Rigzone.com – LNG Exports: A View from the E&P Community

rigThe laws of supply and demand, rather than artificially imposed limits, should determine how much liquefied natural gas (LNG) the United States exports, according to Chris Faulkner, CEO of Dallas-based Breitling Oil and Gas Companies.

In fact, Faulkner – whose company has been active in major shale plays throughout North America – finds the evidence for curbing exports lacking. Faulkner makes the case for his position below.

Rigzone: How would you counter the argument that LNG from the United States should only be sold to customers in countries that have free trade agreements with the United States?

Faulkner: Suggesting that we should only export LNG to countries with free trade agreements is just another way  of suggesting that exports should be limited. And there’s actually no logical, rational, or analysis-based reason that LNG exports should be limited at all. We have an opportunity to help our allies while at the same time strengthening our negotiating power. We should be leveraging the prospect of preferential access to LNG exports in our trade negotiations, but we should not set regulatory limits.

Rigzone: How would you respond to those opposed to all exports of LNG from the United States, specifically those who assert that keeping all of our natural gas within our borders would help to keep electricity rates stable and affordable?

Faulkner: It’s another red herring to imply that electricity rates will go up if LNG exports are allowed. The fact is, supported by many analysts, the United States has plenty of supply for both domestic use and exports, especially since even the highest estimates for future exports represent a drop in the ocean of domestic supply.

Rigzone: How would you allay the concerns of those who fear that exporting LNG threatens U.S. energy security?

Faulkner: The opposite is actually the case. Exports of U.S. natgas can strengthen U.S. foreign and trade policy. We should be scrambling to allow exports so we can then use our exports as leverage in trade negotiations and be better positioned to influence global gas trade and pricing.

Rigzone: What effect could LNG export restrictions have on natural gas producers, and do you believe that limiting access to international markets could create unintended negative consequences for those advocating curbs?

Faulkner: Restricting LNG exports will create serious problems in trade negotiations. Think about it – the United States, a free market proponent, would in one breath be going against Article XI of the General Agreement on Tariffs and Trade, and then in the next breath we’d be arguing against China enacting the exact same restrictions, creating problems for us with the World Trade Organization and North American Free Trade Agreement (NAFTA). It’s ludicrous and dangerous when we have a vested interest in encouraging China to allow exports of rare earth metals that are critical to the U.S. clean energy industry.

It’s also ineffective and could end up doing more economic damage than good because export restrictions can be circumvented via extensive pipelines to Mexico and Canada. In the meantime, restrictions would keep domestic prices down, which at first blush sounds like a good thing, but it’s not. Suppressing natgas prices will discourage investment in new export facilities and new exploration and development activity, forfeiting jobs and a boost to the economy.

Rigzone: Do you see natural gas commanding a much larger share of the U.S. transportation fuels market, and what sort of impact could this growth area have on LNG exports?

Faulkner: Natgas won’t be a major player in U.S. transportation in the near- or even mid-term future, and that has nothing to do with whether we hoard all of our natgas or allow exports. We’re simply not there yet. We don’t have the infrastructure of thousands of natgas fueling stations to support natgas vehicles; nor do we have a fleet of millions of natgas vehicles on the road that would put a dent in our thirst for oil.

Rigzone: Would you like to make any other comments about U.S. LNG exports and its effect on the global LNG market?

Faulkner: I think it’s worth noting and repeating that our own Energy Department has estimated that increased natgas exports could create 25,000 new direct jobs and another 40,000 indirect jobs. The domestic, political and global impacts of U.S. natgas exports far outweigh any imagined and unproven negative effects it could have.