Dow Chemical Views Middle Ground for LNG Exports As In US Interest
by Jonathan Crawford    SNL Daily Gas Report
Thursday, October 25, 2012

SNL Energy recently interviewed George Biltz, vice president of energy and climate change and corporate vice president of Dow Chemical Co., about his company's policy stance on LNG exports.

In his role, Biltz, who first joined Dow in 1978, heads up energy conservation and greenhouse gas emission reduction efforts, leads Dow's global advocacy presence in the areas of climate change and energy public policy, and oversees the power production and energy services used to run the manufacturing facilities around the globe.

To power its operations globally, Dow uses the energy equivalent of about 850,000 barrels of oil per day, which is approximately equal to Australia's daily energy consumption, or about 1% of world energy demand.

Below is an edited transcript of an Oct. 3 interview at Dow Chemical's Washington, D.C., office. This is the second in a two-part series.

SNL Energy: What is Dow's stance on the export of LNG?

George Biltz: There are people like [U.S. Rep. Edward] Markey that will say don't export anything. There are other groups, like most oil and gas producers, that say let us export whatever we want. Not so much because we have a free market - they may say free market - but it really is more laissez-faire, because in the energy space there tend not to be truly free markets.

Our position is in the middle. We believe there is some gas you can export without causing problems on the demand side, without disrupting the domestic market and eroding our newfound competitive advantage, but there is a point where you can export too much. The risk is that excessive LNG exports could, in effect, import an oil-indexed price of natural gas, which would end the renaissance in American manufacturing. Once you bring the oil-gas price in, you kill that advantage. It will kill those 5 million jobs, just like the 6 million jobs we lost between 2000 and 2010 when the price of gas was volatile.

Does Dow favor a limit to the number of export terminals?

I don't think a limit is the right term. The way we are looking at it is, understand what is in the public interest, and allocate - it may be too strong of a word; maybe permit - a certain amount based on where you think the public interest is today, and as you learn more over the next one year, two years, three years, five years, you evolve to allow more permitting to move closer and closer to wherever that cliff is. By the way, the cliff might move over time, too. Other countries may come up with their own natural gas or shale gas capabilities. And that may move the amount of LNG that is even required out in the world out there. So we don't favor a limit. We favor a policy that maintains our competitive advantage in natural gas that is encouraging capital investment and spurring job growth.

So when does exporting LNG become a problem?

The mistake for the U.S. would be to permit so much LNG up front and to have companies rush off, create all these 20-year obligations for shale gas to go outside of the U.S. and destroy that competitive advantage. Just the mere fact that they are committing to a fixed supply contract up front and putting that supply at risk could be enough to bring in an oil-indexed price. So it's not a function of how many [terminals] actually get built or financed. It is a function of what people think will happen to supply and how it gets allocated out to other countries and the knock-on effect back in to the domestic demand market.

Is there any legislation that Dow supports that would address these concerns?

Dow supports both administrative policy and legislative action that better defines what we mean by "public interest." We would suggest that public interest has to include national energy security. It has to include consumer pricing and manufacturing demand and the jobs related to it. Those three things are absolutely imperative around national interest, or the public's interest, in the energy space.

In the near term, it really is in the hands of the Department of Energy. And as I said before, there's a lot of uncertainty. This is a tough place for them to be. But I think they are doing a great job of looking at the issue. They are being conscientious. They are thinking it through. I am confident they are going to come out with a reasonably good answer. I hope it is an answer that talks about energy security, consumer pricing, and domestic growth and jobs because I think those are public interest issues.

What kind of measures would you favor down the road?

Longer term, and of course everyone has their own views on the election and on what a lame-duck government will do and what the next Congress may do, we think there's a need for some legislative, and eventually statutory, language around how people should define public interest in the energy space. We would go so far as to say there is absolutely a need for an energy narrative at the national level first and foremost. That's going to take a lot more time.

It sounds self-serving when Dow comes across and says we should put the reins on exports. You are concerned about your bottom line, naturally, but what about the natural gas producers that are hurting from low natural gas prices?

I would tell you that I think the U.S. has some very difficult decisions to make. Manufacturing has a huge role to play in helping rebalance jobs in this country and get a GDP that's growing. So, yes, you can export gas. It has a 1x impact to the GDP. You could take that same gas and run it through the economy and have a 20x impact to the GDP. And that's the decision policymakers have to make regardless of whether it is Dow saying that or Exxon or whoever says that. I would agree with you. You cannot ask companies to ignore their own self-interest, but more importantly, countries should not ignore their own self-interest. Countries should not just have a laissez-faire attitude toward energy and expect the companies to automatically do what's in the country's best interest.

What is the context behind how the U.S. should set its LNG export policy?

Countries need to define what's in their best interest. And the U.S. needs to make this decision, and that's why you come back to what is in the public interest. If GDP growth is in the public interest, if jobs that pay 40% above average are in the country's interest, if low consumer prices for heating and cooling are in the public's interest, if energy security is in the public's self-interest, then say so. Tell us what's in the country's interest.

Let's not drive [the] Henry Hub [natural gas pricing point] to an oil-indexed price like in the rest of the world and destroy what is arguably one of the biggest competitive advantages in the world right now. The biggest one I've seen in my time, in the 33 years I've been with Dow Chemical. There's nothing like this.

Switching gears, you see the demand growth potential for natural gas over the next couple of decades in the U.S. to exceed the projections made by the U.S. Energy Information Administration. Please explain.

Despite [natural gas] being at a massive competitive advantage and at the lowest prices since the '90s, the EIA sees no additional demand. They see it growing slightly, but basically they see these industries' demand staying roughly flat. We don't see that. We see there are 6 [Bcf/d] or 7 [Bcf/d] coming out of that list [of manufacturers], and we think there is more behind it. We think [demand from natural gas vehicles] is more like 3 or 4, maybe 5 [Bcf/d]. In the coal fleet, about a third of the U.S. plants - 200 out of our 600 plants - are over 50 years old, or will be during this time frame. We think they will be slowly replaced by gas. And on top of that, you have the LNG exports.

Is it a major concern, the fact that we are looking at a significant increase in dependence on natural gas, when you look at the economics and some of the regulations coming out of the EPA?

Every time we have asked natural gas to do it all in this country, we have had issues. There were times in the '80s, late '90s and early 2000s where we asked natural gas to solve all of our energy problems. And we are a bit in that world right now. We don't think gas should be the hope that everybody pins everything to. We are in favor of a true all-of-the-above discussion, which would include coal and would include all of our hydrocarbon sources. It would also include nuclear.

The real question is what's your national energy policy and how do these things stack up under it, so you can have a good debate on coal and a good debate on nuclear.



Copyright 2012 SNL Financial LC. All Rights Reserved.

(Originally published Oct. 18, 2012, in SNL Daily Gas Report.)