The Trans-Pacific Partnership could pipe in new business for the Western gas industry

By lowering tariffs and regulatory hurdles, the deal could make it easier to sell natural gas to Japan.

  • An artist’s conception of the proposed Jordan Cove liquid natural gas terminal in Oregon. The project already has an Energy Department permit, but future terminals may be automatically approved if the Trans-Pacific Partnership goes through.

    Jordan Cove LNG
 

Rifle, Colorado, a quintessential Western energy boomtown, has fallen on hard times. High natural gas prices spurred a drilling boom in the surrounding Piceance Basin in the early aughts. Then, in 2008, prices crashed due to an oversupply of natural gas in the North American market, and Rifle slumped into a bust from which it still hasn’t recovered.

The next bonanza could be just around the corner, though, thanks to the controversial Trans-Pacific Partnership — the largest international free-trade agreement that the United States has ever negotiated. By slashing tariffs and lowering regulatory hurdles, the TPP could make it easier to sell Western natural gas to Japan, potentially igniting another boom. The agreement could also affect Western ranchers, who face both pros and cons: opportunities for bigger beef markets, but also the threat of increased competition from producers in member nations.

In the works since 2008, the TPP includes 12 countries: the U.S., Canada, Mexico, Japan, Vietnam, Singapore, Malaysia, Brunei, Australia, New Zealand, Chile and Peru. Those nations’ economies comprise nearly 40 percent of the global gross domestic product, a bloc second in trade volume only to the European Union. That’s led critics to dub the TPP “NAFTA on steroids,” referring to the 1994 North American Free Trade Agreement, which has been blamed for the immigration rush, the crash of American manufacturing, and the rise of industrial farming and mining in Mexico.

The nations are still hammering out the details — much of what’s known has come through leaked drafts posted on WikiLeaks — but President Barack Obama has made its approval a priority.

In late April, Senate and House committees approved “fast-track” legislation for the TPP, meaning that Congress would surrender its right to amend the pact once it’s negotiated and presented for approval. Both chambers of Congress are expected to vote on the bill soon, with Republicans, shockingly, behind the president. The Democrats, however, are split, with some senators insisting that tougher child-labor and trade-practice measures and currency-manipulation rules be tied to fast-track support.

Analysts agree that energy, particularly natural gas, will be a major focus of the agreement. Japan phased out nearly all of its nuclear power after the 2011 Fukushima meltdown, replacing much of it with electricity from natural gas, nearly all of which it must import. Due to market inefficiencies and Asia’s still-developing pipeline capacity, gas prices across the Pacific have been four to eight times higher than in the U.S.

The overseas market, in other words, is thirsting for cheap and abundant U.S. natural gas. But before it can get there, it must be supercooled and turned into liquefied natural gas, or LNG, in special terminals, then loaded onto refrigerated tankers for shipping. The only existing U.S. Western LNG export terminal is a relatively small facility in Kenai, Alaska. Construction of new facilities involves billions of investment dollars and the regulatory approval of both the Federal Energy Regulatory Commission and the Department of Energy.

Currently, there are only seven terminals in the country operating or fully approved, though there are 54 applications for building new LNG production facilities and export terminals. A company called Oregon LNG proposes to build a terminal in Astoria, Oregon, near the mouth of the Columbia River, which would ship up to 9.6 million tons of LNG annually — enough to supply hundreds of thousands of American-sized homes a year. And Calgary-based Veresen Inc. is also seeking approval for its planned Jordan Cove export terminal in Coos Bay, Oregon, and expects to ship 6 million tons a year.

Environmentalists, along with many locals, oppose both projects. The two terminals are awaiting a Federal Energy Regulatory Commission permit, but have already received approval from the Energy- Department, which determines whether export to countries lacking free-trade pacts are in “the public interest.” If the TPP is approved, however, future projects exporting to the Asia Pacific will no longer need Energy Department permits. Under the agreement, “every LNG facility would be de facto approved (by the Energy Department),”  says Jake Schmidt, director of the Natural Resources Defense Council’s International Program.

The two terminals would likely receive gas through the Northwest Pipeline, a 4,000-mile network of lines that crosses six Western states and reaches into Canada. That system plugs into the under-utilized Ruby Pipeline, a 680-mile delivery route stretching from western Wyoming to southern Oregon, and the Rockies Express Pipeline, a north-south system that goes from Wyoming into New Mexico. That should mean an uptick in business for gas drillers and communities along the way, especially in western Colorado’s Piceance Basin, the San Juan Basin on the Colorado-New Mexico border, and the Uinta Basin on the Colorado-Utah border. A 2014 report by Mercator Energy, a Colorado gas broker, notes: “The predictability of Piceance Basin reserves and abundant … pipeline export capacity should be very attractive to any foreign country or foreign consumer of LNG.” Wyoming, with 20,000 planned new oil and gas wells, has spent the last two years studying how to further increase LNG production and storage and its pipeline capacity and connections.

Increased trade with Japan could also benefit ranchers, says David Salmonsen, senior director of congressional relations for the American Farm Bureau. Producers now face steep tariffs on meats and dairy in Japan and Asia, but reports from -negotiation talks indicate Japan would chop its current 38.5 percent tariff on beef to just 9 percent.

But some Western ranchers are worried because the trade deal would also increase U.S. beef imports. “The United States keeps mounting a horrendous deficit in the trade of live cattle, beef, and processed meats,” says Bill Bullard, CEO of R-CALF, a Billings, Montana-based independent-rancher advocacy group. Plus, Bullard says, global trade deals typically weaken domestic food-safety rules.

With so many details still unknown, some ranchers as well as environmentalists who have come to loathe NAFTA see the TPP as a scary extension of “free trade.” But for Western energy producers in the Piceance and other drilling hotspots, the deal looks like it’s coming down the pipe just in time.