Energy Policy: Natural Gas to the Rescue?

Presented by:

Natural gas has been in the news quite a bit, vaulting to the center of geopolitics.

First, the energy crisis in Europe has highlighted the need for alternative sources of natural gas, as supplies have slowed and there is very little in storage. As the solution, the press in Europe has heralded LNG imports from the U.S., Qatar and elsewhere. At the same time, German approval of the Nordstream Pipeline has become a bargaining chip in the Ukraine–Russia crisis.

The role that U.S. natural gas can play in assisting our allies in Europe and lessening the threat posed by Russia, while simultaneously benefiting the U.S. economically, was underscored at a recent U.S.–E.U. Energy Ministerial. With Secretary of State Antony Blinken and Secretary of Energy Jennifer Granholm in attendance, participants touted U.S. LNG exports to Europe and called for identifying “ways to sustain strong U.S. LNG exports to Europe.”

Meanwhile, in a nod to the importance of natural gas to Europe’s energy security amid the ongoing energy transition, the European Commission has published the final text of its “taxonomy for sustainable finance” that classifies nuclear and some natural gas as “green energy.”

RELATED:

EQT, Chart Industries, Tellurian Execs: US LNG Can Save the World

With high gas prices and demand pressures in the U.S., the Biden administration is also feeling pressure to slow down exports to Europe and redirect those Btus domestically. For example, a group of 10 Democratic U.S. senators from the Northeast and upper Midwest recently wrote a letter to Secretary Granholm urging the Biden administration to take steps to limit LNG exports. They specifically asked the Department of Energy to conduct a review of LNG exports and their impact on domestic prices and the public interest, calling on Granholm to “consider halting permit approvals of LNG export facilities.” All the while, administration officials, including Deputy Energy Secretary David Turk, have stated that the U.S. is not considering banning LNG exports.

It is clear that the administration is facing considerable pressure when it comes to its policies toward natural gas. On one hand, it supports policies that make gas exploration, production, transportation and utilization more difficult, lumping natural gas with crude oil as commodities that should be phased out. On the other hand, it supports natural gas exports when doing so proves useful in geopolitics, such as greenhouse gases and the current environment where the pressure is on for the U.S. to export more LNG.

However, increasing LNG exports requires increasing natural gas production, which necessarily involves more crude oil production given geological realities. As reflected by current public policies, boosting domestic production is something the administration has a hard time supporting. Yet, not surprisingly, high commodity prices and increasing demand are driving higher drilling and production activity in any way.

Over the long term, an approach that considers producing more LNG to export to Europe to be a good thing, but producing the gas necessary to be liquefied and exported to be a bad thing, it will support neither domestic production nor LNG exports to our allies.

Unfortunately, that is just the track down which we are currently headed. Federal policy continues to make it harder to produce oil and gas on federal lands and waters. In his first days in office, President Biden paused new oil and gas leasing under federal jurisdiction. While the moratorium was struck down by a federal court, another federal judge threw out a subsequent offshore lease sale. It is unclear what action the administration will take to defend the lease sale decision, but it isn’t likely to fight hard to defend that auction or hold new lease sales. The multiyear process to develop the five-year offshore oil and gas leasing plan hasn’t even started, and the current plan expires in June.

Watch Jack Belcher in the latest installment of Energy Policy Watch, a partnership between Hart Energy and Cornerstone.

Subscribe to receive notifications about new Energy Policy Watch episodes.

Combined with continued pressure on new pipeline development by Federal Energy Regulatory Commission, leasing and permitting slowdowns at the Bureau of Land Management and Bureau of Ocean Energy Management and the tightening of standards from Environmental Protection Agency, it is becoming significantly more difficult to produce and transport U.S. oil and natural gas at a time when our country and allies around the world need it the most.

The U.S. has an opportunity to show leadership in the face of threats abroad, including from Russia. U.S. natural gas is already considerably cleaner than gas produced in Russia, and bold efforts are underway to develop responsibly sourced gas in the U.S., reduce methane emissions and decarbonize across the natural gas value chain. For the sake of the environment, economy and national security, the administration should not only support our ability to export natural gas, it should also support all aspects of exploring, producing and transporting it in a truly sustainable manner.