Pushback, skepticism follow key DOE report on US LNG exports
Washington (Platts)--6Dec2012/610 pm EST/2310 GMT
In the hours after the release of a crucial US Department of
Energy-commissioned study on liquefied natural gas exports, analysts
predicted slow government action on licenses while some consumer and
environmental groups continued to push back against shipping gas abroad.
"While the study concludes that exports increase total welfare, there
is, of course, welfare transfers (i.e. winners and losers)," said Hedgeye
Energy, which is a part of investment research firm Hedgeye Risk Management.
"In short, the losers are US consumers and manufacturers, while the
winners are primarily the owners of the resource," the firm said. "Given that
the left-leaning Obama administration is unlikely to really get behind LNG
exports ... we expect the permitting process to remain slow."
The Federal Energy Regulatory Commission would have to approve
construction of any export terminal facilities, and that process could also
be a hurdle, FBR Capital Markets said Thursday.
Tudor, Pickering, Holt analyst George O'Leary said DOE, which must
approve actual export licenses, "will cap the velocity of growth via
piecemeal permit issuance."
TPH anticipates that 5 to 6 Bcf/d of capacity will be approved by DOE
and built by 2020-2025, with financing the biggest hurdle to projects.
Additional non-free trade agreement nation export approvals may not come
until mid-2013 at the earliest due to the DOE comment period and other
The LNG study released Wednesday was one of two commissioned by DOE. The
first, conducted by DOE's Energy Information Administration, focused on the
impact of exports on US wellhead gas prices.
The latest study, conducted by NERA Economic Consulting, looked at the
broader economic impacts of exports. It found that LNG exports could boost
domestic gas prices by up to 33 cents/Mcf initially, but that the broad
economic benefits outweigh losses to wages and investment income.
The study should finally break a logjam in LNG export permitting. DOE
has only authorized one terminal -- Cheniere Energy's Sabine Pass terminal in
Louisiana -- to export to countries that do not have free trade agreements
with the US.
DOE has said it would wait to issue additional non-FTA licenses until it
has reviewed the studies and comments on their findings.
While the NERA study found net benefits from LNG exports, project
opponents highlighted the drawbacks.
"The law requires [DOE] to determine if more natural gas exports are in
the public interest, so it is baffling that this report omits the serious
threats increased fracking and gas production pose to our water, our air, and
the health of our families," Michael Brune, the executive director of the
Sierra Club, said in a statement.
The study found that exports would increase domestic gas prices and
lower wages, "meaning we pay the price here while the companies shipping gas
overseas rake in the profits," Brune added.
The Industrial Energy Consumers of America pointed out what it called a
number of weaknesses with the study. For instance, DOE's study did not compare
the benefits of exporting gas with the benefits of increasing use
domestically, it said.
The study also underestimated domestic demand and failed to address
potential regulations on gas drilling that could hurt production or boost
demand, IECA said. And NERA did not consider drops in production that could
occur if Congress took tax benefits away from gas companies, it added.
Export proponents should also expect pushback from members of Congress,
FBR said. Senator Ron Wyden, the Oregon Democrat who is slated to chair the
Senate Energy and Natural Resources Committee, "could exert informal pressure
to slow exports."
The DOE study had its fans as well. Richmond, Virginia-based energy
company Dominion said the study confirmed the benefits of LNG exports and
contended that its proposed Cove Point LNG export project would bring jobs
and revenues to Maryland and the Mid-Atlantic region.
And the American Gas Association, which represents local distribution
companies, said the study affirms that gas is a "foundation fuel" in the US.
--Kate Winston, firstname.lastname@example.org
--Edited by Keiron Greenhalgh, email@example.com