California’s recovery has led the nation for months in producing new jobs, even though it hasn’t yet come close to replacing all those lost in the Great Recession of 2008-2011.
Low natural gas prices have been one key element helping California along. They help everything from factory production to oil refineries, power plants, dairy farms and citrus groves where fans blew heat onto trees to keep fruit from freezing during January’s unusual cold snap.
This makes it mandatory for Californians in Congress and the Legislature to track the strong campaign by natural gas producers to export much of the gas bonanza now ongoing in many parts of California and in places like Wyoming, Montana, North Dakota and Colorado.
This effort has strong implications here because of how low natural gas prices have fallen, compared with just a few years ago. For example, the late-January price of natural gas at Henry Hub in Louisiana, often considered the benchmark for the industry, was about one-third of its 2008 level and well below the going prices in every year since 2003.
Prices began dropping in 2009, just about the time hydraulic fracturing (best known as “fracking”) became widespread. No, gas prices paid by customers of big California gas-providing utilities have not plunged two-thirds, but that’s because the wholesale cost of gas accounts for slightly less than half what we pay. The rest of the price to customers comes from transportation and the cost of building and maintaining pumps, storage facilities and pipelines, plus a profit percentage.
Californians have paid little attention to the export effort because no liquefied natural gas (LNG) receiving plants were built here during the early and mid-2000s, when potential gas importers made a big push for them, claiming a major shortage of domestic natural gas was about to hit.
Of course, fracking ended any such threat, and the Federal Energy Regulatory Commission (FERC) is currently entertaining nine proposals for either building new facilities to do the opposite – superfreeze natural gas into a liquid state and ship it around the world to countries with gas shortages as LNG – or convert onetime receiving plants into export facilities.
The commission appeared gung-ho to approve at least some of these quickly before the late-April explosion of two LNG-bearing barges in Alabama. No one knows how that will impact decisions, as it pointed up the fact that exporting facilities can be more hazardous than those that import LNG. Meanwhile, three export applications are pending in the Pacific Northwest, all on sites once earmarked as importing plants.
These would unquestionably make gas exploration companies wealthy, while also causing the wholesale price of natural gas to rise again, perhaps even to triple.
The federal Department of Energy concluded in a report issued last December that “for every one of the market scenarios examined, net economic benefits increased as the level of LNG exports increased.”
The report skimmed over danger of explosions, even though liquefying plants have had more serious accidents than import facilities, where LNG is warmed back into its gaseous state.
Democratic U.S. Sen. Ron Wyden of Oregon, site of two current export proposals, protested quickly that flaws in the Energy Department study “are numerous and render (it) insufficient for the Department of Energy to use in any export determination.” The study was conducted by a private consulting firm.
The Sierra Club also objected, as did the American Public Gas Assn., which represents many municipal utilities that buy natural gas. Sierra Club objections are that the Energy Department report does not consider potential environmental harm from increased fracking that would follow the start of export operations, while also ignoring the effects of the domestic natural gas price increases that could result from approving more LNG exports than are already permitted.
But the U.S. Chamber of Commerce maintains gas prices must rise or the boom will soon peter out. Said Chamber President Thomas J. Donahue, “If they don’t do something to stimulate the price of gas a little, nothing will be taken out of the ground. You can’t go around the world demanding free, open and transparent markets and then not allow LNG exports. Our significant energy resources give us a chance to move on federal spending and taxes because they can generate much more government revenue.”
This, then, is no simple matter. Today’s historically low natural gas prices are good for almost everyone in California. But the chamber believes they may soon cause an end to new production. Meanwhile, residents near proposed export facilities in Oregon, as one example, are fighting furiously to nix them because of what they see as dangers from explosions and environmental damage when pipelines bringing gas to the new plants are built.
Because this quarrel has major potential effects on California’s economy, state’s Congressional delegation – so far largely uninvolved – has to get seriously engaged, and soon.