On December 5, 2012, the Department of Energy (“DOE”) released the results of a long-awaited study that it commissioned regarding the macroeconomic impacts of liquefied natural gas (“LNG”) exports from the U.S. Notably, the study, conducted by NERA Economic Consulting (“NERA”), concluded that “LNG exports have net economic benefits in spite of higher domestic natural gas prices.” The study also determined that LNG exports from the U.S. would have a relatively small impact on domestic prices, and that LNG exports from the U.S. are “not likely to affect the overall level of employment in the U.S.”
NERA’s study marks the second of two LNG export studies commissioned by DOE. The first study, conducted by the Energy Information Administration (“EIA”), analyzed the impact LNG exports would have on domestic prices for natural gas. EIA’s study was released at the beginning of 2012, while NERA’s study was originally scheduled to be released this spring. NERA’s study, which built on EIA’s study, focused on the economic impact LNG exports would have on the U.S., with a particular emphasis on the energy and manufacturing sectors.
NERA explained in its study that it analyzed the impact of LNG exports on the U.S. economy using several different “market scenarios” by making different assumptions about levels of exports, global market conditions, and the cost of producing natural gas in the U.S. Ultimately, NERA concluded that “[a]cross all these scenarios, the U.S. was projected to gain net economic benefits from allowing LNG exports.” Furthermore, NERA noted that “for every one of the market scenarios examined, net economic benefits increased as the level of LNG exports increased.” As such, “scenarios with unlimited exports always had higher net economic benefits than corresponding cases with limited exports.”
However, NERA’s study also cautioned that under current conditions in the U.S. and the world, “there is no feasible level of exports possible from the U.S.” Thus, NERA stated in its study that “[i]f 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.”
In terms of pricing, NERA’s study concluded that natural gas prices would remain in a “relatively narrow range across” all of NERA’s market scenarios. Specifically, NERA stated that natural gas prices could increase at the time of LNG exports by as much as $0.33 per thousand cubic feet (“Mcf”) in 2010 dollars, with the largest price increases occurring after five additional years of increasing exports, and ranging from $0.22 to $1.11 per Mcf.
In order for an entity to export LNG from the U.S., it has to receive permits from both DOE and FERC. While DOE provides the authorization to export the actual LNG, authority for construction and siting of export LNG facilities is assigned to FERC. Under current U.S. law, DOE is required to approve LNG export applications to nations that have a free trade agreement with the U.S. (“FTA Nations”). However, for applications to non-FTA Nations, DOE can deny applications that it finds “will not be consistent with the public interest.” Thus far, only the Sabine Pass LNG Terminal proposed by Cheniere Energy, Inc. has received DOE approval to export LNG to both FTA and non-FTA Nations. All of the other pending LNG export applications at DOE – which currently represent up to 23.71 billion cubic feet/day in LNG exports to non-FTA Nations – were previously put on hold until the release of NERA’s study.
While DOE released NERA’s study, it noted that the study is not the product of DOE, and that it “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.” Thus, DOE stated that NERA’s study will be one of the inputs considered during DOE’s evaluation of LNG export applications.
DOE has posted NERA’s study in all of its dockets with pending LNG export applications. Going forward, NERA’s study will be open for public comment for 45 days after the study is officially noticed in the Federal Register, with 30 additional days for reply comments. Once this comment period ends, DOE will act on pending LNG export applications on a case-by-case basis. DOE stated that it expects to first act on those applications that have already commenced the pre-filing process at FERC, and in the general order in which DOE received the applications. After DOE has reviewed these applications, it will act on the remainder of the pending applications, as well as any other future applications submitted to DOE, in the order they are received.