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Letter supporting H.R. 6, the “Domestic Prosperity and Global Freedom Act”

Monday, March 24, 2014 - 9:30am

The Honorable Fred Upton
Committee on Energy and Commerce
U.S. House of Representatives
Washington, DC 20515

The Honorable Henry Waxman
Ranking Member
Committee on Energy and Commerce
U.S. House of Representatives

Washington, DC 20515

Dear Chairman Upton and Ranking Member Waxman:

The U.S. Chamber of Commerce, the world’s largest business federation representing the interests of more than three million businesses of all sizes, sectors, and regions, as well as state and local chambers and industry associations, and dedicated to promoting, protecting, and defending America’s free enterprise system, strongly supports H.R. 6, the “Domestic Prosperity and Global Freedom Act,” and thanks the Subcommittee on Energy and Power for holding a hearing on this bill, which would eliminate trade barriers limiting and delaying export of natural gas and bring more supply of this critical energy source to the world, while spurring additional investment in new domestic production. Additionally, this bill would bring the U.S. in line with its World Trade Organization obligations.

The United States is the largest producer of natural gas in the world and has a large and growing natural gas resource base. The Energy Information Administration (EIA) estimates that proved and unproven reserves of nature gas are 2,335 trillion cubic feet. EIA also acknowledges the uncertainty of the shale gas numbers based on the limited development that has occurred. Historically, as new resources are developed, actual reserves increase. Even this current resource estimate would sustain domestic demand for a century.

Not impeding free trade of liquefied natural gas (LNG) would provide an economic boost across the economy and enable America to more fully capitalize on its incredible natural gas resource base. This view is sustained in a NERA Economic Consulting study sponsored by the Department of Energy (DOE) released in December 2012, which examined the economic implications of exporting LNG and concluded that “in all of the scenarios analyzed…the U.S. would experience net economic benefits from increased LNG exports.”

The increasing production of natural gas from shale formations has been one of the few economic bright spots over the last five years. A 2012 study sponsored by the Chamber’s Institute for 21st Century Energy and published by IHS concluded that unconventional gas development supported over 900,000 jobs in 2012. The majority of these jobs have been created in the previous five years, coinciding with the Great Recession and some of the highest unemployment in a generation. The study also found that unconventional gas development added over $120 billion to the U.S. GDP in 2012. This rapid development was catalyzed by market forces and the unleashing of technology and innovation developed over many decades. The current regulatory limitation of LNG exports creates an artificial barrier that constrains production and all of the associated economic benefits.

The laws of supply and demand dictate that licensing new export facilities would send the necessary market signal to encourage producers to increase natural gas production, as well as exploration. Because the construction of an export facility requires some three to five years, there would be ample time for the market signal to result in additional production coming on line. A follow-on IHS study published in 2013 that examined the impact of unconventional energy development on the manufacturing sector concluded that by 2025 over 318,000 jobs would be supported and over $50 billion in additional GDP created, all while exporting LNG.

Additionally, the increased exploration and production of methane would have an ancillary impact of also increasing the production of natural gas liquids (NGLs). These hydrocarbons, such as ethane and butane, are feedstocks of the petrochemical industry and are used to produce plastics, fertilizers, and pharmaceuticals. This increased production would, in turn, place downward price pressure on NGLs, helping to offset any potential upward pressure created by LNG exports.

U.S. natural gas exports would have a pronounced impact on the global market geopolitical calculus of most nations in Europe and Asia even if they would not be direct recipients of U.S. gas. Prices for LNG in Europe are more than double that of the U.S. and Asia’s are triple or more. Global demand has been outstripping supply recently. As demand continues to increase, the risk that exports controlled by central governments may be utilized as an extension of that country’s geopolitical goals has increased. Any additional supply entering the market places downward price pressure on traded natural gas, undermining the potential influence exporting states may exert on their constrained customers. This is especially true for U.S. exported gas, which most assume will be tied to U.S. prices (set at supply and demand equilibrium) as opposed to the historic global pricing scheme tying natural gas prices directly to crude oil. Owing to increased supply from shale development, U.S. natural gas prices are lower than most global sources.

If H.R. 6 is enacted and present natural gas export barriers removed, the global market would benefit from increased competition and importing countries would be provided with greater freedom of choice. While it would take several years to construct export facilities, the impacts would be felt in the near term. Importers would immediately begin competing for potential future shipments from the U.S., significantly reducing the leverage maintained by countries that may use natural gas exports for political purposes.

Any formal or de facto limitation of natural gas exports would be inconsistent with the obligations of the U.S. membership in the WTO. A review of U.S. trade policies endorsed by both Democratic and Republican administrations shows the United States has long been averse to the use of export restraints. An early example is the Constitution’s so-called Export Clause, which provides that “[n]o Tax or duty shall be laid on Articles exported from any State.” The United States has also undertaken commitments in the World Trade Organization (WTO) Agreement to forego quantitative export restraints such as discretionary or non-automatic export licensing requirements. These considerations apply to LNG exports.

Underscoring the strength of this prohibition, the WTO appellate body in 2012 ruled in favor of the United States in a dispute with China, which had imposed restraints on the exportation of certain raw materials such as bauxite. There is broad support in the U.S. business community for the U.S. government’s stance in this dispute and in the case of China’s similar export restraints on rare earths, which the WTO reportedly also found violate its rules.

Export restraints are generally inconsistent with the WTO Agreement unless they can be justified under an exception, but the aforementioned WTO dispute settlement decisions make clear that the administration’s non-automatic export licensing requirements for LNG do not meet any of these exceptions any more than China’s restraints on the export of raw materials and rare earths did. Further, it would be hypocritical for the United States to embrace export restraints when it has found them objectionable when employed by other countries.

The Chamber applauds Reps. Cory Gardner and Tim Ryan for introducing H.R. 6. The Chamber strongly supports the Domestic Prosperity and Global Freedom Act and commends the committee for its leadership on this important issue.


R. Bruce Josten

cc: Members of the Committee on Energy and Commerce

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