investments in the United States that
have been made by our manufacturers because of affordable
access to ethane.
I have three questions I would like to ask Dr. Hart and Mr.
Tsafos. I am curious to hear your thoughts on several
questions.
First, what is the importance of stable and affordable
supplies of ethane to U.S. manufacturers? Second, are countries
like China interested in having a firmer grasp on this U.S.
feedstock and are they beginning, are we beginning, to see the
critical resource to foreign powers that don't always have our
best interests in mind? And then lastly, do you believe that
this is an area where all of our agencies--Commerce, Energy,
Defense, State--should be carefully looking at how we go
forward to ensure our manufacturing interests, American
manufacturing interests, and jobs are sufficiently considered
as exports rise?
Dr. Hart.
Dr. Hart. Thank you for the question.
You know, China is developing its petrochemical industry
and one trend that we see across the industry is that they are
interested to import the feedstock and do the refining, do the
manufacturing within the Chinese market. And this fits that
pattern.
Now, I'll leave it to my experts on the domestic U.S.
energy sector to comment on what that might mean for the United
States both from a jobs, from an environment, from a
manufacturing industry perspective for us to be playing that
role in China's value chain.
But in particular, the deal that is proposed, been proposed
so far, based in Beaumont, Texas, where they are building,
proposing three export terminals along the Neches River to
export ethane to China.
As a China analyst, I'm unable to find many details about
that deal myself. And therefore, as an analyst who comes from
that area and has an interest in knowing whether it's a good
deal for my home town and for the country, I don't have the
access to that information to make that assessment.
And therefore, I would ask you, as Members of Congress, to
please help American citizens understand what we're giving
away, what we're getting and what we're risking, particularly
deals that, as this one does, involve not only China but also
Russia, two countries that are not exactly proven to be our
best partners in the economic sphere.
Senator Stabenow. Well, I can just say that on behalf of
manufacturers I talked to that the idea of us giving up that
critical feedstock is something people are very concerned about
in terms of American manufacturing jobs.
Mr. Tsafos.
Mr. Tsafos. Senator, ethane is something I don't follow
quite as much that will be, add too much substance, so I'll
pass.
Senator Stabenow. Alright, thank you.
One final thing and that is, Dr. Hart, you talked about
U.S. LNG exports to China in a parallel to our situation with
our soybean farmers. I have a lot of soybean farmers who are
deeply, deeply concerned and having tremendous problems and are
sacrificing tremendously given what's happening. Could you lay
out, sort of, what we are talking about here in terms of our
dependence, reliance more on China on those things?
Dr. Hart. Thank you for the question.
In the soybean sector, China is a massive source of demand.
They have 1.4 billion people, so that demand market is really
hard to replicate anywhere else. So for a soybean farmer or a
corn farmer, you can have big sales into the China market that
you just can't replicate anywhere else in the world.
In LNG, we don't have that situation right now, you know?
Senator Stabenow. Right now.
Dr. Hart. Right now.
There's a broad, diverse global market. There are new
importers coming online all the time that are using floating
terminals to re-gasify LNG and create new sources of demand.
I am particularly concerned about the United States
creating a false dependence on China that would risk putting
some of our LNG companies, workers and communities in the same
situation that our soybean farmers are in today.
I hate seeing what is happening to the families that depend
on the Chinese agriculture market. We should think twice before
extending that to other industries if we don't have to do so.
Senator Stabenow. Thank you very much.
Senator Gardner. Thank you, Madam Chairman, for the
opportunity to be here with all of you today. We are leaderless
right now, so I was not sure who is yielding to us.
But thanks very much to the witnesses for being here today.
Mr. Arriola, I wanted to start with you, if I could,
talking about your testimony where you talk about the benefits
of a West Coast LNG export facility for Asian markets.
Congress passed last year and the President signed into law
on December 31st legislation that Senator Markey and I
introduced called the Asia Reassurance Initiative Act that
created a U.S.-Asia energy partnership with the goal being to
find ways to work with countries across Asia to export U.S.
energy products and LNG, working with people in Taiwan for
renewable energy, working with South Korea on LNG and others.
Obviously, with Colorado being in the Rockies in the West,
we have a lot of competition for our natural gas and we have a
lot of, sort of, barriers to Midwest markets because there is
so much production taking place there and pipeline capacity
already getting there. So we need a Western outlet. That is
what we look for in the Rockies. How do we get our gas out and
to the West and to Asian markets?
So by placing this facility that you are talking about and
have talked about on the West Coast, that would reduce shipping
time by about 40 percent, you said. Would it make U.S. LNG
exports more competitive with other exporting countries, it
obviously would, that are closer to home, so to speak?
Mr. Arriola. Yeah, it definitely would.
I think, you know, one of the things that does make the
Gulf Coast gas not as competitive as it could be in Asia is the
travel time. But it's not just the travel time, it's having to
go through the Panama Canal, the congestion points, the
reliability.
And I think that having some sites on the West Coast, on
the Pacific, getting access, not just to Permian gas in Texas
but also to Colorado and others, since we do have the
infrastructure and the pipeline system to be able to draw the
gas together----
Senator Gardner. Right.
Mr. Arriola. ----I think provides a lot of optionality, not
just for U.S. producers, but also for Asian buyers.
Senator Gardner. Did your company consider building a
facility in the United States? I noticed you talked about, in
your testimony, the facility in Mexico, but what issues did you
consider when you were looking at siting in the U.S.?
Mr. Arriola. We, over time, have looked at different
opportunities, say, on the West Coast of the United States, but
we found that there were other parts of the country and of
North America that were much more amenable to getting these
projects done.
Senator Gardner. Is that because of a hostile regulatory
environment on the West Coast?
Mr. Arriola. Yes.
Senator Gardner. See, and I think that is something that is
a huge concern, that you have production jobs and economic
opportunity you can develop in states like Colorado, Wyoming,
Utah that is basically being held up by anti-energy regulations
on the West Coast that prevent us from reaching our full
potential.
It is not just the full potential of jobs and opportunity
in Colorado, but it is the opportunity to provide South Korea,
Japan, Taiwan and beyond, with U.S. energy opportunities,
affordable, abundant U.S. energy, creating U.S. jobs and wealth
that we can't get out of this country because you have states
like California or others that don't allow these to be built.
That is a significant problem.
Mr. Arriola. Well, what I would tell you is we tend to
focus on those parts of the country, like where Senator Cassidy
comes from, that welcome these opportunities, that understand
the economic impact, the positive economic impact it can have
and where these can get permitted and approved in a
satisfactory manner.
Senator Gardner. Thank you.
Obviously, Jordan Cove is a facility in Northwestern United
States that I am very interested in and strongly supportive of,
because of its potential to help Colorado producers and to help
our Asia energy partners have access to U.S. produced energy.
Mr. Riedl, you described a limited window of opportunity
because of competition the U.S. faces from other energy
producing countries. Could you talk a little bit about the
importance of a Jordan Cove and other facilities in that
competition?
Mr. Riedl. Sure, happy to, and I appreciate the question,
Senator.
So when we think about a project like Jordan Cove on the
West Coast in Coos Bay, that's a project that has had numerous
challenges from the regulatory permitting process. And if we
look at, sort of, the window of opportunity, you hear testimony
today talking about the efforts from other countries that are
producing LNG and Mr. Tsafos talking about it. But Qatar making
commitments to increase their production by 20 percent.
Australia increasing their production. So when we talk about
these markets that a project like Jordan Cove, for instance,
would be competing against, these projects from other
countries, large producing countries of LNG, like Qatar and
like Australia, that are already in the process of building and
expanding their LNG infrastructure. And so, when we talk about
a project like Jordan Cove, they are absolutely competing
directly against those projects and will continue to compete
against those projects. Any delay that they suffer in the
regulatory process will obviously slow their opportunity to
market and their opportunity to let them create contracts.
Senator Gardner. Secretary Winberg, I am out of time but I
would like to follow up with you on just personnel issues,
coordinating issues with FERC and the work that you do there,
making sure that we have the personnel necessary to get the job
done and to carry out the analysis and the cooperating status
that you have.
Jordan Cove, we mentioned. Do you have a timeline on Jordan
Cove or know the rough estimate of when we could be looking at
Jordan Cove?
Mr. Winberg. Yes, according to FERC's schedule which they
put out last year, about the middle of October of this year,
they'll come out with their EIS, and then their final order
will come out in mid-January of next year. And as the
Department of Energy has done on the last several
authorizations, we will expedite it, move it out. We're
prepared and ready to move as quickly as we possibly can.
I would tell you the last couple that we have done, we've
done in two weeks. Can't promise you that on Jordan Cove, but
we will expedite it and move it through as quickly as we can.
Senator Gardner. Expedite Jordan Cove, thank you very much.
Thank you.
The Chairman. Thank you, Senator.
Senator Cortez Masto is next.
Senator Cortez Masto. Thank you, Madam Chair. Thank you for
this conversation. I really appreciate the opportunity to have
this hearing today.
Let me ask you this, since becoming a net exporter of LNG
in 2017, have U.S. consumers experienced fluctuations in costs?
In other words, are consumers experiencing increases in energy
costs as the U.S. grows in the global LNG market? I am curious
if we are seeing that or if there are concerns about that, and
I am going to open it up to the panel. Let's start here.
Mr. Tsafos. Senator, U.S. gas prices are about as low and
as non-volatile as they've been in recent memory, so 10, 15
years. So, they're----
Senator Cortez Masto. But what about the impact to the
consumer? What is the consumer seeing as a result of this? That
is my question. Are there fluctuations in costs or the concerns
that energy costs are going to increase when it comes to the
actual consumer, the ratepayer, at the end of the day?
Mr. Tsafos. I'm talking about the wholesale price of gas,
so Henry Hub, the reference price is quite low, has been quite
low in recent years. And that we have not seen any substantial
increase as----
Senator Cortez Masto. So, no fluctuations to the consumer?
No impact to the consumer is what you are telling me?
Mr. Tsafos. Not yet at least, yeah.
Senator Cortez Masto. Okay. Anyone else?
Mr. Riedl. Yeah, and so the Henry Hub price closed
yesterday at $2.46 which is lower than it's been in the last
eight months. So, when we look at, sort of, the price of
natural gas since we've had LNG exports come online, the cost
for consumers has actually gone down.
Senator Cortez Masto. Okay.
Do we have any concerns that as we continue to export and
grow that there will be a negative impact to the consumer at
some point in time in the future that it would grow?
Mr. Riedl. So there's two points to make there.
The first is when you look at, sort of, the forecast that
EIA puts out on a yearly basis, their Annual Energy Outlook
that currently looks out through 2050, they project natural gas
to be stable at $5.00 per MBTU at the Henry Hub price. You will
see a slight increase but that will, obviously, be tied to
inflation and costs of operation. When you look at that, sort
of, the window, you'll see big, sort of, fluctuations in
percentages, but small fluctuations in the actual cost of gas.
Senator Cortez Masto. Anybody else?
Mr. Winberg. Yeah.
Senator Cortez Masto. Yes?
Mr. Winberg. With respect to natural gas, we've had--April
2019 of this year marks the 24th consecutive month that dry
natural gas production increased from last year. We had a 12
percent increase this year over last year, and the EIA expects
that we will be up at about 111 billion cubic feet per day.
Currently, we're at about 91 billion cubic feet per day.
The other piece of this that we don't often talk about is
we have not yet climbed the learning curve in this
unconventional oil and gas in terms of productivity. And the
Department of Energy has a number of projects and efforts
underway in our R&D to increase that productivity. I'm quite
sure that as we move forward in time we're going to see
productivity increases.
Then finally, we also have the issue of stranded gas
coming, primarily coming out of the Permian Basin. As we get
that infrastructure built out to move that gas out of the Basin
into the markets, I believe we're going to see long-term
stabilized prices of natural gas.
The only issue that we have with respect to the consumer
probably is up in the New England area, because we have a lack
of infrastructure to get gas from the Marcellus area--
Pennsylvania, Ohio and West Virginia--up into the New York, New
England markets.
Senator Cortez Masto. Thank you.
Let me ask Dr. Hart, jumping back to--thank you all for
your written testimony.
I noted in your written testimony, your testimony today,
you state if Chinese entities import large quantities of LNG
from the United States, they will be paying a premium price to
do so. That raises questions about the potential political
intentions behind those purchases, and you say long-term
Chinese investments in U.S. natural gas projects are out of
step with the global LNG market and risk undermining U.S.
national security. Can you address that for me?
I think we have all had this discussion where concerns
about the United States' economic advantage over China and what
we see with their Belt and Road Initiative and their massive
investments around the world, including some now here in the
United States, the impact.
So can you address that a little bit more for me? And if
you would, touch on more flexible floating import/export
terminals as that plays into this as well as Chinese state-
owned enterprises that are actually making investments here in
the United States.
Dr. Hart. Absolutely, thank you for the questions.
So, because of the transport distance between the U.S. Gulf
Coast and China, the shipments of LNG that China receives from
the United States are more expensive than about 70 percent of
its overall, the rest of its LNG supply chain. That can make
sense to do for short, for small shipments from Cheniere Energy
to meet times when the Chinese energy market is up and high. It
doesn't make sense to do commercially in very large volumes.
They would have to give up cheaper gas in exchange for more
expensive gas, and a company isn't going to do that just for
commercial reasons but they might do so if the Chinese
Communist Party is supporting them with cash to do that for
political reasons. So that would be a non-commercial decision
that we should, we would, I would appreciate Congressional
oversight over to make sure that there are not political
considerations in that deal that are bad for U.S. national
security.
The same thing applies when China is coming in to make
investments in the United States. There's the proposed
investment in Alaska. There's a proposed long-term investment
in West Virginia. There's a proposed investment in Beaumont,
Texas. And one angle that we should look at with those
investments is, do the long-term investments actually make
sense in today's market? The market is moving toward more
short-term contracts instead of long-term ones. Short-term
trading currently accounts for about one-third of natural gas
trading, and it's particularly prevalent in Asia and
particularly in China. So if the market is moving toward short-
term anyways, is it a good choice for the United States to lock
in long-term gas purchase agreements to make us dependent on
our biggest economic competitor?
Senator Cortez Masto. Thank you, I appreciate that.
The Chairman. Senator Cassidy.
Senator Cassidy. Thank you.
First, Mr. Arriola, great event with President Trump down
in Cameron Parish.
Mr. Arriola. Thank you.
Senator Cassidy. And Senator Gardner was speaking about the
jobs and those three folks that spoke, the one with breast
cancer, I think, the woman who had been unemployed, her husband
was unemployed and went back to work and the third felt equally
compelling and how the job opportunity at that LNG terminal
changed their lives.
The Scripture says the sins of our parents can go down
through generations. I say in this case the virtue of a great
job with great opportunity and better opportunity for the
children pays benefits throughout generations too. I just
wanted to, kind of, stress that part of what both of you were
referring to and what Senator Gardner was alluding to.
Perhaps related to that, Mr. Arriola, what would be, if you
were able to send, or Dr. Hart, if you were able to send gas
from Alaska or from the West Coast to Asia, what would be the
price differential relative to coming out of the Gulf Coast?
Any sense of that? Mr. Tsafos.
Mr. Tsafos. If I can give a slightly different answer,
Senator.
When you look at west from Canada coming from, sort of,
north of British Columbia, because it's slightly cheaper gas
but they have more infrastructure and they have to build a new
facility, those things, sort of, offset the shorter
transportation costs. So it's not a straightforward answer.
Senator Cassidy. Well, it is green fields, but sooner or
later you make the investment, right? And after you make the
investment you then, basically, have the cost of production.
Mr. Tsafos. So, operating costs would be lower because
the----
Senator Cassidy. And transportation costs.
Any sense of how much? If 70 percent of the gas the Chinese
are buying is cheaper than that which is from the U.S. because
of transportation from Australia?
Mr. Tsafos. You would probably save about $1.00 to $1.50 in
terms of the price, of cost, of shipping cost, if you didn't
have to go through, sort of, Panama Canal and that long route.
Senator Cassidy. And that is quite significant on something
of that magnitude?
Yes, ma'am.
Dr. Hart. If I can respond as well.
It is important to note that the cost to develop the gas is
higher as well. And so, at the end of the day, based on a pure
commercial transaction, you're paying less to ship it but more
to pull it out of the ground. And that is why multiple
commercial companies have walked away from that particular
project.
The Chinese Communist Party appears to be interested. I
have questions about why China, the Chinese Communist Party, is
interested in a project that non-Chinese commercial companies
view as potentially not feasible.
Senator Cassidy. Well, one thing I have read is that, or
have been told, and I know what I am told, not what I know, is
the Chinese would be interested in building a terminal off the
Panama Canal that they would ship gas to South America through
that terminal. So, indeed, they would be purchasing it but they
would be cannibalizing a market that presumably U.S. companies
already had access to. Knowing that there is gas within South
America, I don't know what they are doing in Argentina if that
is only oil or if it is also gas, but that could be a purchase
that would offset the negative balance of trade we have with
them--but on the other hand, it would still, again, not be to
our net ability. Do any of you know of such a project or is
that just an urban myth that I was told?
Mr. Tsafos.
Mr. Tsafos. It doesn't sound like something that the
Chinese companies would do.
Senator Cassidy. Okay.
I was told that by a government agency but that is not to
say that it is necessarily true. No offense to you, Mr.
Winberg.
I am also struck that one of the problems of selling more
of our gas overseas with all the economic benefits for us and
the environmental advantages for the world, if you are
replacing coal as energy feedstock, there is a lack of
infrastructure in other countries.
Is there some role for the EXIM Bank to contribute to
building the infrastructure that might be used in Pakistan, for
example, or someplace else?
Mr. Tsafos.
Mr. Tsafos. Yes, Senator, very briefly.
Import infrastructure has historically been, sort of, paid
for by the countries that do it. In recent years we've seen
multilateral institutions, in particular, the International
Finance Corporation, the IFC, as part of the World Bank, step
in and finance. We've seen the Japanese and the Koreans
starting to take a role in this financing the import projects
and power plants. So I think there's absolutely a case to be
made that the United States should be looking to do the same,
and it has not really done so yet.
Senator Cassidy. It seems to make sense. I do read where
Pakistan basically brings up a boat that has both power
generation as well as LNG upon it, and it uses that as a
platform.
So there are imaginative solutions but still, it does seem
as if that would be something that would be very good for our
economy. And again, if you are replacing coal as feedstock,
very good for the global greenhouse gas emissions.
I am out of time. I will yield.
Thank you.
The Chairman. Thank you, Senator Cassidy.
Senator King.
Senator King. Madam Chair, there's an Alice in Wonderland
quality to this hearing.
Have you guys ever heard of Australia? Australia's natural
gas has a vast capacity. They started exporting in a big way
about ten years ago. Their prices doubled for their consumers
between 2015 and 2018.
The one law that this Congress cannot repeal is the law of
supply and demand. The number of LNG terminal applications now
approaches 50 or 60 percent of the total production in this
country. And you are telling me it is not going to affect
domestic prices, that doesn't pass the straight face test. You
cannot argue that a dramatic increase in demand caused by LNG
exports is not going to affect domestic prices.
You said it was $2.50 in Henry Hub the other day. In
Australia ten years ago, it was about $3.00 a million BTUs.
Today, it's $8.00, $9.00 and $10.00. And they are talking about
looming shortages of natural gas in one of the countries that
has one of the great natural gas resources on Earth.
For the Department of Energy to continue issuing these
permits which under the law are supposed to take into
consideration the public interest without even doing, as I
understand it, a recent study of what the elasticity of demand
is and what the effect of prices, I think, is utterly
irresponsible.
I am not opposed to all exports of natural gas. All I want
is some analysis of what the effect would be on domestic prices
and not warm, fuzzy assurances, don't worry, we are always
going to make more. That has not happened in Australia and I
realize there are some differences about West and East Coast,
but the bottom line is you cannot tell me we are going to
drastically increase the demand for a product and its price to
local consumers is not going to increase. And if we get to a
place where natural gas prices are internationally set as a
commodity like oil, we are sunk.
Natural gas prices in this country right now are one of our
major competitive advantages, if not our most major competitive
advantage in terms of our industry, in terms of our consumers.
To give that away to any country in the world, it just strikes
me as totally outside the idea of what is in the public
interest. Can you assure me that the Department of Energy is
going to take seriously its public interest responsibility in
making this kind of analysis?
Mr. Winberg. Yes, Senator, I can assure you of that and we
have.
Senator King. When was the most recent time you did a study
of the implications of exports of natural gas?
Mr. Winberg. We did a study last year. It was the fifth
study that was done. The preceding four studies were done in
the previous Administration. All of those studies, all five of
those studies, concluded that the overall economic benefit to
the United States was a net positive, that the price of natural
gas was not going to increase.
When you talk about Australia and you referenced it, to a
large degree, that's an infrastructure issue, getting the
natural gas from the producing centers to the demand centers.
With respect to----
Senator King. Where are we now in terms of approved LNG
projects vis-a-vis total natural gas production?
Mr. Winberg. Right now we have, we're exporting about 4
billion cubic feet a day of natural gas. We are producing about
90 billion cubic feet a day. We have total capacity of about
6.5 billion cubic feet a day. So 6.5 out of 90 is, you know,
six percent, seven percent.
Senator King. If you can assure me or will accept an
amendment or a law that says we won't go above 6.5 percent or 7
or 8 or I remember hearing where we said 9, I am happy. But
that doesn't seem to be the direction we are headed in because
the number of LNG terminal applications that are in the queue
go way beyond 6.5, right?
Mr. Winberg. Well, we have approved 33 billion cubic feet
right now.
Senator King. So, you have approved 33 billion feet so we
are already five times where the six that you just mentioned.
Mr. Winberg. Well, most of that has not reached final
investment decision. So we have----
Senator King. Yes, but we have to look beyond next week.
If you have approved 33, total production is 90. So you
have now approved LNG exports of 30 percent of the total
production in the country.
Mr. Winberg. But we don't stop at 90. EIA projects that by
2040 we're going to be up at 111 billion cubic feet per day.
And as I talked about earlier, we're just climbing the learning
curve on unconventional oil and gas production in the United
States.
Senator King. How many million BTU per day are in the
queue? You say 33 have been approved. How many are in the
queue?
Mr. Winberg. Right now, we have 14 BCF a day that is either
in operation or under construction.
Senator King. How many applications are pending?
Mr. Winberg. There are 11 billion cubic feet of
applications at FERC.
Senator King. So, 33, plus 15, plus 11.
Mr. Winberg. No, I'm sorry, no.
It would be in total right now there are 44 billion cubic
feet of in construction that we have approved and FERC. That's
a grand total, 44.
Senator King. I have a hard time accepting that you are
going to go to almost 50 percent of production in a new market,
and it is going to have no substantial effect on consumer
prices.
I hope that we can continue this discussion, but this is of
grave concern to me. I think we are making a historic, historic
mistake unless we put some control, some limit, based upon
science and data, on this trend toward, what appears to me to
be, unlimited export of natural gas.
Thank you, Madam Chair.
Mr. Winberg. Happy to send the report to you.
Senator King. Thank you.
The Chairman. Thank you, Senator King.
This is a subject of discussion that we have had here
around this Committee, kind of the cumulative impact that we
have with additional volumes that are being exported, what does
that mean for pricing?
We have heard here that in terms of the pricing, we really
haven't seen that bump, that jump and I think it is because, as
you have pointed out, Secretary Winberg, our production is
increasing.
At some point in time, maybe that production curve starts
to go down a little bit, but we are certainly not seeing that
at this point in time. It is something that we want. We want a
level of vigilance. We want to understand all the market
conditions and forces out there, not only domestically, but
what is happening with our global position out there.
But I think one thing that has been just so remarkable
about the discussion of natural gas and LNG is we keep
producing more, we keep finding more. Our technologies are
allowing us to access more.
Senator King. Which is great. I am just worried about the
relative----
The Chairman. Fair enough. You know, at some point in time
things cross, and we want to make sure that we are ahead of
that, that we don't allow that to cross.
Senator King. At some point in time demand starts to put
pressure on supply, and prices go up. I remember that from
Economics 101.
The Chairman. As you say, it is basic law of supply and
demand and I think part of our role here as a Committee is to
maintain a level of vigilance and understanding as to what is
actually happening in that vein with the number of exports that
have been approved.
As you have indicated, Mr. Winberg, you have some that have
come before you but those projects haven't advanced because--
Mr. Arriola, how expensive are these? These are not cheap
propositions?
Mr. Arriola. These, depending on the size, are $10 to $11
billion----
The Chairman. Yes, so this is not a light investment.
Mr. Arriola. ----and no one is going to start construction
until they have contracts.
So, you know, although the numbers that Secretary Winberg
talked about are a lot, potentially, I don't believe you're
going to see that much capacity come onto the market without
contracts.
The Chairman. Yes----
Senator King. ``Trust, but verify'' is my motto.
Mr. Arriola. Understand.
The Chairman. These are fair, these are good conversations
to have. But again, I think, some of these economic drivers out
there can also be a limiting factor to what you might be able
to get the permit, but if you can't get that financing there,
then nothing happens.
I want to ask one quick question, and then I will turn to
Senator Hoeven, who has joined us.
This is back to you, Secretary Winberg.
Early in the Administration, the Department proposed a rule
to increase the volume allowed for de minimis exceptions for
the permitting requirements, and this was looking specifically
to the opportunities to increase product to Caribbean and Latin
American markets there. Has it opened up the opportunities that
we were hopeful that it would do? Is this working?
Mr. Winberg. Thank you, it's a good question.
We have not seen an uptick in small-scale LNG exports yet.
We do have one facility, which is American LNG, out of Florida.
They've done 278 shipments to Barbados, Bahamas, Haiti and
Puerto Rico, and Haiti only, I think, within the last couple of
months. So we are seeing shipments.
We have had one additional, potential, small-scale
developer that has come to us. They have not made a decision
yet.
Senator, I think the issue here is, perhaps, a chicken and
an egg issue. And there was discussion earlier about EXIM
Bank's role----
The Chairman. Right.
Mr. Winberg. ----in developing import facilities and
regasification facilities on these, in the small island
communities and Central America, and a developer of LNG exports
from the United States is not going to develop a facility if
they don't have a customer.
And so, I think we've got a bit of chicken and an egg but I
do think there is a role for the EXIM Bank and other U.S.
entities to assist with that and then, I think, we will start
to see more small-scale exports either in smaller ships or ISO
containers.
The Chairman. Well, that was certainly the thought when we
advanced that. So, understanding, kind of, where we are with
that is appreciated.
Let me turn to Senator Hoeven.
Senator Hoeven. Thank you, Madam Chairman.
Secretary Winberg, in North Dakota we are producing an
incredible amount of natural gas. We don't drill for natural
gas. We drill for oil in the Bakken shale and produce huge
amounts of natural gas as a byproduct of that drilling.
But the challenge we have is monetizing it, getting it to
markets and monetizing it.
How do we get more pipelines? How do we get more capacity,
not only to move that natural gas around the country, but also
to send it overseas, whether it is to the Pacific Rim or to
Europe, which not only is a monetary or economic win for the
United States but it is a national security win by supplying
energy to our allies rather than having them get their energy
from Russia or some other adversary?
Mr. Winberg. Yes, sir, absolutely agree. It's an
imperative.
We have no shortage of entities that want to obstruct
natural gas pipelines and for that matter, oil pipelines. And
so, we're moving oil by rail, when it's much, much safer to do
it by pipe.
How do we expedite that? The President has an Executive
Order for us to evaluate in certain parts of the country where
we have seen pipeline infrastructure not being built and what
can be done about that.
In the short-term, Senator, what the Department of Energy
is doing and, in particular, my office, is we're evaluating
development of small, modular units that can be placed in a
field where there's this stranded gas and it will stay stranded
until a pipeline gets built.
The attractiveness of these small, modular units to produce
power or maybe even produce other products is that once the
pipeline is built and that gas can go for a much higher value
use, we can move that facility to another location because, as
we build out the unconventional oil and gas, we're going to
continue to have this issue until the pipelines, in effect,
catch up with the production. And so, we have an opportunity to
utilize that stranded gas.
Senator Hoeven. We have the technology to capture it, it is
the pipeline capacity and the LNG facility capacities to both
move it around the country and to export it. That is the key.
The irony is here we are in a situation where our country
is increasingly infrastructure-constrained and the biggest
challenge to developing more infrastructure is the cost to
build it, and here the companies will pay the full cost to
build that pipeline infrastructure, taking vehicles, rail cars
and everything else off, rail tracks, trucks off the road, in
addition to all of the other benefits.
How do we get the consensus to get through some of the
bottlenecks which, as you know, we are facing throughout the
country whether it is in New England or the West Coast or
wherever it may be?
Mr. Winberg. Yeah, I think taking a good, hard look at
interstate commerce and thwarting that interstate commerce
might be a step in the right direction.
Senator Hoeven. If you would, update me as to where you are
on the fossil energy programs as regard your partnering in
carbon capture projects like our Project Tundra and Allam
Cycle, because the other thing is if we can't move the product
to the market then how do we convert the product, whether it is
natural gas or captured carbon, into a product onsite that we
can monetize and use?
Mr. Winberg. Yup.
We've had a long-standing relationship with the University
of North Dakota, EERC continues to do great work, Senator.
As we look at the carbon capture, utilization,
sequestration, we're cutting across coal, natural gas and even
direct air capture. We've been at this for 25 years now. The
Department of Energy is developing the technologies and
reducing the cost.
The last time you and I met, I told you that the goal we
had was to reduce the cost of capture by 50 percent and if we
get to that point then there are opportunities for utilizing
that CO2 for enhanced oil recovery, enhanced natural
gas recovery, perhaps even down the road, product development
or product manufacturing. So across the slate of capture
technologies, we're working very hard. In many cases, we're
working with EERC on those.
Senator Hoeven. Well, this is incredibly important right
now and it really is the solution to the concern about
capturing carbon example, as you said at one of our facilities,
the Great Plains Synfuel Plant, as you know, we are capturing
the carbon and using it for downhole, tertiary oil recovery.
But what the latest project they have engaged in is they
now take a lot of that carbon they capture and they are making
anhydrous ammonia and urea, making fertilizer which we can then
use throughout the Midwest, okay. So there is another case of
actually converting it to a different product that we can use
more in the immediate vicinity to get rid of some of these
transportation barriers we were talking about earlier. These
are the solutions.
I mean, there is technological viability or technical
viability and there is economic viability, commercial
viability. That is where we have to crack the code. Just like
we cracked the code with the shale play and look what has
happened with oil. We need to crack this code. We need you to
do it.
I would ask if you would be willing to come back out to
North Dakota this summer and meet with some of our players
again working on this. Would that be something you would
consider doing?
Mr. Winberg. Absolutely.
Senator Hoeven. Alright, thank you very much.
The Chairman. Thank you, Senator Hoeven.
I was reading press clips last night and this morning and
obviously there is a great deal of attention in the Persian
Gulf. It seems like there always is, but now even more so.
Yesterday, at least three armed Iranian boats reportedly tried
to seize a British oil tanker in the Persian Gulf. They were
unsuccessful. The tanker was crossing into the Strait of Hormuz
when the Iranians ordered the ship to change course.
That is oil. But natural gas would also be out in these
same areas and yet, the word Hormuz, the Strait of Hormuz, does
not appear in the latest IEA Gas Security Review, which is, how
can you not? How can you not include that as part of a
security, a natural gas security review?
I guess the question, I will go to both ends of the table
here, to Mr. Tsafos and Mr. Winberg, why not? Are we not
discussing this? I am assuming that DOE has examined the
potential impacts of a Hormuz incident on LNG flows and what
that might mean to us. So if we can have a discussion here.
They have not called the second vote yet, so it just
started, but that means I have a little bit of time.
This is the geopolitical reality. I mentioned earlier when
I was asking about the Alaska situation, one of the benefits
that we have is we don't have to go through the Panama Canal.
We don't have the choke points. We don't have the pirates. We
are not the Strait of Hormuz. But that factors into the
discussion about availability of supply. Right now, we know
what we know, geopolitically, but next week, it could all go to
hell in a handbasket. So how do we factor this in as we are
talking about LNG and the future of LNG exports from this
country and more globally?
Mr. Tsafos, if you want to go first and then Secretary
Winberg.
Mr. Tsafos. Thank you, Senator.
I think what you highlight is incredibly important. And the
way I think about it is, in this country, in particular, oil
security, at least since 1973, people have been talking about
it, thinking about it, writing about it, convening. And we just
have not had the same exposure and experience with gas
internationally and with LNG. So I think it's a matter of just
the market advancing a little bit faster than our institutions.
The report that you referenced from the International
Energy Agency, you know, to be fair to them, it's a review of
gas security of what has happened.
The Chairman. Right, the past tense.
Mr. Tsafos. But I think one of the examples that I wrote in
my testimony is the European Union does the stress test. We may
have, possibly on January 1st, a disruption of gas flows to
Ukraine, and we have an idea of what that would do to different
markets because there's an organization that runs stress tests
to try to understand how different countries could cope with
these kind of disruptions.
I think there's a role to play both on the United States
side, but also multilaterally with the International Energy
Agency, to develop more tools, more information to try to
understand, for instance, if you did have a disruption in the
Strait of Hormuz, who would be most exposed, what is the
capacity of the citizen to respond, how would it respond, what
kind of policy mechanisms might be required to make the
response better?
These conversations are just far, far behind and I think
it's time to elevate those. And I think that's one area where
U.S. leadership with other countries of the IEA could play a
very important role.
The Chairman. I appreciate that.
Secretary?
Mr. Winberg. Clearly, the Strait of Hormuz is a very
significant issue. It's primarily an oil issue more than it is
a natural gas issue.
But I think it's also worthy of note that despite these
attacks, well, if we had had these attacks ten years ago, I
think you would have seen a massive spike in the price of oil.
And we're not seeing that so much and that's because we have
more distributed production coming out of the United States.
With respect, specifically to U.S. LNG, I said earlier,
we're moving a lot of that into the European market so the
Straits are not an impediment. There's talk about the
constraints in the Panama Canal. Those are congestion
constraints, not geopolitical constraints. But we have a wider
variety of outlets and routes that we can move the LNG, whether
it's through the Panama Canal or whether it's through the,
around the Cape of Good Hope or straight over to Europe. So
it's not so much affecting LNG. Again, that's not to say it's
not critical and it's not important, but it is more of an oil
issue than it is a natural gas issue at this point.
The Chairman. At this point.
Mr. Winberg. Right.
The Chairman. I think that is important to recognize.
And I appreciate what you said, Mr. Tsafos, about the IEA
report being, kind of, a look back instead of projecting
forward. But I think this is something that we need to be
thinking about, not just for the perspective of how do we move
our gas, but how do others move their gas to supply those
markets, whether it is Qatar to China or wherever. And if that
is disruptive, what that then does to the broader mix.
Mr. Arriola.
Mr. Arriola. Yes, Senator, what I would tell you is we're
dealing with very sophisticated customers out there, that they
don't just look at price. Price is obviously a very important
driver, but they're looking at availability, the reliability of
where it's coming from, the operator, the financial strength,
you know, congestion points.
In the LNG market today, unlike the oil market, I think at
the end of 2018 we only had, we had less than 600 tankers out
there. In the oil market, there are thousands----
The Chairman. Yes.
Mr. Arriola. ----of different sizes.
So that's why you have more liquidity in the market as
well, but I think that what we're finding is customers,
especially in Asia and in Europe, are becoming much more
sophisticated and concerned from a risk management standpoint
of all of those factors. We think that security of the supply
is extremely important.
The Chairman. I mentioned that the IEA report is a look
back. I am going to ask you to do a little gazing into the
crystal ball here because we have heard some say that global
LNG infrastructure could actually become stranded assets as we
see the mix of the energy mix change in the years going
forward. Is this a concern that you all think about? When you
are talking about a regasification facility, export facilities,
these are substantial investments.
And we have a case in point here in this country where
about ten years or so ago we were talking about we need to
build more import LNG terminals. We have turned that around and
gone the other way with exports. So we know how things can
change.
Is that something that you are worried about right now or
is it just too far out on the horizon or are you just thinking
about other things?
Dr. Hart.
Dr. Hart. If I could comment from a China angle.
China is planning for renewable, non-fossil energy to
account for 20 percent of their energy mix by 2030 and over 50
percent of their energy mix by 2050. So we should definitely
take that long-term goal into account before getting too
excited about what role LNG could play in their energy mix.
The Chairman. Mr. Arriola.
Mr. Arriola. Yeah, I would tell you as a developer of
export terminals, we look at diversity of supplier and/or
diversity of customers very importantly.
At our Cameron LNG facility, for example, we've got three
major customers that each take a third and they're diversified
geographically and the customers that they serve because we
want diversity.
And as we think about what we're doing in the other
facilities in Louisiana, Texas or from Mexico, we want to make
sure that we have multiple potential customers and maybe even
potential equity investors so that you can reduce that risk of
somebody walking away and you have an empty plant.
The Chairman. Mr. Tsafos or--go ahead, either one of you.
Go ahead.
Mr. Tsafos. Senator, I worry about this a little bit, in
part, because I've done a lot of forecast in my life so I know
how wrong they tend to be. Having said that, I think there's
two reasons why other people don't worry as much as I do. One
is if you look at most long-term scenarios, even in the
transition of the energy system toward, sort of, a Paris ``plus
or minus'' world, gas does well. That's, sort of, the base. The
second thing that I think is even less understood is the system
is, sort of, shifting from relying on power generation as a
source of growth to relying on industry and buildings. Power
generation is the area where gas has a lot of competition with
renewables, the competition into buildings and then the
industrial sector is less severe.
I think there are a lot of people that are comforted by the
fact that they're not just relying on power generation that is
very competitive for gas demand growth, but they have a
broader, sort of, customer base and that therefore, even in a
transition of the energy system, those areas of consumption
will remain.
So I think those are the things that people respond to me--
to make me worry less, but I still worry about, you know,
whenever you make 25-year bets, some people are bound to be
wrong.
The Chairman. Mr. Riedl.
Mr. Riedl. The only thing that I would add there, I think
that those are fantastic points. The one thing that I would
think is important also to talk about, and Dr. Hart actually
touched on it earlier, is the development of technology on the
import side, especially as Senator Cassidy was making
suggestions about the EXIM Bank and their involvement.
The ability to invest in an asset that will no longer be an
onshore asset, no longer stranded, so to speak, and especially
in emerging markets where maybe creditworthiness might be a
challenge for those countries that are looking to transition to
natural gas. Having that ability to move a regasification
that's floating rather than an onshore facility gives that sort
of optionality that if we run into some sort of change, whether
it be from a financial standpoint or technology standpoint that
allows a different adoption of a different fuel. Now all of
sudden we have the ability to move that asset to someplace
else. So I would suggest that as technology on the import side
continues to develop, it reduces that risk that you were asking
about.
The Chairman. All very important points, I appreciate that.
This has been a great conversation. I am just thinking,
some years back I tasked my energy team to help us put some
focus on what we called our Energy 2020. It sounded so far
away, and now we are working on 2030. But at that time, you
know, it was just, it was really, kind of, a vision that we
might be able to get to a point where, from an LNG perspective,
we were actually a player, and we have gone from just dreaming
about being a player to being the player in many ways.
And so, it is a reminder to us that the technologies have
allowed us to do so much, but it is also a reminder, and you
mentioned this Dr. Hart, to not assume that the markets that we
are banking on today are still going to be those great
customers for us ten years from now, because they may do just
exactly what we did in this past decade in terms of our ability
to ramp up.
And so, I think we recognize that a fair amount of this is
a dynamic environment. I don't recall which one of you used the
terminology as an ``evolutionary rather than a revolutionary,''
but sometimes that evolution happens quicker than any of us
could have imagined or dreamed.
Staying on top of things is critically important to us but
also recognizing the role that we can play from a geopolitical
perspective, our strategic role. Again, that is why we have
rolled out this first of a series of white papers in terms of
our global, strategic energy competition because we are at that
place where we really can be engaged in that global
competition. And how we assert that leadership is going to be
an important part of the mix moving forward.
So thank you for the conversation. It has been very helpful
to what we have been talking about here as members of this
Committee, but I think you have challenged us to think a little
more broadly about the opportunities but also to be cautious
about some of the hurdles or the pitfalls that may lie ahead.
Dr. Hart, you raise a fair and legitimate concern about
when somebody is willing to pay a premium price, they are
usually looking for something in return. I think that you
certainly heard from Senator Manchin an air of caution there.
Alaskans are clearly eyes wide open as they have looked to how
they can move their natural gas.
We certainly don't want the Chinese to have control and
that was made very, very clear, but again, you go into these
agreements making no assumptions that it is going to be an easy
road when you have partners that may have some different
interests than you.
I am told that we are closing out the vote, so I am going
to go do my duty there, but I thank you for joining us here
today.
With that, we stand adjourned.
[Whereupon, at 11:57 a.m. the hearing was adjourned.]
APPENDIX MATERIAL SUBMITTED
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