Tuesday, January 29, 2013

Energy Department Releases Study on Natural Gas Exports

Invites Public Comment

As part of a broader effort to further inform decisions related to LNG exports, the Department of Energy commissioned NERA Economic Consulting to conduct a third party study in order to gain a better understanding of how U.S. LNG exports could affect the public interest, with an emphasis on the energy and manufacturing sectors. The Department is releasing that study and making it available for public review and comment. As this is not a Department of Energy product, the Department will be conducting its own review of the study as well as consideration of relevant comments made throughout the process prior to making final determinations.
Federal law generally requires approval of natural gas exports to countries that have a free trade agreement with the United States. For countries that do not have a free trade agreement with the U.S., the Department of Energy is required to grant applications for export authorizations unless the Department finds that the proposed exports "will not be consistent with the public interest." Factors for consideration include economic, energy security, and environmental impacts.

On December 5, 2012, the Department of Energy’s Office of Fossil Energy posted the final NERA report into the 15 pending export application dockets, and invites the public to provide comment. The report and resulting comments will be taken into consideration as the Department makes its public interest determinations in each case. The Department will accept initial comments on the report for 45 days after the official notice of the study appears in the Federal Register. Reply comments will be accepted for a period of 30 days, beginning on the day after the conclusion of the initial comment period. All comments received need only be submitted once as they will be placed in the administrative record for each of the 15 currently pending export application dockets. 

Following the closing of the reply comment period, the Department of Energy will begin to act on the 15 applications on a case-by-case basis. The study released today will be one of the inputs considered during evaluation of those applications. The Energy Department expects to act first upon applications for which the applicants have commenced the pre-filing process at the Federal Energy Regulatory Commission (FERC) as of December 5, 2012, in the general order in which the Department received them. Following disposition of those applications that have pre-filed with FERC, the Energy Department expects to act upon the rest of the pending applications – and any others submitted - in the order received.

Overall the report finds little effect on prices in the initial years of exports, but notes a growing impact as years go by and exports grow.

From the report:

U.S. natural gas prices increase when the U.S. exports LNG. 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. In particular, the U.S. natural gas price does not become linked to oil prices in any of the cases examined.

Natural gas price changes attributable to LNG exports remain in a relatively narrow range across the entire range of scenarios. Natural gas price increases at the time LNG exports could begin range from zero to $0.33 (2010$/Mcf). The largest price increases that would be observed after 5 more years of potentially growing exports could range from $0.22 to $1.11 (2010$/Mcf). 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.

(See also: Baker Institute Study)

(DOE, The Hill, 12/5/2013))

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