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Against backdrop of new study, experts tout LNG exports

By Kate Winston

June 13 - The US should approve liquefied natural gas export projects, but policymakers should keep an eye on potential domestic impacts on gas prices and the environment, Michael Levi, a senior fellow at the Council on Foreign Relations, said during the first week of June.

Other experts agreed that LNG exports should be authorized, but said they expect little or no price impact as a result.

"I think ultimately, the price of any commodity is going to be based on supply and demand," said former FERC Commissioner Marc Spitzer, who is now a partner at Steptoe & Johnson.

If the government bans LNG exports, production will slow and prices will go up anyway, he explained.

"I don't think DOE banning exports will have any impact on prices in the long term," he said.

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Levi made his remarks during a June 6 press call about the planned release of a paper he wrote that offers a framework for government officials deciding whether to allow LNG exports.

The paper was released on June 13 at an energy forum sponsored by the Hamilton Project, an economic policy initiative launched by the Brookings Institution.

In deciding whether to authorize LNG shipments abroad, policymakers should look at the effect on the broad economic picture, as well as on low-income consumers, oil dependence, climate change, foreign and trade policy, and the environment, Levi said.

He said he is not necessarily recommending that the US export LNG, but that the government approve export applications and let the market decide which projects, if any, will be built.

Other countries want access to North American gas, and the US should leverage that, particularly with Japan, he explained.

"If the United States has something that others want, there is no reason not to get something for it."

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Even if the US were to restrict LNG exports, projects in Canada or Mexico could still proceed, triggering the same gas price impacts in the US, Levi said. "You would still get most of the pain and give up most of the gain, he said."

The only way to limit the US price impact of North American exports would be to restrict gas trade with Canada and Mexico, but Michael Greenstone, the director of the Hamilton Project, said such restrictions would not be feasible. "The exports would leak out regardless; they would just be called Canadian exports or Mexican exports," he said.

In addition, US LNG trade restrictions could hurt US access to exports from other countries, such as Chinese rare earth metals, Levi said.

On the issue of broader economic impacts, Levi argued that exports would bring substantial gains that would outweigh modest negative effects on industrial output in other sectors.

On oil security and climate change, the impacts of LNG exports would be minimal, he maintained.

However, LNG exports could marginally increase the price of natural gas in the US, which could hurt low-income households, Levi said. Policymakers should guard against that by protecting funding for the Low Income Home Energy Assistance Program, he added.

Increased gas production to feed LNG exports could also affect the environment, Levi noted. In the years before exports begin, therefore, environmental protections should be strengthened through better industry self-policing and stronger state regulation and enforcement, he said.

Policymakers will have some time to address these potential impacts since LNG exports would start no earlier than 2015, Levi said. "That is a lot of time to really get things straight."

A number of companies have applied to export US gas as LNG. Before a project can proceed, DOE must authorize exports and FERC must authorize facility construction. So far, only Cheniere Energy's Sabine Pass terminal in Louisiana has won both approvals.

While Spitzer disagreed about the potential gas price impacts of LNG exports, he agreed that the market, not the government, should answer the export question.

"The law and economics of the government banning exports is pretty tenuous. I think it is pretty easy to defeat that argument," he said, adding, "The market should decide."

Regarding the environmental impacts of shale gas production, Spitzer said that disclosure and protections are necessary because environmental damage could lead to public backlash against shale gas. But, he said, "I think the states are perfectly capable of regulating this."

FERC's certificate process also ensures that projects are safe and properly constructed, Spitzer added. "You have to go through hoops and I think that is appropriate," he said.

Bill Cooper, president of the Center for LNG, said the US' vast gas supplies should address many of the issues raised by Levi's framework. Exporting excess gas supply will create a macroeconomic benefit; increased gas production will have a mitigating effect on gas prices; and low gas prices will make LIHEAP funds go further, he said.

"Once we come to grips with how much supply we actually have, and I haven't seen any reports to the contrary, the supply answers all of those questions," he said.

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