Debate Over U.S. LNG Exports Heats Up

The debate over whether or not the U.S. should export its glut of natural gas – in a liquefied form known as LNG – is heating up.

The main beneficiaries would be the companies exporting LNG abroad, as well as U.S. natural gas producers. So far, only Cheniere Energy's (NYSEMKT: LNG  ) Sabine Pass terminal has been green-lighted to ship LNG to countries that don't have a free trade agreement with the U.S. But many more companies are restlessly vying for permits.

The main losers would include various manufacturing firms, especially those whose operations are highly energy intensive. Over the past couple of years, America's shale gas boom has spurred a domestic "manufacturing renaissance," as U.S. companies including chemical manufacturers and steelmakers have reaped the rewards of cheap and plentiful natural gas.

The argument against LNG exports
According to America's Energy Advantage, an industry group supported by major industrial firms such as Dow Chemical (NYSE: DOW  ) , Huntsman (NYSE: HUN  ) , and Alcoa, allowing large-scale LNG exports from the U.S. would almost inevitably drive up the price of domestic natural gas and threaten to erode the competitive advantage U.S. manufactures have recently developed on the back of cheap natural gas.  

Higher gas prices, the group argues, could lead to a substantial loss of jobs, as well as reduced investment, in the U.S. manufacturing sector.  

Huntsman chemicals' CEO Peter Huntsman suggests that if all the proposed export projects were green-lighted, it would cause the price of domestic natural gas to "skyrocket." And Dow's George Blitz argues that fears of a future spike in U.S. gas prices could seriously threaten the roughly $100 billion of new investment the company calculates has been planned to capitalize on cheap and plentiful domestic natural gas.  

America's Energy Advantage is instead advocating a "balanced" approach, suggesting that only a few more companies should be approved to export U.S. natural gas to countries that don't have free trade agreements with the U.S.  

The argument in favor of LNG exports
On the other hand, the Center for LNG – an industry group advocating unfettered LNG exports – and foreign countries eager to secure new supplies of relatively cheap U.S. natural gas are up in arms about the idea of restricting LNG exports from the U.S.

The Center for LNG argues that limiting gas exports would amount to unwarranted interference in energy markets, while some foreign countries are desperate for any chance to improve their energy situations.  

Japan, in particular, continues to be plagued by high fuel import costs, which have worsened markedly following the yen's recent decline. The Japanese currently pay nearly $17 per MMBtu for imported natural gas, a little over four times the price of gas in the U.S.

Yes or no to LNG exports?
To date, 21 applications requesting LNG export licenses have been filed with the Department of Energy (DOE). If all of them were approved, it would amount to exports totaling 28.3 billion cubic feet of gas per day – or a whopping two-fifths of the entire marketed gas production of the U.S. last year.  

After approving Cheniere's Sabine Pass terminal, the DOE has placed a moratorium on further gas export approvals. As the department further scrutinizes how gas exports might impact domestic gas prices and the nation's economy, companies including Sempra Energy (NYSE: SRE  ) and Dominion Resources (NYSE: D  ) are anxiously awaiting a decision.  

What do you think? Which LNG export projects should be approved? And based upon what criteria?

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 03, 2013, at 2:47 PM, 0b1knob wrote:

    Chemical companies depend on natural gas LIQUIDS not natural gas itself. The production of additional natural gas for export could actually lead to a decline in the price of natural gas liquids which are a byproduct of natural gas production.

    The type of behavior displayed by the US is called rent seeking. The chemical companies are trying to gain control of assets they don't own and didn't develop. The same thing is going on with Canadian oil sand production which oil companies and their useful idiots in the green movement are trying to control and keep out of the US market.

    Here's a really radical idea: Just let the free market work things out on there own. Of course that will never happen since it would prevent the political establishment from auctioning off assets to the highest campaign donors.

  • Report this Comment On April 05, 2013, at 12:29 PM, madiasha wrote:

    How about a formula for partially lifting the JONES ACT to enable shipment of more domestic LNG to US users, thereby lessening dependency of foreign imports e.g. from Algeria and fostering more usage here at home, thus creating jobs and lessening costs which would leave more discretonary income to spend for homeowners and the like?

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