Remarks at the European Parliament’s LNG Roundtable

It is a pleasure to address this LNG conference.   I would like to begin with an apology that Chris Smith, our esteemed Assistant Secretary for Fossil Energy at the U.S. Department of Energy, had his flight cancelled overnight and so is unable to speak with you today as he had hoped.

Nonetheless, I am glad to have the chance to be here today to address this conference in Chris’s place.

Today, the United States is transitioning from a mindset of scarcity to one of abundance. We’ve become the number one producer of oil and gas. We’re also rapidly increasing our use of renewable energy and reinvesting in nuclear power which we view as an important component of our diverse portfolio.

Most of you are familiar with the U.S. shale gas story that has transformed our energy landscape and has tremendous long-term implications for our prosperity, security, and environment.

From almost zero ten years ago, U.S. shale gas production rose to 400 bcm/year in December 2014, and makes up over half of total U.S. gas production.

Not only is gas important for the United States, the topic of LNG is also an important one for Europe’s energy security.

So thank you Chairman Buzek for organizing this conference to discuss LNG in the context of energy security in Europe.

Energy Security

Energy security in Europe has been a longstanding U.S. foreign policy priority.  Efforts to establish the Baku-Tbilisi-Ceyhan pipeline in the 1990s, steadfast support for a Southern Gas Corridor in recent years, and our current work to assist Ukraine, end the gas crisis with Russia, and address Ukraine’s immediate and long-term energy needs attest to our commitment.

But here in Europe, energy is an especially vital regional security interest because Europe’s largest supplier of energy has used its position as a foreign policy tool against its neighbors in violation of basic commercial and international norms.

The challenge is most acute in Central and Eastern Europe where many countries that rely on one major source for their energy supplies but the implications are real for the entire EU and European continent.

I want to applaud Europe for putting forth a new Energy Union Strategy, which is aimed at addressing these issues and will enhance Europe’s energy security.

Without speaking to the specific measures to implement the strategy, I want to express our support for the strategy’s efforts to increase energy security by:

  1. Diversifying energy supply through fuel types, supply sources, and delivery routes
  2. Reducing energy demand through improving energy efficiency and by decarbonizing the energy mix, and
  3. Enabling the free and competitive flow of energy across Europe (through physical infrastructure such as interconnectors) and through the enhanced integration of the power and gas sector in Europe.

LNG Exports

I know that it is the first goal of diversifying energy supply through fuel types and supply sources that has brought us all to this conference today so I would like to say a few words about USG LNG export policies.

The US is now poised to become a net exporter of natural gas – and that shift is having a significant impact on global markets.

LNG shipments that were previously destined to the US markets have been reallocated to Europe and Asia.

The Department of Energy, of course, is playing a major role with regard to LNG.  Under U.S. law, the Department of Energy has the authority to regulate natural gas exports.  That authority is exercised by the Assistant Secretary for Fossil Energy.

Essentially there are two types of export applications – one for Free Trade Agreement (or FTA) countries and one for non-FTA countries.  Exports to FTA countries are deemed to be consistent with the public interest, and authorization must be granted without modification or delay.

With regard to non-FTA countries, authorization must be granted – with or without terms and conditions – unless the proposed export is found to be inconsistent with the public interest.

As part of this evaluation, the U.S. Department of Energy must address significant uncertainties and concerns about potential negative impacts from LNG exports.   The economic impacts of higher natural gas prices and potential increases in gas price volatility are two of the factors that the Department views most seriously when we consider export applications.  The Department of Energy also looks at a number of factors that could mitigate those impacts – such as the current oversupply situation, as well as data that indicates the natural gas industry would increase natural gas supply in response to increasing exports.

These projects must also pass environmental muster.  When DOE received the first application to export LNG to non-FTA countries four years ago, the Office of Fossil Energy began evaluating applications for conditional approval before FERC had completed the required environmental review.

This step provided more clarity while companies were still early in the process of considering LNG exports.  However, the Department of Energy has consistently made clear that monitoring market developments plays a role in our decision-making process.

So, to reflect changing market dynamics, the Department of Energy recently changed the way they process export applications. Applications are now reviewed for final public interest determinations only after a project has completed the environmental review, instead of issuing conditional authorizations.

This change is streamlining the regulatory process for applicants, prioritizing DOE resources on the more commercially advanced projects, and ensuring that applications that have completed environmental evaluation will not be delayed by their position in the previous order of precedence.

Still, some have expressed concerns that the new procedures will slow down the approval process.  But those concerns aren’t being borne out by the record.

As of May 20, 2015, DOE had granted 7 final long-term authorizations (six projects, totaling 8.61 billion cubic feet (bcf)/day) to export lower-48 states domestically-produced LNG to non-FTA countries, and 38 non-FTA applications were pending.

Trading and utility companies, with parent companies in Europe and the UK, have entered into contracts to lift 2.7 billion cubic feet/day of U.S. LNG from two approved liquefaction terminals (Sabine Pass and Freeport). 2.0 Billion cubic feet (bcf)/d of contracts are with trading companies and 0.7 Bcf/d are with utilities.

Looked at another way, 1.1 Bcf/d of contracts are with companies with European parent companies and 1.6 Bcf/d are with UK parent companies. By way of comparison, in 2014, Europe imported 3.2 Bcf/d of LNG and the UK imported 1.1 Bcf/d.

I should reiterate that the Department of Energy is not involved with commercial transactions for purchases of U.S. produced LNG.  So companies interested in purchasing U.S.-produced LNG should contact the entities holding or applying for U.S. export authorizations.

So the record shows that the new procedures aren’t roadblocks to export authorizations – they’re a streamlined pathway to ensuring that viable projects aren’t unnecessarily delayed in the queue.

Going forward the Department of Energy will continue to prioritize evaluations to focus on commercially-advanced projects that have run the environmental hoops.   And they will also conduct another economic impact study based on more recent data to better understand the effects of increased LNG exports on the public interest.

The goal is to make sure we carry out our responsibility in the most efficient way possible – and that the projects authorized can withstand inevitable market, consumer and legal scrutiny.

At the end of the day, we recognize the importance of moving forward on these applications, and the USG is working as expeditiously as possible to make determinations – but always with an eye to ensuring they don’t conflict with the public interest.

Because the bottom line is the U.S. is committed to moving this process forward as quickly as possible – but we’re just as committed to making sure that we get it right.

In closing, as the U.S. Ambassador to the EU, part of my job is to serve as a bridge between the EU and the U.S.  To that end, with respect to LNG exports, what we hope to see is that, as they increase, they will send a signal- both to the marketplace and to dominant suppliers, that Europe will have more flexibility in ensuring its energy security.

No matter what, my message to you today is that the United States is deeply committed to working together with the European Commission, the European Parliament and the private sector on both sides of the Atlantic to address energy security concerns in Europe in a way that keeps the U.S. and EU economies growing, increases investment and business opportunities on both sides of the Atlantic, lowers our collective carbon footprint, and strengthens energy security.