Report Bolsters the Case for Large U.S. Natural Gas Exports

12 06, 2012 by The New York Times

In a finding that could help create a new industry of natural gas exports in the United States, a government study released on Wednesday concluded that the national economic benefits of significant natural gas exports far outweighed the potential for higher energy prices for consumers and industrial users of the fuel.

The study prepared by NERA Economic Consulting for the Energy Department, said that domestic prices would not rise sharply as a result of exports and that export revenue would generally help most Americans.

Energy companies have proposed more than a dozen projects to export gas in liquefied form to Europe and Asia, where the fuel is typically three to four times more expensive than in the United States. The Obama administration has been cautious on whether to embrace large exports of gas out of concern that consumers who rely on gas for heating and cooking could see their utility prices rise. Higher exports could also raise costs to manufacturers that now benefit from the nation’s glut of cheap gas, like chemical and fertilizer manufacturers.

But the huge gas export terminals, which cost billions of dollars to set up, would also generate thousands of construction jobs, spur further development of natural gas fields and generate lucrative export earnings.

The administration has only approved one export terminal so far, by Cheniere Energy in Louisiana, saying it was waiting for the results of the economic study before making decisions on the rest of the projects.

Now that the report has been finished, most observers expect more projects to get the green light.

The report found that higher exports would actually generate more economic benefits. Noting that gas exports could produce up to $47 billion in new economic activity in 2020, when many new terminals would be up and running, it said, “Welfare improvement is highest under the high export volume scenarios because U.S. consumers benefit from an increase in wealth transfer and export revenues.”

Only a decade ago, it appeared that the country’s domestic gas supplies were drying up and that huge amounts of expensive gas in liquefied form would have to be imported from Trinidad, Africa and the Middle East. But over the last few years, a technological revolution has occurred in shale gas fields across the country, driven by hydraulic fracturing and horizontal drilling. That has produced a glut that has driven the price of natural gas down by two-thirds since 2008.

The report, the second Energy Department study this year, was immediately challenged by Dow Chemical, which relies heavily on natural gas for fuel and as a raw material to produce many of its chemicals. The company warned that large-scale exports that raise domestic gas prices would hurt the ability of energy-intensive manufacturers to compete with foreign firms.

“We’re disappointed,” said George Blitz, Dow’s vice president of energy and climate change. “The report fails to take into account the $80 billion in new spending along with 3 to 5 million new jobs that the industrial sector has already announced predicated on available and low natural gas prices.”

Yet oil and gas companies are eager for exports to bolster the lagging price of natural gas.

“It’s encouraging to see that experts are joining the expectation that we are in a global marketplace and the United States has a huge opportunity to generate economic growth and at the same time reduce our energy costs,” said Rodney Waller, a senior vice president at Range Resources, a natural gas producer.

Shares of companies that have proposed major export projects rose in trading on Wednesday, with Sempra Energy up 3 percent, Dominion Resources up 2.6 percent, and Cheniere up 1.8 percent. Shares of natural gas producers were mixed.

The report is likely to spur a competitive lobbying campaign for regulatory approval of export terminals.

Several powerful members of Congress, including Senator Ron Wyden, the Oregon Democrat who is in line to be the next chairman of the Senate Energy and Natural Resources Committee, have opposed large-scale exports.

Senator Wyden’s office released a statement noting that the report concluded that exports would raise domestic prices. “Senator Wyden will continue to call on the Energy Department to ensure that unfettered natural gas exports don’t harm U.S. consumers and manufacturers,” the statement said.

The Sierra Club and other environmental groups have also opposed exports as a way to limit hydraulic fracturing, a technique that blasts shale rock with water, sand and chemicals to release gas and oil. Environmentalists say drinking water supplies can be put in jeopardy, a charge disputed by the oil industry.

The Energy Department report noted that large exports of gas would raise prices slightly and have a negative impact on electric utilities, energy-intensive manufacturers and producers of chemicals and fertilizers.

It acknowledged that natural gas prices could jump by over a dollar per thousand cubic feet, or more than 25 percent, over five years if there are significantly more exports. That would still be well below the average natural gas price before the 2008 economic downturn.

But the report said that natural gas exports could also produce $10 billion to $30 billion of annual export revenue. The country now exports some gas by pipeline to Mexico and Canada.

There is still no certainty that the administration would approve more than a handful of liquefied natural gas terminals, and the terminals each take several years to build. So manufacturers could still continue to enjoy low energy prices.

Cheniere’s plant, which is scheduled to begin operations in 2016, will have a capacity to export 2.6 billion cubic feet a day, equivalent to only about 4 percent of current domestic demand.

But four other projects with a combined export capacity triple that of Cheniere’s terminal are scheduled to receive federal regulatory decisions in 2013. All told, the 15 proposed terminals would have an export capacity of 26.5 billion cubic feet a day, more than a third of what is currently consumed in the United States.

Charif Souki, Cheniere’s chairman and chief executive, said he was not surprised by the report. “The bottom line is you still have to spend a lot of money to find out if your project works and then once you have done that you have to spend a lot more money to build your projects.”