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AEA Letter to US Senate Committee on Foreign Relations on Ukraine Aid Legislation

March 12, 2014

The Honorable Robert Menendez
Committee on Foreign Relations
444 Dirksen Senate Office Building
Washington, DC 20510-6225

The Honorable Bob Corker
Ranking Member
Committee on Foreign Relations
444 Dirksen Senate Office Building
Washington, DC 20510-6225

Dear Chairman Menendez and Ranking Member Corker:

America’s Energy Advantage (AEA), is a trade association representing many of the world’s leading manufacturers and commodity producers, as well as the United States’ (U.S.) publicly-owned natural gas distribution companies.  We appreciate your leadership in shaping America’s foreign policy to support a more peaceful and prosperous world, while helping to advance America’s interests around the globe.

We agree that the current crisis in Ukraine is a very serious situation, and appreciate your efforts to pass legislation to provide American aid to Ukraine in their time of need.

While AEA does not have a position on the Ukraine aid legislation as introduced, we are very concerned with reports of possible amendments to the legislation that would temporarily or permanently change the Natural Gas Act as it relates to the export of U.S. natural gas (LNG) to countries which have not entered into a free-trade agreement with the U.S. (non-FTA nations).  We would strongly oppose any such amendments during consideration of the legislation in Committee, and would strongly oppose the bill if such amendments were included in the legislative or report language that the Committee reports to the full Senate.

Irrespective of your position on LNG exports to non-FTA nations, we hope you agree that an emergency foreign aid package in response to a crisis in one nation is no place to make radical and far-reaching changes to U.S. national security, economic, trade and energy policy.  As you know, President Obama did not propose and the House of Representatives did not include such monumental provisions in its emergency aid package.  We respectfully request that the Committee on Foreign Relations pursue a similar restrained approach to LNG export provisions.  Poison-pill amendments would only delay aid to the Ukraine, which would be terribly counterproductive to the bipartisan effort underway.

According to news reports, Senator John Barasso (R-WY) is planning to use the Ukraine aid package as a legislative vehicle to advance a proposal for expediting exports of domestic natural gas to U.S. allies and members of the North Atlantic Treaty Organization (NATO).  We would strongly oppose this type of amendment, and would urge you and the Members of the Committee to oppose it as well.  Again, the Ukraine aid package is not the place to make such dramatic changes to U.S. national security, economic, trade and energy policy.

In addition to being bad process, the amendment is bad policy, even if it were considered under regular order.

First, it is critical to understand that no LNG export facilities currently exist in the continental U.S.  LNG exports will not begin in earnest until 2018, as these billion-dollar projects need to be built or expanded.  Even after these facilities come online, the first place that gas is headed is to Asia, not Ukraine or Europe, according to Michael Smith, Chairman and CEO of Freeport LNG, a major exporter, who said recently that “…most of our customers plan on bringing (LNG) to Asia which is the highest price market.”

Second, companies in the Ukraine, NATO or in other allied nations can contract to purchase American LNG right now if they are willing to pay market rates, which in Asia is as much as 50% higher than in eastern or central Europe.  There is no barrier or impediment to Ukraine, or any other European company (companies buy the gas, not nations), signing a contract today to import LNG from one of the six facilities that have already been approved.  In the case of eastern and central Europe, however, these contracts have not been signed because they are simply not economically viable.  Andrzej Szczesniak, a Polish energy analyst, said in the Financial Times recently that, “gas delivered by tanker will never be able to compete with gas delivered by pipeline.”

Third, the U.S. government does not select which companies buy U.S. LNG – these are private commercial contracts between a willing buyer and a willing seller.  It is somewhat surprising that those claiming to support “market forces” are ignoring this fundamental market fact.

A much better option for weakening Putin is to export American hydraulic fracturing technology to our Ukrainian allies so they can develop their own domestic shale gas resources.  Ukraine has more than 40 trillion cubic feet of technically recoverable natural gas.  Such resources could come online years before the first LNG tanker ship leaves an American port. 

There are other claims being made in this debate which have no basis in fact.  For example, there is no “ban” – de facto or otherwise – on LNG exports by the United States.  As you know, we currently export American natural gas to Mexico and Canada via pipeline because these countries have signed free trade agreements with the U.S.  LNG exports overseas are not expected to begin in earnest until 2017 or 2018.

On top of that, the U.S. Department of Energy (DOE) has already approved a significant amount of LNG -- close to 12 percent of current domestic production -- for export to countries that have not signed a free trade agreement with the U.S.

Senator Barrasso’s amendment, if enacted, could export nearly half of U.S. natural gas production to our overseas competitors, raise domestic natural gas and electricity prices for every American, undermine manufacturing competiveness and cost the good-paying economy jobs.  Equally troubling is the fact that the amendment may prevent DOE from mitigating or even reviewing the impacts of unchecked exports on domestic prices, consumers, electricity markets, manufacturers or the economy.   

We are already seeing supply disruptions and price spikes in the domestic market.  U.S. Gas prices have doubled since the first LNG export application was approved and parts of United States are in the midst of a full blown gas crisis.  In New York and other areas of the northeast, a supply shortage of natural gas has caused price spikes and even rationing.

U.S. gas markets are extremely volatile, with prices surging as high as $8/MMbtu – a 250% increase from just a year ago.  This is having real impacts for family budgets in cold weather states.  For example, Con Edison in New York estimates that a typical customer will see a gas bill of $388 in February, almost 20 percent higher than last year. 

In the Midwest, a shortage of propane – a byproduct of natural gas production – is causing economic hardship and suffering for millions of families and businesses, who are paying record prices.  Many Governors issued emergency declarations and the U.S. Congress took emergency action to respond.  One of the causes of the propane crisis was exports, which have quadrupled in the last five years.  In fact, propane exports outstripped the growth in supply, as the U.S. exported a record 20 percent of U.S. domestic propane production overseas.

Our organization is a strong supporter of rules-based free trade as we have seen the power of open markets to create economic growth.  America’s natural gas bounty is a powerful tool to open closed markets, improve our balance of trade and remove tariffs and barriers to U.S. products.  Many of our trading partners around the world don’t see it that way.  Their position is, “Give us your gas now, we’ll talk free trade later.”

U.S. natural gas is the biggest bargaining chip U.S. trade negotiators have at their disposal.  It has the ability to increase exports of all American goods and services, open markets, create jobs and raise living standards for all Americans.  America’s natural gas advantage presents a once-in-a-generation opportunity to increase free trade across the world.

America’s newfound abundance of natural gas is powering a remarkable manufacturing renaissance, which to date has generated more than $100 billion of announced investment in over 120 different manufacturing projects.  Indeed, affordable natural gas is acting as a job magnet, attracting both foreign investment and reinvestment by domestic industries here in the United States, a trend that could lead to five million additional jobs by 2020, according to the Boston Consulting Group.  This energy advantage is directly responsible for the eight consecutive months of growth in the manufacturing sector.

Oil and gas are strategic commodities, fundamentally different from blueberries or ball bearings.  In order to maximize the full potential of this newfound bounty and create a broadly shared prosperity, policymakers should pursue a cautious, thoughtful and deliberative approach to the question of LNG exports.  We must not allow the world’s insatiable appetite for our natural gas to dictate availability and prices at home.

Given the uncertainty, unpredictability and historical volatility of the natural gas market, caution is warranted as unchecked LNG exports could cause irreversible harm to the economy.  Granting access to this strategic commodity without a reciprocal guarantee of open markets is a shortsighted decision.  A balanced approach that uses American natural gas to open closed markets overseas is far better alternative that will broadly increase prosperity for all Americans.

Sincerely Yours,

America’s Energy Advantage