A study done for the Office of Fossil Energy on the impact on prices of LNG exports has intensified the debate over whether or not to send U.S. natural gas overseas.
The debate over U.S. exports of liquefied natural gas (LNG) is kicking into high gear with the latest study by the U.S. Energy Information Administration (EIA) indicating higher natural gas prices and increased costs to energy consumers.
In its January 2012 report on “Effect of Increased Natural Gas Exports on Domestic Energy Markets,” EIA noted, “Larger export levels lead to larger domestic price increases, while rapid increases in export levels lead to large initial price increases that moderate in a few years.
“Even while consuming less, on average, consumers will see an increase in their natural gas and electricity expenditures. From 2015 to 2035, natural gas bills paid by end-use consumers in the residential, commercial and industrial sectors increase 3% to 9% over a comparable baseline case with no exports, depending on the export scenario and case, while increases in electricity bills paid by end-use customers range from 1% to 3%,” EIA stated.
The report immediately drew response from industry groups that favor exports. The Center for Liquefied Natural Gas said that the EIA report is only part of a larger picture of how LNG exports will impact the U.S. economy and does not account for increased economic activity, decreased U.S. trade deficit and increased job creation that it expects will be revealed in a forthcoming macroeconomic study.
The Department of Energy's (DOE’s) Office of Fossil Energy requested the EIA report last year as part of its assessment of the impact of Lower 48 LNG exports. The agency also requested a third-party evaluation of the macroeconomic effects of exports, which is expected during the first quarter 2012.
"The EIA study is just a part of the overall analysis on the economic effects of natural gas exports," said Bill Cooper, president, Center for Liquefied Natural Gas. "The third-party report will provide a more complete economic picture by focusing on the broader macroeconomic effects, which we believe will be positive.”
"With a 100-year supply of natural gas and more supplies being discovered in new resource areas, the United States is well positioned to meet both the domestic needs of our country and to provide clean burning natural gas to new markets,” he continued.
Paul Cicio, president, Industrial Energy Consumers of America, lauded the study. “By anyone’s measure, these are substantial cost increases. The DOE has the responsibility to protect the interest of the public in this matter and the EIA study is a good step. It would be irresponsible for the DOE to approve export applications without first doing an economic analysis of the impact, but in fact, that is what has occurred.”
U.S. Rep. Ed Markey, D-MA, who is on the House Committee on Natural Resources, is opposed to LNG exports.
After the report was released, he called on DOE to stop any further certification on export projects until all impacts on the economy are detailed. Markey also announced his intent to introduce legislation that would keep more American-made natural gas in America.
"Today is a wake-up call to American consumers and businesses, which rely on natural gas, that higher prices are on the horizon if we don't keep our natural gas here in America. The affordable domestic supplies we've recently developed could soon become a thing of the past if companies are allowed to export large volumes of American natural gas supplies to foreign countries," he emphasized.
However, LNG export projects are forging ahead. On Jan. 26, Cheniere Energy’s Sabine Pass Liquefaction LLC subsidiary signed an amended LNG sale and purchase agreement with BG Group for an additional 2.0 million metric tons per year from Trains 2, 3 and 4 as those units begin production.
"In assessing the optimal contracting strategy for the Sabine Liquefaction Project, we have decided to sell part of the additional volumes on a long-term basis to BG, our first foundation customer," said Charif Souki, Cheniere chairman and chief executive officer. "There's a trade-off in whether we sell the additional volumes on a long-term basis or in the open market. Contracting a portion of the additional volumes adds further certainty to the long-term cash flows of the project and preserves the opportunity for additional upside."
Also, the board of commissioners of the Port of Brownsville, TX, approved a lease option agreement with Gulf Coast LNG Export for 500 acres of port property. The company filed an application on Jan. 10 with DOE for a permit to export LNG from a proposed facility with a capacity of 2.8 billion cubic feet per day (Bcf/d). That permit is still pending.
The EIA study was based on four scenarios: 1) low/slow where exports of 6.0 Bcf/d are phased in at a rate of 1.0 Bcf/d per year; 2) low/rapid where exports of 6.0 Bcf/d are phased in at a rate of 3.0 Bcf/d; 3) high/slow where exports of 12 Bcf/d are phased in at a rate of 1.0 Bcf/d; and 4) high/rapid where exports of 12 Bcf/d are phased in at a rate of 3.0 Bcf/d.
“Under the scenarios specified for this analysis, increased natural gas exports lead to higher domestic natural gas prices, which lead to reduced domestic consumption, and increased domestic production and pipeline imports from Canada,” the report stated.
“In all of the export scenarios, a majority of the additional natural gas needed for export in each of the four scenarios is accounted for by increased production with most of the remainder from decreased consumption from 2015 to 2035.
“Total additional natural gas revenues to producers from exports increase on an average annual basis from 2015 to 2035 between $14 billion and $32 billion over the Annual Energy Outlook 2011 reference case, depending on the export scenario,” EIA pointed out.
EIA projected “that U.S. natural gas prices are projected to rise over the long run, even before considering the possibility of additional exports. Increased exports of natural gas lead to increased wellhead prices in all cases and scenarios.
“Rapid increases in export levels lead to large initial price increases that would moderate somewhat in a few years. Slower increases in export levels lead to more gradual price increases but eventually produce higher average prices, especially during the decade between 2025 and 2035.
“The differential between wellhead prices in the high/slow scenario and the no-additional-exports scenario peaks in 2026 at about 28% ($1.53 per thousand cubic feet) and prices remain higher than in the high/rapid scenario,” the report noted.
“The basic patterns remain the same – higher exports levels would lead to higher prices, rapid increases in exports would lead to sharp price increases, and slower export increases would lead to slower but more lasting price increases,” EIA emphasized.
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