Report Bolsters the Case for Large U.S. Natural Gas Exports
By CLIFFORD KRAUSS
New York Times
December 5, 2012
HOUSTON — In a victory for the oil and gas industry, a federal Energy Department study released Wednesday concluded that the national economic benefits of significant natural gas exports far outweighed the potential for higher consumer energy prices.
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 raise costs to manufacturers that now benefit from a glut of cheap gas, some economists warn, although huge terminal projects would generate thousands of construction jobs and gas could be a lucrative export earner.
The new report, prepared by NERA Economic Consulting for the government, concluded that domestic gas prices would not rise sharply as a result of exports and that expanded export revenue would generally help most Americans.
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, the report 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, producing 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, is likely to be challenged by manufacturing and chemical companies like Dow Chemical warn that large-scale exports that raise domestic gas prices would hurt their ability to compete with foreign firms.
Yet oil and gas companies are eager for exports to bolster the lagging price of natural gas, and the report is likely to spur a competitive lobbying campaign for regulatory approval of export terminals. Executives in the oil and gas industry were enthusiastic about the report. “It’s great news,” said Rodney Waller, a senior vice president at Range Resources, a natural gas producer. “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.”
But 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.
In a recent letter to the energy secretary, Steven Chu, Senator Wyden noted the importance of the country’s newfound gas wealth to “improve the economic competitiveness of American manufacturers” and that “U.S. law has long held that imports and exports of energy must be considered differently than other commodities.”
The Sierra Club and other environmental groups have joined the opposition to exports in a bid to limit domestic production, which is increasingly dependent on hydraulic fracturing, a technique that blasts open 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 Center for Liquefied Natural Gas, a trade group whose members include ExxonMobil, Sempra Energy and Royal Dutch Shell, has argued that more gas exports will bolster domestic gas production and with it expand demand for oil field equipment and steel piping.
The Energy Department report noted that large exports of gas would produce “some shifts in output by industrial sectors” and “the electricity sector, energy-intensive sector and natural gas dependent goods and services producers will all be impacted by price increases.” Industries that are likely to be most impacted, economists say, would be producers of chemicals and fertilizers.
But the report said that natural gas exports could produce $10 billion to $30 billion of annual export revenue. The country now exports some gas by pipeline.
There is still no certainty that the administration would approve more than a handful of liquefied natural gas terminals, at least in the short term, so manufacturers could still continue to enjoy low energy prices.
“I don’t think the government will permit every L.N.G. terminal that they are asked for,” said David E. Constable, chief executive of Sasol, the South African company that wants to build a plant in Louisiana to convert gas into diesel. While it takes 20 or so technicians to run an L.N.G. terminal, he said, his plant would employ thousands and so would other manufacturers. “Who would have thought we would bring back the manufacturing industries to the U.S. a few years ago?”
The objective of the report was to give the government guidance in determining whether export licenses for proposed projects are in the public interest. The Federal Energy Regulatory Commission must also determine that projects meet environmental and safety standards.
More than a dozen companies have already applied for permits to export gas to countries that do not have free trade agreements with the United States, but the administration has so far granted only one permit, to Houston-based Cheniere Energy to refit its recently built Sabine Pass, La., import terminal for export. Most of the big potential importers, like China, have not entered such trade agreements with Washington.
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. Energy experts say there is so much potential gas production that the one plant would have little or no impact on domestic prices.
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.
More than a dozen projects have already received export licenses to countries with free trade agreements with the United States.
Export terminals are hugely time-consuming and expensive to permit and build. The liquefaction equipment that deep freezes the gas for export on giant gas tankers can cost $5 billion alone for a medium-size terminal, but docks and pipelines are also needed. The tankers can cost $200 million apiece.
nytimes.com |
