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ENERGY NEEDS IN ASIA: THE U.S. LIQUEFIED

NATURAL GAS OPTION

HEARING

BEFORE THE

SUBCOMMITTEE ON ASIA AND THE PACIFIC

OF THE

COMMITTEE ON FOREIGN AFFAIRS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED THIRTEENTH CONGRESS

SECOND SESSION

MAY 29, 2014

Serial No. 113–171

Printed for the use of the Committee on Foreign Affairs

(

Available via the World Wide Web: http://www.foreignaffairs.house.gov/ or

http://www.gpo.gov/fdsys/

(II)

COMMITTEE ON FOREIGN AFFAIRS 

EDWARD R. ROYCE, California, Chairman 

CHRISTOPHER H. SMITH, New Jersey 

ILEANA ROS-LEHTINEN, Florida 

DANA ROHRABACHER, California 

STEVE CHABOT, Ohio 

JOE WILSON, South Carolina 

MICHAEL T. MCCAUL, Texas 

TED POE, Texas 

MATT SALMON, Arizona 

TOM MARINO, Pennsylvania 

JEFF DUNCAN, South Carolina 

ADAM KINZINGER, Illinois 

MO BROOKS, Alabama 

TOM COTTON, Arkansas 

PAUL COOK, California 

GEORGE HOLDING, North Carolina 

RANDY K. WEBER SR., Texas 

SCOTT PERRY, Pennsylvania 

STEVE STOCKMAN, Texas 

RON DESANTIS, Florida 

DOUG COLLINS, Georgia 

MARK MEADOWS, North Carolina 

TED S. YOHO, Florida 

SEAN DUFFY, Wisconsin 

ELIOT L. ENGEL, New York 

ENI F.H. FALEOMAVAEGA, American 

Samoa 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

ALBIO SIRES, New Jersey 

GERALD E. CONNOLLY, Virginia 

THEODORE E. DEUTCH, Florida 

BRIAN HIGGINS, New York 

KAREN BASS, California 

WILLIAM KEATING, Massachusetts 

DAVID CICILLINE, Rhode Island 

ALAN GRAYSON, Florida 

JUAN VARGAS, California 

BRADLEY S. SCHNEIDER, Illinois 

JOSEPH P. KENNEDY III, Massachusetts 

AMI BERA, California 

ALAN S. LOWENTHAL, California 

GRACE MENG, New York 

LOIS FRANKEL, Florida 

TULSI GABBARD, Hawaii 

JOAQUIN CASTRO, Texas

AMY PORTER, Chief of Staff THOMAS SHEEHY, Staff Director

JASON STEINBAUM, Democratic Staff Director 

SUBCOMMITTEE ON ASIA AND THE PACIFIC

STEVE CHABOT, Ohio, Chairman 

DANA ROHRABACHER, California 

MATT SALMON, Arizona 

MO BROOKS, Alabama 

GEORGE HOLDING, North Carolina 

SCOTT PERRY, Pennsylvania 

DOUG COLLINS, Georgia 

ENI F.H. FALEOMAVAEGA, American 

Samoa 

AMI BERA, California 

TULSI GABBARD, Hawaii 

BRAD SHERMAN, California 

GERALD E. CONNOLLY, Virginia 

WILLIAM KEATING, Massachusetts 

(III)

C O N T E N T S 

Page

WITNESSES 

Mr. Mikkal E. Herberg, Research Director, Energy Security Program, The 

National Bureau of Asian Research ................................................................... 7

Ms. Jane Nakano, Fellow, Energy and National Security Program, Center 

for Strategic and International Studies ............................................................. 14

Ms. Diane Leopold, President, Dominion Energy, Dominion ............................... 23

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Mr. Mikkal E. Herberg: Prepared statement ........................................................ 9

Ms. Jane Nakano: Prepared statement ................................................................. 16

Ms. Diane Leopold: Prepared statement ................................................................ 25

APPENDIX 

Hearing notice .......................................................................................................... 48

Hearing minutes ...................................................................................................... 49

The Honorable Gerald E. Connolly, a Representative in Congress from the 

Commonwealth of Virginia: Prepared statement .............................................. 50

(1)

ENERGY NEEDS IN ASIA: THE U.S. LIQUEFIED 

NATURAL GAS OPTION 

THURSDAY, MAY 29, 2014

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON ASIA AND THE PACIFIC,

COMMITTEE ON FOREIGN AFFAIRS,

Washington, DC. 

The committee met, pursuant to notice, at 2 o’clock p.m., in room 

2172 Rayburn House Office Building, Hon. Steve Chabot (chairman 

of the subcommittee) presiding. 

Mr. CHABOT. Good afternoon, and welcome to this afternoon’s 

subcommittee hearing. I want to thank the gentleman from California, Mr. Bera, for serving as today’s ranking member and also 

thank our distinguished panel of witnesses here this afternoon for 

joining us. We will get to them in just a minute. 

This hearing was called to examine the growing need for liquefied natural gas, LNG, in Asia and the United States’ role in supplying this energy resource to the region. As Asia’s economy continues to rapidly grow, and its population increases, it will unquestionably drive the demand for energy ever higher. Countries in the 

region are looking for accessible, reliable, and cheap energy, and 

because of the natural gas boom here in America, the U.S. is evolving into an ideal choice to supply countries thirsty for this resource. 

If the U.S. chooses to become a net exporter of LNG and it can 

manage to reach agreements with major consumers, it will not only 

strengthen our strategic alliances but it will also aid in the recovery of the U.S. economy. 

According to the International Energy Association, global energy 

demand will increase by 43 percent by 2035 and much of this rising 

demand will be due to the growing Asian economies. China alone 

is expected to consume two times the amount of energy as the 

United States and will account for around 25 percent of the total 

world energy demand. In Japan, the Fukushima disaster resulted 

in a near total shutdown of its nuclear reactors and as a result, it 

is now paying some of the highest prices in the world for LNG—

almost $15 per unit last month—to make up for its energy shortfall. 

Due to these rising costs, Japan and India, in particular, are reviewing potential suppliers of LNG in an effort to obtain gas that 

is less expensive than that provided by current suppliers such as 

Malaysian, Indonesian, Australian and Qatari gas, which is linked 

to the price of oil—U.S. gas is not. It would seem to me that supplying gas that is not determined by the price of oil would be conVerDate 0ct 09 2002 14:06 Aug 05, 2014 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 F:\WORK\_AP\052914\88106 SHIRL
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siderably beneficial for the Asian market, as well as for U.S. suppliers. To do this, I believe it is critical that the administration increase the pace at which it is working to make U.S. LNG supplies 

more accessible to countries such as India and Japan, so that U.S. 

supplies can satisfy Asia’s increasing demand. 

Here in the U.S., we are producing over 70 billion cubic feet of 

natural gas per day and by 2017 we may produce more natural gas 

than we consume. Net energy imports are expected to fall to as low 

as 4 percent by 2040 and according to some experts, we could be 

completely energy self-sufficient even sooner. 

Just a few years ago, the U.S. required LNG import terminals to 

relieve our demand for gas; those terminals will now function as 

LNG export terminals as they undergo conversions and companies 

build their liquefication capabilities. We currently have a temporary export capacity of 7 billion cubic feet per day but we have 

the capacity to export up to 38 billion cubic feet per day if all applications for LNG export are approved. And not surprisingly, U.S. 

producers are lining up to supply the global market with this abundant stock of LNG where, a large portion of these natural gas supplies will be sold to countries throughout Asia. 

The increase in unconventional energy production has already resulted in significant benefits for the U.S. economy. Perhaps one of 

the greatest impacts of this new energy abundance is the effect 

that it has had on domestic employment. In 2012, over 2 million 

jobs were either directly or indirectly the result of unconventional 

energy production. It also has decreased the trade deficit by more 

than $164 billion over the last 5 years. Manufacturing has been revitalized. Many small towns in rural regions have experienced a 

surge in economic growth. Moreover, the thriving natural gas industry has afforded the U.S. a strong competitive global advantage. 

We should encourage an American competitive edge—particularly 

in light of ongoing conflicts in the Middle East and Russia’s recent 

behavior. 

Supporting LNG exports to Asia—the region with the greatest 

future energy demand—should be a crucial component of this administration’s strategic rebalance toward Asia. Ensuring our allies’ 

and partners’ energy security will demonstrate the U.S.’ commitment to the region. Many of my colleagues and I have insisted that 

the administration support the rebalance with tangible actions as 

opposed to thinly defined proclamations. Promoting LNG exports is 

a perfect way to do so. 

U.S. LNG also offers a safe and reliable option to countries in 

Asia which may otherwise purchase gas from states that often neglect the rule of law, such as Russia and Iran. In fact, just last 

week, China signed a $400 billion deal to import natural gas from 

Russia for the next 30 years. This follows Russia’s announcement 

that it plans to increase its presence in the Asia-Pacific markets to 

broaden its exports and attract investment. 

Now is the time for the United States to seriously consider undertaking a more significant role in Asia’s energy markets. A 

strong and engaged U.S. economic presence in Asia will ensure 

that our regional allies have a reliable access to the energy supply 

they need and will help to support our strategic interests. 

3

I think we all look forward to hearing from our distinguished 

witnesses this afternoon and I would now like to yield to Mr. Bera 

for 5 minutes to make an opening statement. 

Mr. BERA. Thank you, Chairman Chabot, and thank you to the 

witnesses for being here. This is an incredibly important conversation for us to have as we start to review our current positions but 

then also look at future policies on U.S. energy security and LNG 

exports. 

We know that demand for LNG exports certainly is steadily rising partly in—because of the necessity of coming up with more environmentally friendly fuel sources and we know LNG produces 

less emissions and pollutants as compared to the oil and coal industries. 

I also recognize as we debate and look at our policy for LNG exports that there is an opportunity by increasing exports to 

strengthen and stabilize our U.S. allies, and that is an important 

component of this discussion at the same time while reducing our 

nation’s trade deficits. 

In addition, as we look at liquid natural gas and look at natural 

gas in general we also have to be mindful of the domestic opportunities that we have here in keeping our energy prices at a very 

competitive level, particularly as we set policies and revive a manufacturing sector here at home. You know, this energy renaissance 

does give us a real opportunity here to revive manufacturing and 

make us more globally competitive. 

So that is certainly another component in this. When we think 

about what LNG exports can do, you know, I am going to use an 

example of one of my colleagues, a close friend, Dr. Charles 

Boustany, who represents the Third District in Louisiana, and here 

is what it means to his district. 

Sempra is one of the three largest LNG export facilities in Louisiana and it was recently permitted by the Department of Energy 

to export to non-FTA countries. The estimates there are that they 

will add 130 high-paying direct jobs while retaining 60 existing 

jobs. 

In addition, Sempra will be able to create an additional 610 new 

permanent jobs along with 3,000 construction jobs during peak activity. That is not a small amount and certainly is an important 

component of this. 

That said, as I mentioned before, we have to understand some 

of the concerns as we increase LNG exports of the possible ramifications on gas prices here domestically in the United States and 

that does have to be a component of this as well as the environmental impact that additional LNG production will have. 

As a nation, we have got to be responsible and prudent when it 

comes to health and safety standards as well in regards to energy 

production. I do believe that we need to move toward a clean energy future that will protect the health of the our families and protect our planet. 

The increased use of natural gas both in the U.S. and abroad is 

one of those components that can help us address our future environmental concerns and help reduce carbon emissions that contribute to global warming. 

4

In addition, increased use of natural gas will reduce the levels 

of other pollutants and, you know, certainly, will help us reduce 

our reliance on coal and can help us with some of our ally countries. 

The path to clean energy will require a skilled labor force that 

works together to power a cleaner, more efficient society and, you 

know, again, as we debate LNG exports and look at this from multiple different facets let us certainly keep climate change in mind, 

other pollutants in mind. 

At the same time, let us make sure we are doing things strategically both to create domestic jobs and domestic employments both 

in the export phase but then also keep manufacturing in mind. 

So I look forward to the testimony of our witnesses and, certainly, I yield back. 

Mr. CHABOT. Thank you. The gentleman yields back. 

The gentleman from Pennsylvania, Mr. Perry, is recognized for 

1 minute to make an opening statement. 

Mr. PERRY. Thank you, Mr. Chairman. Thank you to the testifiers for being here. Over the past 3 years, just seven of the applications to export natural gas to non-free trade agreement countries 

have received Department of Energy approval while 23 are still 

pending. 

If all the approved non-FTA projects were constructed and operating, the United States would be second only behind Qatar with 

the most LNG export capacity. Increased natural gas exports could 

also put into action the Obama administration’s stated foreign policy goal of a pivot to Asia. 

As in Europe, U.S. LNG exports have the potential to weaken 

the market power of incumbent LNG providers to Asia such as 

Russia by increasing the negotiating power of consumers while providing a supply that is free from politically-based disruptions. 

Also, increased U.S. exports could provide partners in Asia and 

elsewhere a stable supply in the event of further violence in the 

Middle East. 

With that, I look forward to hearing the testimony and I yield 

back. 

Mr. CHABOT. The gentleman yields back. The gentleman from 

California, Mr. Sherman, who is the ranking member of the Terrorism, Nonproliferation, and Trade Subcommittee, is recognized 

for 1 minute to make an opening statement. 

Mr. SHERMAN. Mr. Chairman, I enjoyed our trip to Asia and 

there is one thing I learned from Randy Weber and that is there 

are five ports in the 14th Congressional District of Texas and according to Randy every one of them ought to have an LNG export 

facility. 

If we were to grant all the licenses that Randy would propose, 

we would raise production of natural gas in the United States. We 

would raise the price of the natural gas in the United States. 

Our manufacturers would lose the competitive advantage they 

have over Asian manufacturers since they are paying about a third 

for the natural gas that the Asian manufacturers are. 

I mean, the Asian manufacturers, if we exported to Asia, would 

see a lower cost of natural gas and would become even more ferocious competitors. 

5

From an environmental standpoint, if increased natural gas production displaces coal that is good for global warming. I have got 

a lot of environmentalists who think it will simply displace conservation, that somehow everyone will live like my friend Ed 

Begley if only—if only we can stop every energy production and all 

energy exports. 

Finally, I believe in the full committee there was considerable 

discussion of how exporting natural gas to the Ukraine would be 

a way to deal with Russia, and I pointed out then and I should 

point out here the Japanese and others in Asia will pay at least 

50 percent more for that natural gas than the Ukrainians are used 

to paying the Russians for the natural gas. 

So not—so far I have seen no proposals to increase our U.S. taxes 

so that we can subsidize Ukrainian purchases of American natural 

gas. That being the case, I think that if we are going to be exporting natural gas it will be within the jurisdiction of this subcommittee, and I yield back to its chairman. 

Mr. CHABOT. Thank you very much. The gentleman yields back. 

The gentleman from California, Mr. Rohrabacher, who is the 

chairman of the Europe, Eurasia, and Emerging Threats Subcommittee, is recognized for a minute to make an opening statement. 

Mr. ROHRABACHER. Thank you very much, Mr. Chairman. Let us 

just get this straight. Providing natural gas, whether it is through 

LNG or any other way, to people who want to buy it and need it 

is not a hostile act toward Russia. 

Unfortunately, too many people are basically describing this 

within that framework. Increasing the level of energy in the world 

and increasing the productivity and the actual—facilitating the distribution of natural gas or any other energy source is not hostile 

toward any one country and in fact it is increasing the wealth level 

of all people. 

That is why I would suggest that we should be supporting every 

effort to increase whether it is liquefied natural gas or sales to various countries but we should also be supporting the various pipeline proposals that we see in various parts of Asia today and we 

should be, of course, supporting the development of our own natural gas resources in the United States. 

These are all positive things so let us not get too caught up in 

the strategic chess game to know that what we are really talking 

about is people having more energy to live better lives, whoever 

they are. 

Thank you very much, Mr. Chairman. 

Mr. CHABOT. Thank you. The gentleman yields back. 

The gentleman from North Carolina, Mr. Holding, is recognized 

for 1 minute. 

Mr. HOLDING. Thank you, Mr. Chairman. As energy demands 

rapidly increase in the Asia-Pacific region because of growing population and manufacturing needs, Asian nations are looking for any 

opportunity to import new supplies. 

Mr. Chairman, Asia is energy hungry. With the new technologies 

unlocking once unrecoverable resources in our nation, America is 

energy rich. 

6

With all the talk about our rebalance to Asia, we hear a lot from 

the administration about increasing our diplomatic presence and 

strengthening our mil-to-mil cooperation with our Asian partners. 

Increasing our energy ties specifically through export of LNG 

should be at the forefront of the rebalance discussion given the geopolitical implications. I look forward to this hearing. 

I look forward to hearing from our witnesses today about the 

unique position we are in right now to expand our LNG exports to 

Asia. 

Thank you, Mr. Chairman. I yield back. 

Mr. CHABOT. Thank you, and the Chair thanks all the members 

for their opening statements. I thought every one of them was 

quite good and I will now introduce the panel here this afternoon. 

We will begin with Mikkal E. Herberg, who is the research director of National Bureau of Asian Research’s Energy Security Program. He is also a senior lecturer at the Graduate School of International Relations and Pacific Studies, University of California, 

San Diego. Previously, Mr. Herberg spent 20 years in the oil industry in strategic planning roles for ARCO where he was director for 

global energy and economics. He also headed country risk analysis 

and was responsible for advising executive management on risk 

conditions and investment strategies in regions where ARCO had 

major investments. Prior to that, he worked as the director of portfolio risk management and director for emerging markets at ARCO. 

Mr. Herberg writes and speaks extensively on Asian energy issues, 

the energy industry, governments and major research institutions 

globally and we welcome you here this afternoon. 

I would next like to introduce Jane Nakano, who is a fellow in 

the Energy and National Security Program at the Center for Strategic and International Studies. Her areas of research include energy security issues in Asia, global nuclear energy trends and global natural gas market dynamics. Prior to joining CSIS, she was 

with the Department of Energy and served as the lead staff on U.S. 

energy engagements with China and Japan. She was responsible 

for coordinating Department of Energy engagement in Asia and she 

has worked extensively with China, Japan, Indonesia, North Korea 

and the Asia Pacific Economic Cooperation. 

Previously, she served at the U.S. Embassy in Tokyo as special 

assistant to the energy attache ́. Ms. Nakano holds a bachelor’s degree from Georgetown University School of Foreign Service and a 

master’s degree from Columbia University School of International 

and Public Affairs. We welcome you here this afternoon. 

Finally, we have Diane Leopold, who served as president of Dominion Energy since January of this year. Previously, she held 

management roles in several business units. Most recently, she 

worked as senior vice president of Business Development and Generation Construction and senior vice president of Dominion Transmission. Prior to her work with Dominion, she has held several engineering positions at Potomac Electric Power Company. Ms. 

Leopold sits as a vice president of the board of trustees of the Virginia Commonwealth University Foundation and is also a member 

of the board of directors of the Interstate Natural Gas Association 

of America. She received her bachelor’s degree in mechanical and 

electrical engineering from the University of Sussex and a master’s 

7

degree in electrical engineering from George Washington University. She also holds an MBA from Virginia Commonwealth University and we welcome you here this afternoon, Ms. Leopold. 

I am sure that the witnesses are probably familiar with our 5-

minute rule. Each of you will have 5 minutes to testify. A yellow 

light should come on when you have about a minute to wrap up, 

then the red light comes on. If you could wrap up as quickly as possible, we would greatly appreciate it. 

Mr. Herberg, you are recognized for 5 minutes. 

STATEMENT OF MR. MIKKAL E. HERBERG, RESEARCH DIRECTOR, ENERGY SECURITY PROGRAM, THE NATIONAL BUREAU 

OF ASIAN RESEARCH 

Mr. HERBERG. Thank you, Chairman Chabot, Ranking Member 

Bera, distinguished members of the subcommittee. Thank you for 

inviting me to share my views on prospects for U.S. LNG supplies 

to Asia. 

It is hard to overstate how important LNG is to the energy and 

economic outlook in Asia. Asia is two-thirds of the global LNG market. Japan alone is more than one-third of the global LNG market. 

LNG meets 100 percent of Japan’s natural gas needs as well as 

South Korea, Taiwan, key allies in the region. So LNG looms very 

large in Asia’s economic future so I think the U.S. opportunity to 

supply large amounts of LNG is, you know, the proverbial win-winwin. 

It helps allies, provides more supplies, reduces the potential for 

single suppliers or few suppliers to dominate the marketplace and 

in a lot of ways it is—you know, it is clean energy. Places like 

China and India so dependent on coal, we need to do everything 

we can to encourage more natural gas use in Asia. 

So I think this is one of those really positive opportunities we 

have. Lots of supplies heading toward Asia from a variety of places. 

Australia is gearing up to become the largest LNG exporter very 

soon by the end of the decade. 

Russia—probably two big projects will come online in Russia in 

the next 10 years, although that is subject to a lot of Kremlin politics, East Africa offshore and, of course, the U.S. supplies. 

U.S. supplies are already benefiting Asia. There were huge 

projects coming online from Qatar in 2009, 2010 and 2011 that 

were destined for the U.S. market, which we thought was going to 

be a large LNG importer. 

Well, that gas not coming here was available to meet Japan’s increased needs in the wake of the Fukushima crisis. Otherwise, Japan’s problem and Asia’s LNG problem would have been much, 

much worse than it turned out to be. So we are already—we are 

already benefiting the region. 

This issue of the supply in the U.S. domestic market, at $4.50 

gas prices here and transported to Asia we are talking about $10 

or $11 LNG supplies from the U.S. into Asia. That looks good when 

$15 is the current LNG price. 

But all you have to do is raise U.S. domestic gas prices by a little 

bit and reduce Asian LNG prices by a little bit and at $12 or $13 

it becomes a wash. So in a sense the market—shipping to Asia will 

be limited in effect by the marketplace at—probably at a relatively 

8

modest U.S. domestic natural gas price. I think that is an important element to keep in the discussion. 

The key beneficiaries, clearly, will be Japan, South Korea. Japan 

has contracts already for 17 million tons of U.S. LNG in the current projects. They are partners in four of the largest projects. 

They are desperately looking forward to increased supplies from 

the U.S. both as an incremental supply, as a diversification to a secure supply source as well as the introduction of Henry Hub market flexible pricing into this very rigid oil-linked pricing system for 

LNG in Asia. That is what gets you $15, $16, $17 LNG prices 

today. 

So the introduction of the new pricing mechanism is critical to 

the Asian LNG consumers, particularly Japan and South Korea. So 

I think it is important that both of them will benefit tremendously 

from the additional supply and, obviously, these are key strategic 

partners in Asia and I think that is a very direct benefit and 

strengthen our ties. 

It is not an accident that LNG exports to Japan were mentioned 

in the most recent visit of President Obama to Japan. It is critical 

on their list. I think the best way to bolster the impact of our LNG 

exports is largely let the market works maximize the amount of 

LNG going to Asia and maximize the development of shale gas development here in the U.S. 

Of course, with the proper regulatory safeguards I think that is 

critically important. It means lower prices, diversified supplies and 

other benefits for the region. 

And it is probably going to be a very important potential benefit 

relationships both with India and China. China is going to be a 

huge LNG importer in the future and some of this gas—LNG will 

make its way to China. 

One final point—more gas, more LNG to Asia—the gas—the 

LNG market is not a global market. It is a highly regionalised market. But as our gas goes to Asia in significant supplies, that is 

going to at the margin displace swing producer LNG from places 

like Qatar and West African LNG producers and that gas is going 

to eventually make its way to Europe. 

So indirectly that gas can feed into a more diversified LNG and 

gas supply in Europe and we all know those issues related to Europe’s heavy dependence on Russia. It is not one to one. Europe has 

to get their pipeline system straightened out because you cannot 

wheel gas around the region effectively given the pipeline constraints and national monopolies. 

That is important for Europe to get straightened up. But our 

supplies will displace and shift supplies toward Europe and I think 

that is critically important. So I will stop with that. 

I think we have got a lot of benefits that can come from this. 

With the proper regulation of the shale gas development we have 

an opportunity to really be an important source of gas and energy 

security to Asia. 

Thank you. 

[The prepared statement of Mr. Herberg follows:]

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Mr. CHABOT. Thank you very much. 

Ms. Nakano, you are recognized for 5 minutes. 

STATEMENT OF MS. JANE NAKANO, FELLOW, ENERGY AND NATIONAL SECURITY PROGRAM, CENTER FOR STRATEGIC AND 

INTERNATIONAL STUDIES 

Ms. NAKANO. Good afternoon, Chairman Chabot, Ranking Member Bera and members of the subcommittee. Thank you for the opportunity to testify about the future of liquefied natural gas demand in Asia and the role of U.S. LNG supplies. 

It is an honor to appear before the subcommittee and address 

this very important topic. In the interests of time, I will provide a 

brief overview of my written testimony and look forward to providing more detail during the question and answer period. 

Even before the U.S. LNG shipments to Asia begin later this decade, the ascent of the United States as a major natural gas producer has already demonstrated U.S. strengths to the regional 

players. 

For example, during the supply uncertainty after the Fukushima 

nuclear crisis, the Persian Gulf gas supplies once destined for the 

United States prevented a serious supply shortage in Asia. 

Also, by delivering a range of macroeconomic benefits, the robust 

development of shale gas together with tight oil has dampened the 

United States in decline narrative that emerged after the economic 

recession of 2008, especially in China. Moreover, the U.S. new energy posture is starting to defuse the geopolitical undertone in Japan’s energy relationship with Russia. 

The most likely U.S. bilateral relationship to benefit from U.S. 

LNG supplies is, in my judgment, U.S.-Japan. U.S. LNG supplies 

would help Japan address its post-Fukushima energy and economic 

security challenges and the improved economic health of Japan, a 

key U.S. ally in the region, in turn would further U.S. ability to 

advance national security objectives in Asia. 

Also, in terms of volume, Japan will likely be the largest buyer 

of U.S. LNG. Japan’s large LNG import capacity, the uncertainty 

over nuclear energy and its robust investment commitment in U.S. 

shale and U.S. export projects support my judgment. Specifically, 

about a quarter of the U.S. LNG exports approved to date is expected to go to Japan. 

One country in Asia that serves as a significant variable is 

China, which is forecast to overtake South Korea as the second 

largest global LNG importer by 2020. However, its domestic shale 

gas potential, the future volume of pipeline gas import from Central Asia and Russia and the notable absence of Chinese investment commitment in U.S. LNG export projects render it difficult 

for me to envision China becoming one of the largest importers of 

U.S. LNG. 

As remarkable as the effects of the U.S. shale gas revolution are, 

there is an inherent danger in extrapolating that LNG resources 

accord significant geopolitical leverage to the United States. 

There is a limit to which privately-held and market allocated resources such as oil and gas could be successfully employed to deliver a specific geopolitical or strategic outcome. 

15

Furthermore, caution is warranted in extrapolating the extent to 

which U.S. LNG supplies may fundamentally alter the energy relationships between importer countries in Asia and their traditional 

gas suppliers. 

First, by early next decade the Asian LNG market is expected to 

see new volumes of supplies from new LNG projects in places like 

Australia and fierce competition may emerge among LNG suppliers. The pace of U.S. LNG export approval greatly influences the 

degree to which the U.S. LNG supplies can gain a foothold in Asia. 

Second, as a series of U.S. export projects come to fruition later 

this decade, the price differential between U.S. and non-U.S. gas 

supplies may narrow to the extent that the economic benefit from 

U.S. LNG may be negligible. 

Third, energy export is central to the economic health of many 

of the traditional supplier countries and many Asian stakeholders 

believe that the centrality of energy revenue combined with their 

vast resource levels continue to make them reliable trade partners. 

Finally, there are factors exogenous to the U.S. energy posture 

that are likely to greatly influence the level of LNG exports from 

Qatar and Malaysia in the future. 

A range of factors renders it difficult to forecast the trajectory of 

future LNG demand outlook for individual countries in Asia or the 

future composition of LNG suppliers to Asia. 

Yet the United States has an important role to play for the 

greater security of energy supply in Asia and around the world by 

continuing to espouse principles such as free trade and transparency that are essential for the sound working of the international energy marketplace and the resultant free flow of oil and 

gas. 

The stability that U.S. LNG supplies can induce and/or enhance 

in Asia is an understated yet significant asset that can underpin 

the continued U.S. leadership in the region. 

Thank you for your time and opportunity to address the subcommittee. I look forward to your questions. 

[The prepared statement of Ms. Nakano follows:]

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Mr. CHABOT. Thank you very much. 

Ms. Leopold, you are recognized for 5 minutes. 

STATEMENT OF MS. DIANE LEOPOLD, PRESIDENT, DOMINION 

ENERGY, DOMINION 

Ms. LEOPOLD. Thank you and good afternoon, Chairman Chabot, 

Ranking Member Bera and members of the subcommittee. Thank 

you for the opportunity to appear before the subcommittee. 

I am here today because of Dominion Cove Point. This is an LNG 

import terminal that has been located on the Chesapeake Bay in 

Maryland for nearly 40 years. Thanks to the recent and growing 

abundance of natural gas supplies in the United States, LNG imports to the U.S. have nearly come to a halt. 

Where Cove Point used to unload about 85 LNG tankers a year, 

we now can go months without one. The story is much the same 

at most other U.S. import terminals. Rather than a business disaster, however, we see a once in a generation opportunity. It is a 

significant opportunity for the United States to benefit economically, environmentally and geopolitically. Dominion plans to invest nearly $4 billion in Cove Point to add 

export capabilities, primarily equipment to liquefy natural gas delivered by an existing pipeline. Ours is one of more than 40 proposed LNG export projects in the U.S. 

For a variety of reasons, however, many experts believe that ours 

will be one of only about half a dozen to be built. Numerous studies 

have quantified the positive impacts that LNG exports will have on 

the U.S. economy. Even just a handful of LNG export terminals 

will create many thousands of construction jobs, hundreds of permanent jobs at the terminals. 

There will also be thousands more jobs in the manufacturing of 

the equipment. Once operational, the terminals will support tens of 

thousands of additional jobs throughout the supply chain of producing, processing and transporting natural gas to the terminals. 

Billions of dollars of new tax revenue will flow to Federal, state 

and local economies and the U.S. trade deficit will be reduced by 

tens of billions of dollars annually. 

In searching for customers, we literally circled the world. Ultimately, we signed 20-year contracts with Sumitomo, a Japanese 

global trading company, and GAIL, one of the largest natural gas 

companies in India and majority owned by the government. 

Sumitomo, in turn, contracted with Tokyo Gas and Kansai Electric to serve the needs of their respective customers within Japan. 

Japan needs natural gas for power generation to help make up for 

the closure of its entire nuclear fleet following the Fukushima disaster. 

India, the fifth largest importer of LNG, needs it largely for 

power generation, often supplanting coal and to support the country’s rapidly growing economy. 

Given the global competition to support these markets, it is unlikely the U.S. will be able to supply the lion’s share of LNG demand for India or Japan. Our facility will only produce a sliver of 

global demand. But that was fine with our business partners. 

What both customers told us was that they wanted a stable, secure, reliable source of LNG as an important part of their portfolio. 

24

This was not only because the U.S. offered a plentiful reliable 

source of natural gas itself but also because the natural gas was 

coming from a key political ally. 

Both countries are focused on energy security and creating a diverse portfolio of supply sources. In addition, they wanted a market 

where they could buy natural gas at a price not linked to oil. That 

is why they turned to the United States and Dominion. 

At the same time, the exports will not have a significant impact 

on U.S. prices. Export volumes will be relatively small in comparison to the nation’s production capabilities and the cost of liquefying, transporting and regasifying natural gas is a total of about 

$7 per 1,000 cubic feet. 

This will allow U.S. manufacturers to keep a significant price advantage. Natural gas that sells in the U.S. for $4.50 will have a 

delivered price of $11 to $12 in Asia. 

Finally, I would be remiss in not noting that LNG exports will 

also have environmental benefits. U.S. natural gas displacing coal 

abroad in power production can reduce greenhouse gas emissions 

by as much as 50 percent. LNG shipped from Cove Point alone 

could reduce global greenhouse gas emissions by millions of tons 

each year. 

In summary, we believe LNG exports to Asia and the Pacific will 

have a significant benefit for the United States and our trading 

partners. 

It will help the U.S. economy and trade deficit, it will help reduce global greenhouse gas emissions and it will strengthen the energy security of our allies. 

Thank you. 

[The prepared statement of Ms. Leopold follows:]

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Mr. CHABOT. Thank you very much, and I will yield to myself for 

5 minutes to begin with the questioning. I would ask any of the 

folks who would like to comment to do so, relatively briefly, if you 

would. 

What U.S. policies or regulations, currently in effect, are limiting 

our ability either presently or in the future to do what we are talking about here today, which is trying to export more LNG from the 

U.S., create jobs here and improve our trade to Asia? I open that 

up to anybody that would like to take it. 

Mr. HERBERG. Well, I don’t think there is too much magic in this. 

I think it is—you know, we need to encourage the gas production 

side. I mean, think about this. 

The Marcellus gas field is—within a year or two will become the 

largest natural gas-producing field in the world, larger than North 

Dome Qatar field, the west Siberian oil and gas fields. 

So we have this enormous capacity to increase gas production. So 

I think policies that will encourage effective regulation, which provides public confidence that shale gas drilling can be done environmentally—in an environmentally sound way, that is a critical part 

of this to increase shale gas production. 

And, obviously, the permitting process, the environmental process, Department of Energy, FERC—this whole process is really a 

very long process that could be speeded up, I believe, and the market opportunity is there. It is an intense competitive environment. 

So I think those are the kinds of things that would make this happen faster. 

Mr. CHABOT. Okay. Thank you. 

How has the Japanese evolving energy policy since Fukushima 

impacted their ability, interest, or their need to get more natural 

gas from us, and where are they now? Because immediately there 

was this almost knee jerk reaction we are going to shut them all 

down and that, apparently, has evolved to maybe we will shut 

some down, not others. Who would like to take that? Ms. Nakano. 

Ms. NAKANO. Thank you for the question. 

Prior to the Fukushima, Japan did have a fairly diversified energy profile where nuclear supplied about a third of its power generation and then fossil fuel had probably about 50 percent. They 

were looking at renewables combined, including hydro power as 

well. 

Nuclear was definitely central to their energy security strategy. 

But Fukushima very much changed the environment—both political environment but then also technically the 54 nuclear reactors 

had to come offline. And so the idea to promote the use of nuclear 

in its domestic power mix had to be reconsidered. 

Prior to—again, prior to Fukushima the idea was to increase its 

share of nuclear to about 50 percent of its power generation. So following Fukushima, the Japanese turned to cheaper sources of natural gas but particularly the U.S. They do have a long-standing 

business relationship with countries such as Qatar, Australia and 

also Russia supplies about 10 percent of their import needs. 

But the United States looked particularly attractive to the Japanese because of the gas-to-gas competition—deregulated gas prices 

within the United States. Looking forward, their energy policy 

34

making is very much in flux and the national leadership hopes to 

come—bring some share of nuclear reactors back online. 

However, the public sentiment or the public anxiety over the 

safety of existing nuclear reactors still runs quite high. There are 

a couple court challenges that are in the way of companies and also 

their nuclear regulatory body to restart nuclear reactors. 

Mr. CHABOT. Thank you. Let me cut you off there, if I can. I have 

a little less than 1 minute left and I wanted to get one more question in. 

Trade agreements like the Trans-Pacific Partnership, or TPP, 

cover a wide range of issues. My question is, what is the potential 

impact of TPP on U.S. LNG exports and trade in the Asia-Pacific 

region? 

Ms. Leopold, do you want to take that since—you could have answered the other ones. 

Ms. LEOPOLD. I could have answered the other one as well as 

these—or this one. 

Mr. CHABOT. All right. Well, who would like to take this one? Mr. 

Herberg. 

Mr. HERBERG. Well, in terms of the Japanese market, all these 

approvals of non-FTA export arrangements in a sense makes the 

TPP moot in the sense of LNG exports, I believe. There is not any 

really specific elements of that. 

Assuming—you know, so Japan, South Korea is a free trade 

agreement partner so there is no issue there. These approvals have 

covered many other places like India and elsewhere that are nonfree trade agreement countries. 

So I think from the Japanese perspective particularly, they see 

the TPP as something that is enshrines—in a sense enshrines the 

durability of U.S. commitments to export LNG because there is a 

little bit of worry that we might—if U.S. gas prices really spike in 

the future, that there be a domestic debate about cutting back on 

those LNG exports even though they have been approved. There is 

some concern of that on the Japanese part. 

Mr. CHABOT. Thank you. And I will conclude that arguably, if 

TPP ultimately does get approved on all sides and it does increase 

the trade opportunities, the economies will hopefully thrive and 

grow, and therefore there will naturally be more of a need for energy to feed that growing economy. As a result, hopefully we will 

be able to export more gas to the region. 

I will cut myself off there and now recognize the gentleman from 

California, Ranking Member Mr. Bera, for 5 minutes. 

Mr. BERA. Thank you, Chairman Chabot. 

Mr. Herberg, you just touched on, I think, the complexity of balancing our domestic needs and domestic advantages that this LNG 

and energy revolution that is happening here in the United States 

offers us but balancing that with, obviously, some market opportunities abroad. 

Let me make sure I got the pricing correct here. Our domestic price currently is about $4.50. The current Asian market price is 

about $15. 

Is that—so, you know, when I had a chance to visit India this 

past summer and chat with some of the Indian multinationals and 

as they are making their strategic manufacturing decisions and so 

35

forth, a component in that is as some of the Asian advantage in 

lower payroll starts to wane and payroll goes up—goods that they 

are manufacturing to sell to us here domestically they really are 

factoring in the lower energy costs. 

And as they are building those factories and so forth there is a 

real opportunity for us to be very competitive, to—you know, when 

you factor in cost of transport from, let us say, India or China to 

the United States, costs of higher energy costs, we need to make 

sure we don’t shoot ourselves in the foot here when we have this 

policy. 

And I think—I would be curious on your thoughts on that and 

I do know there is a benefit here as well because there are market 

opportunities overseas. So Mr. Herberg. 

Mr. HERBERG. I mean, this is, obviously, an important part of the 

discussion and I think it is important to be balanced. But it is also 

important, I think, to understand the market dynamics of this because, yes, you have $15, $16 LNG prices today in Asia. 

But in effect that is an aberration. That started in 2009 and accelerated to 2011 with the Fukushima. Remember Japanese LNG 

demand went from 70 million tons to 90 million tons in 2 years. 

That was a shock on the demand side in the Asian LNG market. 

Now, if you look forward to 2015, 2020, 2022, you are going to 

have a lot of LNG coming to Asia from Australia, Russia, the U.S., 

elsewhere. I think there is a prevailing view in the industry that 

LNG prices are likely to come back down toward a more normal 

range of, say, $13—$12, $13. 

Now, U.S. gas prices—up to about $6 you got $6 or $6.50 liquefaction and transportation. At about $12 or $13 LNG prices in Asia 

and $6 gas in the U.S. the investment decision to send gas—LNG 

to Asia becomes a wash. So in effect it is partly self-limiting and, 

you know, $6 gas here is not as good as $4.50 gas. 

But I think it is still wildly cheap on a global competitive basis. 

And so I think the market dynamics are important to understand 

here. 

Mr. BERA. I just want to make sure that this is a major component, you know, particularly where in my home state of California 

we are still grappling with 8 percent unemployment and you are 

still—you know, we have seen decades of loss of manufacturing jobs 

and there really is an opportunity for us to revive on a manufacturing basis here in the United States. 

Certainly, again, we don’t want to lose the market opportunities 

overseas as well and there is—certainly, with our allies we certainly want to help support them. But at the same time, we don’t 

want to sacrifice this competitive advantage. Ms. Leopold, did you 

want to add? 

Ms. LEOPOLD. Yes. The two things that I would add is, as Mr. 

Herberg had discussed—Marcellus and the fact that it is growing—

the supply is there. 

There is a very large surplus and technology is continuing to improve to increase the economic recoverable reserves here. So there 

is ample gas right now to meet these market needs. And I will echo 

that the international market is somewhat self-limiting. 

There is a lot of international competition to meet these LNG 

supplies such as Australia and others that at a certain natural gas 

36

price the competitive advantage of having the $4.50 gas goes away. 

If natural gas prices go up too much they will look elsewhere. 

Mr. BERA. So let us stick with this line of—you know, let us say prices in Asia normalize and come down to the $12 or $13. So if 

I am sitting at my natural gas company here domestically there is 

going to be overwhelming pressure to say, you know, I can sell here 

domestically at $6 or to Asian markets at $13. 

We do have to be very conscious that, you know, that is going 

to be a very compelling drive, that we don’t want to sacrifice this 

real potential to revive the manufacturing base here in America. So 

I will just inject that into the conversation. Thank you. 

Mr. HERBERG. Could I just make one quick comment? I have told 

my friends in Japan very often Henry Hub U.S. flexible pricing is 

no guarantee of low LNG prices because, you know, there is the 

U.S. market issue. 

But even with that, in a sense we will be wildly competitive even 

in that scenario. You can’t go below $12 or $13 in Asia because you 

can’t get it—nobody can really deliver it in there for less than that, 

given that huge transportation issue, and Europe is stuck at $9 or 

$10. 

So we are still going to have a huge competitive advantage in, 

I think, in what you can call a worst case. 

Mr. CHABOT. Gentleman’s time has expired. The gentleman from 

Pennsylvania, Mr. Perry, is recognized for 5 minutes. 

Mr. PERRY. Thank you, Mr. Chairman. I will start out with Mr. 

Herberg and your comments regarding Marcellus shale. Being from 

Pennsylvania, I will note not from shale country but still very interested. 

One of the—we have a governor’s race going on and one of the 

candidates has—that is running for governor has proposed an extraction tax now. Pennsylvania currently does not have an extraction tax. They have got an impact fee associated with the drilling 

and the production, pipelines, et cetera. 

The extraction tax potentially—I guess potentially, depending on 

the size of it or the amount of it would—but would it make—you 

talked about the Marcellus shale field being the largest, potentially, in the world or it will the largest in the world. 

It is not going to change the fact that the size is there but is it 

going to be—is that extraction tax going to be a deterrent to development in Pennsylvania? 

Mr. HERBERG. You know, I don’t know, you know, the scale that 

they are talking about for that so I don’t want to get myself in 

trouble. Any incremental, you know, load on the total capital costs 

and operating costs of a project is going to affect somewhat the 

drilling. I think it all depends on the scale of that. 

I would just say one important issue is to deal with the local impacts of shale gas drilling. This is a very intensive industrial process. It has huge community impacts on roads and water supplies, 

and I think in some places there is real imbalance between where 

some benefits of the revenues from that are going and whether that 

is getting to these areas that are being directly affected by the operation, which are significant. 

So I think it is important for the governments to find ways to 

make sure these local areas are getting, you know, a share of the 

37

revenues to take care of some of the increased costs for all kinds 

of things that come out of this process. 

Mr. PERRY. Okay. Ms. Leopold—did I say that right? Okay. 

Leopold. Sorry about that. Would you say that U.S. prices are artificially low? Just curious. 

Ms. LEOPOLD. No, I would not say they are artificially low. I 

would say the market is working. There is plentiful supply and our 

natural gas prices are lower than elsewhere because we can economically drill lower. 

Mr. PERRY. Okay. So there has been—based on that, there has 

been some supposition even among members of the panel here that 

exporting more or exporting to a greater degree natural gas, LNG, 

CNG, is going to absolutely without question increase our prices 

here. 

Is there—what is the validity to that claim and are there any 

facts and figures? Because I didn’t hear any here on that side of 

the argument but you might have some counter. 

Ms. LEOPOLD. The one thing I can say is that rigs have continued 

to pull back because natural gas prices are low and it is not enough 

for the producers to be profitable. So with natural gas prices coming up, more drilling can occur, which increases the supply. 

Mr. PERRY. And increased supply equals what? 

Ms. LEOPOLD. Well, there is not enough demand. 

Mr. PERRY. I mean, if you used the principle of supply and demand, right? 

Ms. LEOPOLD. Right. 

Mr. PERRY. I mean, so it should equal——

Ms. LEOPOLD. Lower prices. 

Mr. PERRY. Thank you. Okay. So you got that. All right. 

Are there any main concerns with the DOE’s process for export 

approval to non-FTA countries and can you provide any examples 

of when an approval was denied based on public interest? Anybody 

on the panel. 

Mr. HERBERG. I don’t know of any, no. 

Mr. PERRY. Okay. How about otherwise? Other than public interest? 

Mr. HERBERG. I don’t believe any have been denied. A couple of 

them they have approved a lesser volume than was applied for. 

Mr. PERRY. And what is the point of that? Can you—if you know. 

What is the point of doing that? Why would they—why would they 

approve a lesser volume? 

Ms. LEOPOLD. Cove Point had a lesser volume because it 

matched the volume that we applied for in our Federal Energy 

Regulatory Commission application. So the DOE just went to sync 

with what we requested in that application after our design work 

was complete. 

Mr. PERRY. So it could do more but it has just not because that 

was the application and at that point is that—that is not necessarily the government’s fault if there is a fault? That is what you 

applied for? 

Ms. LEOPOLD. Correct. 

Mr. PERRY. Okay. In India, with infrastructure investments 

needed in order to effectively receive and distribute large volumes 

of LNG or what infrastructure—do you know what—because that 

38

is an emerging market? Do you have an indication? It is a large 

emerging market. 

Mr. HERBERG. They suffer from a lack of natural gas pipeline capacity and infrastructure, port LNG terminal capacity and, most 

importantly, they maintain energy prices. 

They administer and control energy prices and hold them so low 

for natural gas that more expensive LNG coming into the market 

can’t find a home and that really limits the ability to really raise 

natural gas consumption in India. They need to—they need to deal 

with price reform domestically to get the price——

Mr. PERRY. They need to let the market dictate the——

Mr. HERBERG. They need to let the market work a little more. 

It is a wildly administered system. 

Mr. PERRY. Thank you, Mr. Chairman. I yield. 

Mr. CHABOT. Thank you. The gentleman’s time has expired. The 

gentleman from California, Mr. Sherman, is recognized for 5 minutes. 

Mr. SHERMAN. EPA just announced some regulations that the 

chamber says are going to shut down all the coal electric plants in 

the United States. 

That may be a bit overdrawn but do the analyses that our witnesses provide reflect that regulation assume that it is going to be 

implemented and that there is going to be a substantial increase 

in U.S. demand for non-coal generated electricity? 

Mr. HERBERG. I can’t say. It is something I work on very much 

but I——

Mr. SHERMAN. So we could see a situation—you have told us that the price in the United States is $4.50. That could go to $6.50 just 

as a result of today’s regulations and that the natural—use for natural gas is to generate electricity and it is competition with coal. 

So if that were true we could cancel the hearings. But let us go on. 

Now, Mr. Herberg, you basically have given us some prices in 

Asia, prices in the United States. I interpret from that that you are 

saying it costs about $6.50 a unit to liquefy it, ship it and deliquefy 

it or return it to a gaseous state. 

Is that pretty much the same whether you are shipping to Asia 

or you are shipping to Europe? Europe is a little shorter distance. 

Is the real cost in the liquefication and the gasification or is the 

real cost—or is there a substantial cost per mile? 

Mr. HERBERG. The largest share would be liquefaction. Maybe 

Dominion would talk about that more. 

Ms. LEOPOLD. Very roughly, in the total of $7 range, $3 would 

be the liquefaction, $3 would be the shipping to Asia and $1 would 

be the regasification. 

Mr. SHERMAN. Okay. So the—so it would be a little cheaper to 

send. One public policy position we could take is to give licenses 

if you want to ship to Ukraine or to European pipelines that could 

then reverse flow to Ukraine but not to Asia. 

I am not sure that that is the right public policy. Are any of you 

aware of any economic—I mean, the studies from the U.S. Department of Energy say if we allow unfettered export we are going to 

see a one-third increase in natural gas prices. 

Are any of you aware of any economic studies as to what effect 

that has on the competitiveness of our manufacturing and fertilizer 

39

plants? How many jobs do we lose when we start paying $6, $7 a 

unit rather than $4.50 a unit for natural gas? Anybody aware of 

any studies on that? 

Mr. HERBERG. No, I haven’t seen any but——

Mr. SHERMAN. I think we would also see, of course, a slight reduction in the cost of LNG in Asia, which would make our competitors just a little bit more competitive. I think the effect there would 

be a little less. 

The background memo that our staff provided for this hearing 

describes the United States as currently an importer of natural gas 

and that we will shift to a net exporter only by 2020. 

Is that accurate and who is—which foreign countries are willing 

to sell us LNG—are willing to sell us natural gas at a price so low 

that we can keep prices at $4.50? 

Mr. HERBERG. Canada. 

Mr. SHERMAN. Canada. 

Mr. HERBERG. Yes, and——

Mr. SHERMAN. And so what we could see is the Canadians will 

get tired of selling us natural gas at $4.50 and decide to build their 

own liquefication and send it and it wouldn’t matter. 

Is there substantial discussion of liquefication or liquefaction in 

Canada and would that also be a reason to cancel the hearings on 

the theory that if all the Canadian natural gas goes to Asia there 

is no economic reason to send U.S. natural gas? 

Mr. HERBERG. Well, the—yes, there are a number of LNG 

projects proposed on the British Columbia coast and even in the 

east for LNG from Canada. But I think, again, this is kind of a 

self-limiting process. 

At $3, Canadian gas backed up into Canada was net backing to 

the point where investment collapsed in natural gas development 

in China—I mean, in Alberta for a while but at $4.50 the incentives start working back. But they are seeing their market basically absorbed by this huge expansion in U.S. production. 

So yes, they have to look elsewhere for long-term future markets. 

But, again, if the U.S. price rises then that is going to pull Canadian gas in and this is a huge system they have built. So it is partly market self-limiting. 

Mr. SHERMAN. I am—I think I would support export if I knew 

that that would get us more jobs in the energy industry than it 

would cost us in those industries that use the comparatively cheap 

natural gas that is being used in manufacturing and fertilizer production. 

And, Mr. Chairman, in spite of all those comments about cancelling the hearing I am very glad you are having this hearing and 

I yield back. 

Mr. CHABOT. Thank you. I am glad we have your approval. The 

gentleman from California now is recognized for 5 minutes, Mr. 

Rohrabacher. 

Mr. ROHRABACHER. How much natural gas is used to produce fertilizer? Do you know? We don’t. My gosh. It is a substantial 

amount of natural gas is used to produce fertilizer? But we do 

know a substantial amount of fertilizer is used to produce natural 

gas. 

40

I mean, you can’t have fertilizer without natural gas, right? Or 

can you? Unless you got a lot of horses and cows around. Then it 

is another kind of gas. 

Mr. HERBERG. The bulk uses power generation. Industrial petrochemicals feedstocks is where most gas goes—industrial use, boilers. So it is not a huge portion that would be fertilizer but I—you 

know, I couldn’t give you a——

Mr. ROHRABACHER. How much of natural gas then goes to just 

energy, like electricity production? 

Mr. HERBERG. That would be the bulk of it. I mean, that would 

be the largest share and even industrial processes you are doing 

heat—you know, using gas for heat generation, plant operations, 

things like that. That is energy indirectly so a large share of it. I 

don’t have the numbers in front of me. 

Mr. ROHRABACHER. Yes, I would sure like to know some of those 

statistics. Also, natural gas—someone told me that you now can 

turn natural gas into diesel fuel? 

Mr. HERBERG. Mm-hmm. Yes. 

Mr. ROHRABACHER. What is the cost of that? 

Mr. HERBERG. Very high, relatively. They are doing that kind of 

thing in Qatar because they have an enormous surplus of natural 

gas—gas to liquids, you call it. 

Mr. ROHRABACHER. Right. 

Mr. HERBERG. Shell has a project. Malaysia has a project. But it 

is a pretty expensive thing. It produces very clean diesel and gasoline but at a very, very high cost relative to today’s kind of prices. 

Mr. ROHRABACHER. There is—I was just notified a few weeks ago 

about a business that was going to try to capture the burning—the 

flare-off gas in North Dakota and would then use it to produce diesel gas. Do you think that maybe that would be economically viable? 

Mr. HERBERG. In small—in small kind of niche areas. You have 

a huge bunch of gas being produced in North Dakota that there is 

no pipeline capacity—take-away capacity for it so it gets flared. 

So if it is zero value gas essentially because it is going to be 

flared, you can make sense out of that economically to produce diesel or products——

Mr. ROHRABACHER. Okay. 

Mr. HERBERG [continuing]. Even though at a normal kind of 

process where you are paying market price for natural gas it 

wouldn’t make sense. 

Mr. ROHRABACHER. Okay. How much natural gas is Australia 

producing? 

Mr. HERBERG. They are exporting about 25 million tons a year 

of LNG from the Northwest Shelf—mainly Northwest Shelf project. 

Mr. ROHRABACHER. Exactly how much are they producing? We 

don’t know how much actually they are producing. 

Mr. HERBERG. It is a small gas market, in effect, for Australia. 

You know, it is just a bunch of cities around this——

Mr. ROHRABACHER. Right. But I understand that there has been 

new oil and gas finds in Australia that are massive. Is that correct? 

Mr. HERBERG. Yes. There is seven large gas projects being—LNG 

projects being built as we speak in Australia—seven—for well over 

41

50 million tons of LNG that will come on stream from 2015 to 2022 

or so—huge. 

Mr. ROHRABACHER. So we are talking about huge new things in 

the United States but also our friends there to the south and Australia will become a major new force on the market in making all 

these calculations. 

Mr. HERBERG. Absolutely. 

Mr. ROHRABACHER. And I also understand that in Australia that 

they have discovered some kind of—a great water source underneath the ocean. Is that correct? 

So anyway, I just—I was reading some scientific journals where 

apparently there has been—underneath their ocean they have 

found a freshwater ocean. That would be—but you don’t know anything about that? 

Mr. HERBERG. No. 

Mr. ROHRABACHER. Well, let me just say that fertilizer, and we 

have all of these products and as I said in my opening remarks we 

are talking about the amount of wealth that exists in the world 

and we should applaud the increase in wealth and applaud anything that would facilitate the distribution of wealth in a more efficient way because this is what will hopefully uplift the human condition. 

So thank you very much for your information today to put into 

our little equations that we make here. Thank you. 

Mr. CHABOT. Thank you very much. 

The gentleman from Georgia, Mr. Collins, is recognized for 5 

minutes. 

Mr. COLLINS. Thank you, Mr. Chairman. I just have a few questions and just open up for the panel anybody that would like. Surveys suggest that the growth in LNG demand is mainly concentrated in China and South Korea. 

There is some other—along with some other southeast Asian 

markets. Which countries are the greatest, largest potential recipients of U.S. LNG exports and which countries offer the greatest 

mutual benefit for U.S. strategic interest in this area? 

Ms. NAKANO. In my judgment, Japan will be the largest buyer 

of U.S. LNG supplies. Japan already does have a large import receiving capacity. But then also, unlike China, Japan does not have 

the option of importing gas—natural gas by pipelines. 

And also the current investment commitment into the U.S. LNG 

both upstream but then also export projects suggest that they will 

take about a quarter of the amount—the cumulative amount from 

the seven projects that have been approved to date to non-FTA 

countries. 

Mr. COLLINS. So Japan—from your position Japan stands with 

its capacity and also its infrastructure that is already in place 

would be the natural beneficiary in this? 

Ms. NAKANO. Yes, and China certainly has a potential to become 

a large or one of the leading global LNG importers but that doesn’t 

mean that they will be necessarily turning to the United States. 

Mr. COLLINS. Well, given the interesting political discussions 

over the sea and other issues there I think this provides an interesting conversation. 

42

I do have another question there that sort of is similar. How does 

Australia’s strong energy export market with China affect its strategic relationship with the United States and does Australia see 

any contradiction between a strong relationship with China and its 

strong strategic relationship with the United States? Or is it all 

about the business? 

Mr. HERBERG. They would like—the Australians and the Chinese 

would like to keep it all about business. But in the real world, as 

Australia’s economy both in energy and minerals becomes more 

closely linked to Chinese economic prosperity and markets, there is 

a discussion in Australia about the balancing of the U.S. alliance 

with its growing dependence on China and this, obviously, looms 

in the overall kind of contest in Asia for influence between China 

and Russia. 

So there is a discussion about that in Australia. But fundamentally Australia remains deeply committed to the U.S. alliance for 

now. 

Mr. COLLINS. Well, in light of that let us chase that a little bit 

further. If there is a much more—a much heavier influence of U.S. 

LNG into this market which would maybe also, for lack of a better 

term, undercut or change that dynamic with Australia and China, 

do you think that attitude could change in Australia or would there 

be a tightening or a shifting of the geopolitical atmosphere there 

that could move that a little bit? 

Mr. HERBERG. No, I think that is a good point. For our purposes 

and I think for Australia’s, it is important that all the big suppliers 

like Australia and others have a very diversified slate of buyers for 

their output and that is the sensible commercial thing to do—have 

a broad set of buyers from a whole bunch of different countries and 

regions. 

So I think on the part of Australia they want to keep a diversified slate. But to the extent we create a more diversified slate by—

with our exports into the region, I think that is good for all of us 

in terms of keeping those alliances in shape. 

Mr. COLLINS. Well, I think the alliance is in shape. I was also 

concerned, and I think it was brought up and I am not going to 

go into it here, pricing and issues with domestic pricing as opposed 

to what would be found on the international market, especially 

with the price disparities that are out there. 

A curious question—you brought this up and it just—it triggered 

a thought from me. In looking at the Australia, Japanese, the Chinese market here in this balance, with Russia giving and China 

importing more in from Russia, traditionally not the closest of allies or friends even in that region, how—given what we have seen 

on the more eastern side with Ukraine, Crimea and the dependence aspect that is over there, could this be a balance from the U.S. 

perspective in dealing with China in this—in this market, a balance to Russia becoming a dominant player in the Chinese energy 

market? Is that—how does that affect the political aspect? 

Mr. HERBERG. Yes. I think at the margin it does. The more U.S. 

LNG in the region, and China doesn’t have to be necessarily a direct buyer of U.S. LNG. If we are going to Japan then that frees 

up LNG that China will be buying from Australia. 

43

Offshore East Africa will come on after 2020 region. You got 

Papua New Guinea. You have got lots of areas of supplies. So I 

think our supplies in there create a more diversified mix and that 

is a good thing. 

The closer Chinese-Russian gas relationship—the gas pipeline 

deal that was just signed—by the time that stuff comes on that will 

still only represent 10 percent of China’s natural gas consumption. 

So I think the Chinese are very careful about diversifying their 

supply sources. They are very deliberate about this and the last 

thing they want to do is put themselves vulnerable to Russian 

pressure. 

Mr. COLLINS. Well, I am out of time. But, Mr. Chairman, I would 

appreciate this conversation because it not only just takes this with 

the LNG issue. 

This raises what I believe is something that we don’t discuss 

enough and that is the changing geopolitical influences of a region 

that is, one, the largest growing region, the most populous region, 

and potentially the most unstable of the regions in the world 

whether it be economic, political, religious, other things going on 

here. 

So I think it has just brought up an interesting point. Mr. Chairman, I do appreciate it and I yield back. 

Mr. CHABOT. Thank you. The gentleman yields back. 

We will go into a second round. I just have a question or two but 

I probably won’t use the whole 5 minutes. Then if Mr. Sherman is 

interested, he can do that as well. 

I also wanted to reiterate something that Mr. Sherman mentioned and that is about our colleague, Randy Weber. When we 

were in Asia some months ago, he brought up at every meeting we 

had, whether it was Prime Minister Abe, President Park, President 

Ma, to everybody from downtown, or to the taxi drivers, at the 

places about LNG gas—the importance of it—specifically, Texas 

LNG gas. So he was really doing great work out there trying to export something we have here and trying to create jobs here. So my 

hat is off to him for that. 

I just had one quick question here and anybody is welcome to 

take this. Maritime and territorial disputes in the region, mostly 

between China and Japan, China and Vietnam, China and the 

Philippines, and China and Taiwan, et cetera—what impact, if any, 

could there potentially be on exploration and development of potential natural gas resources or energy resources in general in the region? How much of those disputes have to do with that issue versus 

fishing rights, and things of that nature, and actual acquisition of 

land? What part of it is energy related? Ms. Nakano, would you 

like to take it? Thank you. 

Ms. NAKANO. Thank you. In my view, energy is not the driver. 

Many surveys have indicated that there is somewhat limited 

amount of proven oil and gas reserves in East China Sea or South 

China Sea. 

However, because of these geological—I am sorry, geopolitical 

tensions there has not been really satisfactory amount of surveys 

done. So it is a bit of a—sort of a, you know, horse and cart issue. 

44

But I think that the prominence or the importance of places such 

as the South China Sea is really that it is—it is where the—about 

half of global LNG transits. 

So it will remain to be important. But as far as for the production of resources that may or may not be there, that is something 

that I do not think is the main reason why there is a tension 

among the countries in that region. 

Mr. CHABOT. Let me interpret that if I can, or correct me if I am 

wrong. You are saying, that in your view, it is not the driving principal, but since tensions have prevented a lot of the exploration 

from taking place, they really don’t know how much is there and 

it might potentially be a big deal but we don’t really know that at 

this time, but there may be other things that are driving instability 

more than that issue right now. Is that correct? 

Ms. NAKANO. Yes, correct. And if I may add quickly, that from 

my understanding there are some technical challenges to exploring 

the oil and gas resources there or doing a survey because I understand there is submarine valleys and also very strong currents. 

So there are also sort of technical and sort of geological challenges associated with further surveys there. 

Mr. CHABOT. Okay. Thank you. I will yield back my time. If the 

gentleman from California has any questions you are recognized. 

Mr. SHERMAN. Okay. South Korea has the KORUS agreement 

and so you don’t have the same approval process that we would to 

export natural gas to Japan. Is natural gas cheaper or is it expected to be cheaper over the next several years in South Korea 

than in Japan? 

Mr. HERBERG. The Japanese prices are much higher than—domestic gas prices are higher in Japan because they pass through 

the cost of these high costs of LNG. In Korea, they tend to administer prices for gas and oil and coal and electricity——

Mr. SHERMAN. Administer through government subsidy? 

Mr. HERBERG. Yes. Well, through government price direction and 

guidance because remember, you only have——

Mr. SHERMAN. Well, you can have price correction and guidance 

but if you are a utility in South Korea and the price of LNG is high 

in part because of Fukushima you can’t pay less on the theory that 

your government wants you to pay less. 

Mr. HERBERG. In a very simplistic way, KOGAS, the state gas 

company, contracts for the LNG and imports it at world prices or 

Asian prices. 

Mr. SHERMAN. Right. 

Mr. HERBERG. It sells that gas to KEPCO, the state electricity 

underwriter. KEPCO is required to keep electricity prices relatively 

low for——

Mr. SHERMAN. Okay. So I shouldn’t buy any stock in KEPCO. 

Mr. HERBERG. KEPCO gets—KEPCO catches it on that because 

they are required. 

Mr. SHERMAN. Okay. In any case, looking only at the wholesale 

price or the importer’s price because you can jack up electricity 

prices, subsidize them, whatever, do those who import that LNG to 

South Korea pay any less on average than those who import natural gas to Japan? 

Mr. HERBERG. No, no. The price——

45

Mr. SHERMAN. And so the—it is not like the South Koreans say 

great, we have got KORUS, Japan doesn’t—they will have to pay 

Qatar and Malaysia a lot and we can be the sole Asian importer 

of U.S. natural gas. That isn’t happening. The South Koreans are 

paying as much and signing long-term contracts to pay as much as 

the Japanese? Ms. Nakano. 

Ms. NAKANO. Thank you. South Korea already has investment 

into Sabine Pass and that is the one that is already scheduled to 

start exporting as early as next year. 

Mr. SHERMAN. They have investment in what again? 

Ms. NAKANO. Cheniere’s Sabine Pass project. That was who—

which got approval back in 2011. So and from what I understand 

that contract does include some linkage to Henry Hub price. So 

down the road they——

Mr. SHERMAN. But it is not that, okay, you have got the U.S. 

Government screwing up the free market. We limit or prohibit U.S. 

exports to Japan. We allow U.S. exports to South Korea. Therefore, 

there is a huge differential or a huge benefit to South Korea. 

As far as we know, they are paying and expect to be paying pretty much per unit the same as the Japanese are paying and the effect of the U.S. limitation on exports to Japan doesn’t seem to be 

playing a main effect. 

Let us go on to another line of questions and that is I have 

dreamt that we—somehow we and the world off of its addiction to 

petroleum as a transportation fuel and there is one production 

automobile that is powered by compressed natural gas and its cost 

per mile, I am told, is half. 

I don’t know if you are familiar with that statistic and can reflect 

on it but to what extent would preventing the export of natural gas 

keep prices in this country low enough so that we will see the development and implementation of natural gas-powered vehicles? 

Mr. HERBERG. You know, it is a complicated relationship between 

limiting exports of LNG and the domestic prices. 

Mr. SHERMAN. Right. And you don’t know whether your main effect is to limit production or to limit price. 

Mr. HERBERG. Yes. You can—you can bottle up the—you know, 

the natural gas and get somewhat lower prices but you will also 

reduce investment in new supplies, and how that balance works 

out is not always very clear. 

Mr. SHERMAN. Is there a lot of natural gas to be developed in the 

United States that gets developed at $7 domestic price but doesn’t 

get developed at $4 domestic price? 

Mr. HERBERG. Yes, yes. There is a huge transfer of our gas supply. 

Mr. SHERMAN. Is that half of our potential? A quarter of our potential? Does any of the other witnesses have a comment? 

Mr. HERBERG. I have seen studies of that. I could try to get 

those. 

Mr. SHERMAN. Yes. Please provide that for the record because——

Mr. HERBERG. They have a cost curve and my recollection is that 

something of 70 percent of the known resources or reserves out 

there are producible at $7——

46

Mr. SHERMAN. The one question I will ask you to ask—answer 

is what will be the effect on total U.S. production if we eliminate 

our restrictions on exports. 

I believe you have already estimated the price change would be from around $4.50 to $6.50 but if you can refine that, and I am 

going to ask the other witnesses to also provide answers to the—

to record to that to the extent you can be helpful, and I am going 

to yield back. 

Mr. CHABOT. And all the witnesses are nodding their affirmative 

response. We thank the gentleman. The gentleman’s time has expired. 

I want to thank all the witnesses here this afternoon for testifying. Members will have 5 days to supplement their statements or 

submit questions, and if there is no further business to come before 

the committee we are adjourned. 

Thank you. 

[Whereupon, at 3:42 p.m., the committee was adjourned.] 

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