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Wednesday, April 24, 2013

Get Ready for Higher Prices and Less Energy Security: Our Natural Gas Reserves Are Being Plundered For Export



A deeply flawed study that ignores the harmful environmental and health impacts of gas drilling is being used to rally for exports.

Photo Credit: Oleksandr Kalinichenko/ Shutterstock.com
This article was published in partnership with GlobalPossibilities.org.

Unlimited export of U.S. natural gas would have enormous implications on the future of the nation's economy, environment and domestic energy choices. Yet a burgeoning chorus in Congress, on both sides of the aisle, is calling for the swift approval of 19 liquid natural gas (LNG) export permits.

The acceptance of these permits would unleash an unprecedented frenzy of domestic high-volume hydraulic fracturing, or fracking, just to meet daily production rates under decades-long contractual obligations. If accepted, the total of the permits currently under review by the Department of Energy for LNG export would be equal to 28.54 billion cubic feet (Bcf) per day, approximately 45 percent of what the U.S. is projected to consume daily in 2013, according to the U.S. Energy Administration.

Congressional supporters of unlimited exports argue that turning the U.S. into a major net exporter of LNG would not only boost our economy and create jobs, but also -- seeming to defy the basic tenets of supply and demand -- sustain low domestic natural gas prices, increase our energy security and propel us to energy independence. Some have even contended that such exports would smooth out boom-and-bust cycles and stabilize the price of natural gas.

By law, the Natural Gas Act requires the Department of Energy to grant export permits of LNG to non-free trade agreement countries only if such exports are deemed in the public interest. LNG exports to countries the U.S. has free-trade agreements with, such as Canada and Mexico, do not require a public interest determination.

On the Senate floor last month, Sen. James Inhofe (R-OK) argued, "What could be inconsistent with this for the public interest? This is something that would be cheaper gas for us and give us total independence in a matter of weeks."

At an event last year sponsored by the trade group America's Natural Gas Alliance, Alaska Sen. Lisa Murkowski, the top Republican on the Senate Committee on Energy and Natural Resources, said, "Exports of natural gas ... are not expected to play a significant role in setting prices here at home."
In a statement released by his office, Sen. Mark Begich (D-AK), told AlterNet, "Concerns that natural gas exports will significantly drive up the price of natural gas for domestic use are overblown."

He added, "Additionally, even with dramatic growth in LNG markets abroad and use of natural gas at home, the U.S. has more than enough gas to satisfy both markets for a long time."

But many experts close to the issue -- backed by multiple studies, real-world numbers and historical trends -- say these elected leaders are either not leveling with the American public or are simply ill-informed.

"Members of Congress are not energy experts so they are easily confused," said Tad Patzek, chairman of the Department of Petroleum and Geosystems Engineering at the University of Texas. "And their religion is free market. It's got nothing to do with reality, especially energy markets."

Patzek, an expert in unconventional gas recovery who has extensively studied U.S. shale plays, called congressional boosters of unlimited exports "delusional" in an interview with AlterNet.

"This is the same argument over and over again," he added. "If we have a boom, then twice the boom is always better. Right? Well, not necessarily."
Domestically, natural gas remains cheap, hovering around $3.50 per thousand cubic feet (Mcf). But in Europe and Asia, respectively, prices are three to nearly five times that amount.

The current glut of natural gas in the U.S. has kept prices low for both consumers' electricity bills and for energy-intensive areas of the economy, such as the revitalized domestic manufacturing sector, which uses natural gas for feedstock. But over the last couple of years, gas companies have been losing money because supply has outpaced demand and returns on natural gas at its domestic price became too low to warrant the cost of production.

Exporting LNG to the highest bidder overseas would greatly benefit the profits of gas companies and also some companies involved in its export. But many experts agree, and multiple studies reveal, that it would have the dual effect of raising prices domestically to levels that would both hurt consumers and all other energy-intensive sectors of the economy.

"If we are forced to pay $12 to $16 per Mcf, well, then our economy's going bust," Patzek said.

"I don't know of anybody who's studied this who doesn't acknowledge that prices will go up," said Art Berman, an oil and gas geologist who heads the Houston-based geological consulting firm Labyrinth Consulting. "So if we lock ourselves into 20-year contracts to export X number of billions of cubic feet a day, well, that's going to increase the price. And that's really what it's all about."
Berman's research on actual U.S. shale well production, as opposed to mere projections, has led him and others to question industry and government mantras boasting of America's ever-abundant supply of natural gas reserves. With industry and government projections upward of 100 years of untapped domestic natural gas, Berman, based on the rate of returns from drilled shale plays across the nation, estimates that a more realistic number would be around 20-25 years of supply.

That's without factoring in the impact on supply if the U.S. becomes a major exporter. Patzek said industry and government projections of natural gas reserves are merely "speculation," which is why the use of this resource demands "moderation." Using these reserves in moderation, he said it's probable that several decades of untapped domestic natural gas remains. But what's undeniable, he added, was that opening our supply to limitless exports would force the U.S. to deplete these finite reserves faster, needlessly squandering them.
"How does exporting a strategic natural resource make you more energy independent?" Berman said in an interview with AlterNet. "If you're selling it to somebody else, then by definition you're decreasing your own supply."

He continued, "Signing long-term contracts that require you to export natural gas, if anything, only decreases your energy independence."

Eben Burnham-Snyder, a spokesman for House Natural Resources Committee Ranking Member Rep. Edward Markey (D-Mass.), agreed.

"Every single analysis of natural gas exporting has concluded that domestic prices will increase," Burnham-Snyder said in an email to AlterNet. "That's based on basic economic theory."

He continued, "Sending more of our natural gas resources abroad, instead of keeping more of it here for consumers and manufacturers and providing a diverse energy supply, is not a policy to make us more energy secure...[it] makes us less independent, not more."

Berman added, "These companies have stupidly, imprudently overproduced their own product to the point they can't make money at the price they've created themselves. So now they're looking for a solution to that problem, and they've managed to convince a number of idiots in Congress that this is a good idea."

No congressional supporters contacted by AlterNet would explain how exporting natural gas would, in turn, increase the country's energy security and energy independence.

Supporters Rally Around "Seriously Flawed" Study

Congressional supporters of unfettered natural gas exports were buoyed by last year's economic impact study commissioned by the Department of Energy. The report, conducted by the outside firm NERA Economic Consulting, concluded that although domestic natural gas prices would rise moderately and some sectors of the economy, such as manufacturing, would be adversely affected, the "U.S. would experience net economic benefits from increased LNG exports."

Following its release, 110 bipartisan members of the House of Representatives fired off a letter urging Energy Secretary Steven Chu to hasten approval of all LNG export permits.

When criticisms of the NERA study began pouring in, a bipartisan group of senators, including James Inhofe (R-OK), Mary Landrieu (D-LA), David Vitter (R-LA) and Mark Begich (D-AK), followed up with a letter of their own to Secretary Chu, insisting he listen to "the sound science and economic theory that comprises" the study's conclusions.

But the NERA study was not only assailed for questionable modeling and omitting economic impacts on the environment, health and local jobs -- such as farms and the businesses they support -- but also for NERA's troubling history of conducting favorable studies for both the tobacco and coal industries.
In a January 2013 letter to the Energy Department, Sen. Ron Wyden (D-OR), chairman of the Senate Committee on Energy and Natural Resources, ripped the NERA report, calling it "seriously flawed" to the point of rendering "this study insufficient for the Department to use in any export determination."

Shortcomings Wyden highlighted include NERA using two-year-old energy figures to project the domestic consumption of natural gas, failing to fully assess the effect of rising prices on households and businesses, inadequately accounting for production impacts on various regional markets, and omitting the result of higher prices on different socioeconomic groups. All of which, Wyden noted, the Energy Department is tasked to assess in order to meet public interest determinations under the Natural Gas Act.

After its release, Rep. Edward Markey (D-MA), the top Democrat on the House Natural Resources Committee, said the study reveals, though downplays, that such exports would "constitute a massive transfer of wealth from working Americans to natural gas production and export companies."

"Most Americans don't own stock in natural gas companies, but nearly all Americans use natural gas and buy goods created using low-cost natural gas," Markey spokesman Burnham-Snyder told AlterNet. "Unlimited exports of natural gas will benefit only a very few, while leaving the rest of America to pay the increased costs from higher natural gas prices."

The Energy Department first commissioned a companion study conducted by the Energy Information Administration (EIA), an independent branch of the Department. The study, published in January 2012, focused on how increased natural gas exports would impact domestic consumption, production and prices.
The report concludes:
Increased natural gas exports lead to higher domestic natural gas prices, increased domestic natural gas production, reduced domestic natural gas consumption, and increased natural gas imports from Canada via pipeline.
Yet even this EIA assessment, as Wyden noted to the Energy Department, made its calculations based on estimated export volumes far lower than the total of the permits now under review. The EIA projected between a low volume of 6 billion cubic feet per day and a high volume of 12 billion cubic feet per day. So even its high range is dwarfed by the roughly 29 billion cubic feet per day now being proposed.

But the findings of an independent Purdue University study, released after the NERA analysis, were even more stark and directly challenged NERA's conclusions.

"The major conclusion of this research is that permitting natural gas exports causes a small reduction in US GDP and also increases GHG emissions and other environmental emissions such as particulates. There is a loss of labor and capital income in all energy intensive sectors, and electricity prices increase."
The authors continue, "The major differences between our results and the other major study (NERA) are that we get considerably higher natural gas price impacts, and we do not get export revenue as large. The higher natural gas prices cause pervasive losses throughout the commercial, industrial, and residential sectors."

In a final note, the authors caution, "Given all the results of this analysis, it is clear that policy makers need to be very careful in approving US natural gas exports. While we are normally disciples of the free trade orthodoxy, one must examine the evidence in each case. We have done that, and the analysis shows that this case is different. Using the natural gas in the US is more advantageous than exports, both economically and environmentally."

Environmental and Health Impacts Left Out of the Mix

Environmental groups, including the Natural Resources Defense Council (NRDC) and the Sierra Club, also slammed the study for failing to assess environmental impacts of increased domestic fracking on both the economy and health of local communities in which drilling would occur and on the overall global climate.
The Sierra Club revealed that the NERA study's main supporting point for a net economic benefit from exports was built on ignoring negative environmental impacts.

Applying federal government estimates, the group calculatedthat the increase in natural gas exports would pump an additional 689,000 tons of methane into the atmosphere each year at a staggering social cost of $430,625,000. This additional cost would nullify more than 20 percent of the GDP increase projected in the NERA study, which would shift the slight net gain from exports to a net loss.

Jeff Deyette, a senior energy analyst at the Union of Concerned Scientists, said that methane leakage issues, both in the act of fracking and extraction and in the transport of natural gas, demand greater evaluation.

"Given how potent methane is, even modest amounts could make natural gas as bad or worse than coal from a total greenhouse gas emissions standpoint," said Deyette.

The NRDC noted the NERA report "ignores environmental externalities, including global warming, air pollution, water pollution and other pollution impacts" and "wholly neglects to estimate public health and environmental damages that are routinely estimated in regulatory impact analyses."

Henry Henderson, director of the Midwest Program at the Natural Resources Defense Council, noted that the negative drilling impacts on communities don't show up in GDP estimates or corporate annual reports.

"There are long-term impacts on property values and the economies of rural communities that are not properly measured by simply the cost of selling natural gas on the market," said Henderson in a recent interview with AlterNet.
"They are jobs that come and go as opposed to impacts that remain in perpetuity," he said.

This impact has already been seen in states that were home to the early fracking boom, such as Pennsylvania. As a January report by the Center for Public Integrity detailed, the prospect of exporting natural gas was not part of the bargain when Pennsylvanians agreed to open their state to fracking.

So now, adding insult to injury, people in towns who've already suffered environmental, health and economic degradation from this extractive process are "surprised, stunned, angry and upset" to discover these same companies not only want to drill in higher volumes but also seek to export the gas without regard for the increased price or the continued negative drilling effects in their communities.

Patzek, of the University of Texas, noted that in later stages of exploitation of a resource such as hydrocarbons, we tend to go from using faraway places with very concentrated hydrocarbons, such as West Texas or the Middle East, to lesser quality, more difficult and dilute resources, which are close to where people live.

"We are at that stage right now and it's only going to get worse," he said. "We will be encroaching more and more on where people live."

Patzek added, "We don't seem to be able to go beyond the next boom-or-bust cycle and ask for a little bit longer planning. This thought that there is a common good and a common future that we all have has vanished."

Brad Jacobson is a Brooklyn-based freelance journalist and contributing reporter for AlterNet. His reporting has also appeared in The Atlantic, Salon, OnEarth Magazine, Columbia Journalism Review, Billboard and other publications. Follow him on Twitter @bradpjacobson. Follow him on Twitter @bradpjacobson.

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