ANALYSIS: US gas exports clear hurdle with new study


Shipping some of the newly abundant US natural gas abroad would benefit the nation's economy more than using it to fuel industry at home, according to a long-awaited government study that has the potential to reshape the global energy market.

The endorsement could turn the tide in a politically sensitive issue. Gas producers are eager to export more, while big consumers including manufacturers and chemical companies are leery that exports could raise domestic prices. Environmental groups, meanwhile, fear that allowing exports would encourage more natural-gas production.

The administration had said the study would be central to its decision on approving exports. It analyzed more than a dozen scenarios for US production and exports of natural gas. It found that "across all these scenarios, the US was projected to gain net economic benefits" from liquefying and then exporting natural gas.

The looming prospect of the US becoming a major exporter of natural gas underscores how the energy revolution is transforming the nation's economic prospects. Just a few years ago, many energy companies were planning to build facilities to import liquefied natural gas into the US.

But thanks to technological advances, combining hydraulic fracturing and horizontal drilling, the US has in a short time become a gas-producing powerhouse. The glut of cheap gas has helped underpin a revival in manufacturing and helped lower electricity costs for consumers.

Most of the companies seeking permission to liquefy and then ship gas overseas have been awaiting the report. The Department of Energy had said it wouldn't issue permits for exports to countries lacking a free-trade agreement with the US until the study was done and it could be assured that exports were in the national interest, as required by law.

One export terminal - Sabine Pass Liquefaction in Louisiana - has already received Department of Energy approval. Fifteen other projects, which could export as much as 21.5 billion cubic feet/day of gas, are awaiting approval. That is roughly one-third of total US production, but analysts doubt more than a handful of the terminals will be built because they cost some $5 billion or more apiece.

One potential exporter is the largest US gas producer, ExxonMobil, which is teaming up with Qatar Petroleum for a facility near Port Arthur, Texas. The partners are proposing to invest some $10 billion to turn a gas-import terminal into one that can export. A spokesman for Exxon Mobil said, "LNG exports will help increase economic growth, create jobs and add to government tax revenues."

Already, other nations including Australia are stepping up their capacity to export natural gas. That opens the prospect that natural gas could become more of a globally traded commodity like crude oil. Currently, the difficulty of shipping natural gas means that prices in Asia and Europe are several times the US price.

The rise of the natural-gas trade has geopolitical consequences. Pipelines from Russia now supply a big chunk of the natural gas to Western Europe, but alternative sources could undercut Moscow's sway. In Asia, the US can bolster allies such as Japan and South Korea by helping lessen their dependence on gas imports from unstable regions.

The Energy Information Administration estimated Wednesday that the US could export about four billion cubic feet/day by 2027, or about 6.6% of the country's current natural-gas consumption.

The report was expected earlier this year, but the Department of Energy delayed it twice. For President Barack Obama, gas exports could play into his embrace of rising US production and help achieve foreign-policy goals. But there is also political risk because of criticism from environmental groups, which have been among his strongest supporters.

The Department of Energy said on Wednesday that it would review the economic impact study as well as public comments "prior to making final determinations" on approving LNG-export applications. It said it would study each application on a case-by-case basis.

Exports remain a contentious issue in Washington because of the potential impact on big domestic users. Unlike in some other parts of the world, US natural-gas prices aren't linked to oil prices, which have been generally high in recent years and stood Wednesday near $88 a barrel in the US.

"Let's not let the oil price bleed back into the domestic gas market," said Andrew Liveris, chief executive of Dow Chemical, this week. Dow is one of the largest consumers of US natural gas and is investing heavily to build new processing facilities on the Gulf Coast. Dow executives say that natural gas brings much bigger benefits as a feedstock for the manufacturing and petrochemical industries than as an export.

"Maybe we should be careful, permit a few [export facilities], see how it goes," Mr. Liveris said before the release of the study.

Dow Chemical Vice President George Biltz said Wednesday the study failed to account for US manufacturers' growing use of natural gas.

Environmentalists fear that allowing exports will encourage more natural-gas production, which many oppose because they fear that the hydraulic fracturing used to extract natural gas could contaminate groundwater.

"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," said Michael Brune, the executive director of the Sierra Club, which has spearheaded opposition to new export terminals.

The study, conducted by NERA Economic Consulting, a nonpartisan Washington, D.C., firm that is part of Marsh & McLennan Cos., concluded that exports could raise the domestic price of natural gas by between 22 cents and $1.11 per thousand cubic feet within five years.

It said the figure would depend on several variables, including the strength of demand from domestic manufacturers and how many export terminals get built.

The NERA report found that exports would benefit gas producers while slightly cutting into the real wages of workers, who could see higher prices for electricity and manufactured goods. "Impacts won't be positive for all groups in the economy," the report found.

"It's clear from the study that exporting LNG would be beneficial to the US economy, and the greater the level of exports, the greater the benefit," said Sen. Lisa Murkowski (R., Alaska), the top Republican on the Senate Energy and Natural Resources Committee.

Rep. Ed Markey (D., Mass.), a critic of both fracking and gas exports, said large-scale exports would lead to a "massive wealth transfer from working Americans to oil and gas companies."

The Wall Street Journal (via Dow Jones Newswires)

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