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Report: LNG exports would be good for US Responding to 15 requests for export authorization, DOE commissions NERA analysis of impact of natural gas exports on US economy Kristen Nelson Petroleum News
Exports of liquefied natural gas would benefit the U.S. economy, but depending on worldwide market conditions and the U.S. price of natural gas, the United States probably wouldn’t see maximum exports. That was the conclusion of a study done for the U.S. Department of Energy by NERA Economic Consulting, released in early December.
Under the Natural Gas Act, DOE’s Office of Fossil Energy authorizes exports of natural gas, including LNG. For countries without free trade agreements with the United States, exports of natural gas are presumed to be in the public interest unless DOE determines, after opportunity for a hearing, that such exports would not be in the public interest.
When it conditionally authorized exports by Sabine Pass Liquefaction to non-free trade nations in 2011, DOE noted its continuing duty to monitor domestic supply and demand conditions to ensure LNG exports don’t result in a reduction of natural gas needed to meet domestic needs.
DOE said it has 15 applications to export LNG from the Lower 48 to non-free trade nations.
The NERA study, like a study completed in early 2012 by the Energy Information Administration, is part of the proceedings for the 15 applications.
Alaska not included DOE noted that Alaska was not included in the study of domestic impacts of natural gas exports. Because there is no natural gas pipeline interconnection between Alaska and the Lower 48, economic consequences of exporting LNG from Alaska “are likely to be discrete and separate” from consequences of exports from the Lower 48, DOE said.
“This report will reassure Alaska producers and ratepayers that our export opportunities are absolutely still on the table,” U.S. Sen. Mark Begich, D-Alaska, said in a Dec. 5 statement. “A large-scale LNG export project in Alaska dramatically improves the economics of a gasline from the North Slope, helping bring down energy prices for Alaskans and creating jobs,” Begich said.
U.S. Sen. Lisa Murkowski, R-Alaska, ranking Republican on the Senate Energy and Natural Resources Committee, said that based on the findings of the study, it may be time to revisit the approval process for exporting LNG to non-FTA countries.
“The conclusions in this report on the benefits to the economy should inform the DOE approval process regarding exports. This is a really good report and it really does provide guidance as we move forward,” Murkowski said in a Dec. 5 statement.
Building on EIA report NERA built on the EIA study of the relationship between export levels and domestic prices.
“The EIA study was limited to the relationship between export levels and domestic prices without considering whether or not those quantities of exports could be sold at high enough world prices to support the calculated domestic prices. The EIA study did not evaluate macroeconomic impacts,” NERA said.
NERA used its global natural gas model to estimate expected levels of U.S. exports under different scenarios for global natural gas supply and demand, while the firm’s energy-economy model was used to determine domestic macroeconomic impacts from different levels of LNG exports.
Across all the scenarios, “the U.S. was projected to gain net economic benefits from allowing LNG exports,” NERA said, with benefits from export expansion more than outweighing “losses from reduced capital and wage income to U.S. consumers.”
Impact of shale NERA said the U.S. benefits most if it “becomes able to produce large quantities of gas from shale at low cost, if world demand for natural gas increases rapidly, and if LNG supplies from other regions are limited. If the promise of shale gas is not fulfilled and costs of producing gas in the U.S. rise substantially, or if there are ample supplies of LNG from other regions to satisfy world demand, the U.S. would not export LNG.”
The study said natural gas prices do rise in the U.S. when LNG is exported.
“But the global market limits how high U.S. natural gas prices can rise under pressure of LNG exports because importers will not purchase U.S. exports if U.S. wellhead price rises above the cost of competing supplies.”
NERA also said the U.S. natural gas price “does not become linked to oil prices in any of the cases examined.”
The rise in domestic gas prices remains “in a relatively narrow range across the entire range of scenarios,” with a range of increases from zero to 33 cents per thousand cubic feet in 2010 dollars, and the largest observed increase a rise of 20 cents to $1.11 per thousand cubic feet.
“The higher end of the range is reached only under conditions of ample U.S. supplies and low domestic natural gas prices, with smaller price increases when U.S. supplies are more costly and domestic prices higher,” NERA said.
US wellhead price critical NERA used scenarios developed by EIA and said it “concluded that in many cases the world natural gas market would not accept the full amount of exports specified ... in the EIA scenarios at prices high enough to cover the U.S. wellhead price projected by EIA.”
At maximum volumes of domestic natural gas available, “it is cost-effective to export U.S. LNG with or without any international supply or demand shocks,” NERA said, but with lower volumes of U.S. natural gas, and a higher price, the study model showed no U.S. LNG exports.
The study also concluded that net domestic benefits of LNG exports “could be larger if U.S. businesses were to take more of a merchant role. Based on business models now being proposed, this study assumes that foreign purchasers take title to LNG when it is loaded at a United States port, so that any profits that could be made by transporting and selling in importing countries accrue to foreign entities.”
NERA said that in cases it studied where exports are constrained, the model with foreign purchasers taking title in the U.S. “sacrifices additional value from LNG exports that could accrue to the United States.”
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