Friday, December 07, 2012

New Report Says LNG Exports Would Yield Net Economic Benefits

Dec 5: As part of a broader effort to further inform decisions related to LNG exports, the Department of Energy (DOE) 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.

    DOE indicates that 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, DOE will begin to act on the 15 applications on a case-by-case basis. The study released 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.

    The NERA report contains an analysis of the impact of exports of LNG on the U.S. economy under a wide range of different assumptions about levels of exports, global market conditions, and the cost of producing natural gas in the U.S. The report concludes, "Across all these scenarios, the U.S. was projected to gain net economic benefits from allowing LNG exports. Moreover, for every one of the market scenarios examined, net economic benefits increased as the level of LNG exports increased. In particular, scenarios with unlimited exports always had higher net economic benefits than corresponding cases with limited exports."
    Additionally, the report indicates, "Net benefits to the U.S. would be highest if the U.S. becomes able to produce large quantities of gas from shale at low cost, if world demand for natural gas increases rapidly, and if LNG supplies from other regions are limited. If the promise of shale gas is not fulfilled and costs of producing gas in the U.S. rise substantially, or if there are ample supplies of LNG from other regions to satisfy world demand, the U.S. would not export LNG."
    Senator Lisa Murkowski (R-AK), Ranking Member on the Senate Energy and Natural Resources Committee commented on the report saying, "The administration should be commended for commissioning such a comprehensive and transparent review of the potential impacts of exporting natural gas. It's clear from the study that exporting LNG would be beneficial to the U.S. economy, and the greater the level of exports, the greater the benefit." She said, DOE is required to approve exports to countries with free trade agreements with the United States, but it can limit or block exports to non-FTA countries if it finds they are not in the public interest.

    Sen. Murkowski explained that DOE put a hold on reviewing export license applications until two studies on LNG exports were finalized. The Energy Information Administration released the first one in January. Today's report is the second study. She said that based on the findings of the most recent study, it may be time to revisit the approval process for exporting LNG to non-FTA countries. She said, "The conclusions in this report on the benefits to the economy should inform the DOE approval process regarding exports. This is a really good report and it really does provide guidance as we move forward."

    On November 29, Sierra Club released a report highlighting what they called "the significant risks of exporting liquefied natural gas (LNG)," and called on DOE to take a "careful look at the dangerous effects of increased fracking on Americans' water, air, land and health." The report, titled Look Before the LNG Leap, cautions against the rubber stamp approval of proposed liquefied natural gas export facilities, and refutes DOE's claim that it cannot predict where new fracking will occur as a result of approved LNG exports [See WIMS 11/29/12].

    Sierra Club Executive Director Michael Brune issued a statement on the latest NERA report saying, "The law requires the Department of Energy 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. Even if we consider what's actually included in this analysis, increased gas exports are expected to result in higher gas prices and lower wages for American families, meaning we pay the price here while the companies shipping gas overseas rake in the profits."

    The American Petroleum Institute (API) Group Director of Upstream and Industry Operations Erik Milito welcomed the NERA report and said, "Today's DOE report highlights the game changing benefits of exporting energy. This is a big opportunity for the administration to bolster job creation and economic growth and to address the backlog of LNG export applications. The U.S. is at a historical turning point with energy due to the nation's abundant natural gas resources. With the right policies, exports can help grow the country's economy, help reverse our trade deficit and help bring back millions of U.S. jobs in engineering, manufacturing, construction and facility operations."

    Access a notice from DOE and link to the FR notice of availability; the EIA analysis; the NERA analysis; and a summary of LNG export applications (click here). Access a release from Sen. Murkowski (click here). Access the complete 44-page Sierra Club report (click here). Access the statement from Sierra Club(click here). Access the statement from API (click here). [#Energy/LNG]

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