Last updated: December 5, 2012 10:10 pm

Report gives green light to US gas exports

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Exports of liquefied natural gas from the US have been backed by a government-commissioned study, setting the stage for politically contentious decisions over whether to allow increased foreign sales of the gas unlocked by the North American shale revolution.

The US Department of Energy requested the study as it evaluates applications to export more than 20bn cubic feet per day of gas, almost a third of the country’s output.

The shale gas boom has driven US production to record highs and prices down to just a quarter of their levels in Asia, creating tantalising arbitrage opportunities.

Industrial energy users have argued that allowing more exports would harm the US manufacturing renaissance fostered by low energy costs. The Industrial Energy Consumers of America, a group that opposes speedy approvals of LNG export projects, said the report had “serious weaknesses”.

A government study commissioned by the department this year found LNG exports would raise domestic gas prices. The new study by NERA Economic Consulting concurred that US gas prices would increase when the US exports LNG. However, it said the benefits would be worth the costs.

“For every one of the market scenarios examined, net economic benefits increased as the level of LNG exports increased,” the study said. “In particular, scenarios with unlimited exports always had higher net economic benefits than corresponding cases with limited exports.”

Prices could increase by as much as $1.11 per thousand cu ft after five years of growing exports, the study said, but only under conditions of ample domestic supplies and low domestic prices that kept the US internationally competitive, the study said.

Bill Cooper, president of the Center for Liquefied Natural Gas, which represents companies hoping to export, said:

“As this latest report from DOE clearly shows, we can export LNG without adversely affecting the availability or affordability of our abundant natural gas supplies.”

US benchmark gas was $3.70 on Wednesday on the New York Mercantile Exchange.

Federal law prohibits the energy department from approving natural gas exports to countries without a free-trade agreement with the US – which means most of the world – if it finds exports are against the public interest.

But the shale revolution has created challenges in how to the benefits should be apportioned between consumers and producers.

Only one project, Cheniere Energy’s 2.2bn cu ft per day facility at Sabine Pass, Louisiana, has so far received approval to export LNG to countries without trade agreements.

Following receipt of comments on the report, the department said it would begin to rule on 15 more export applications on a case-by-case basis.

Chemicals manufacturers, which are beneficiaries of cheap energy, have urged US authorities to be cautious about approving new export projects.

Andrew Liveris, chief executive of Dow Chemical, warned earlier this week that allowing large-scale LNG exports could cause Asian oil-linked gas prices to “bleed back” into the US market.

“Let the market move according to the supply-demand paradigm available to the domestic market; don’t inject artificial money into that by enabling LNG exports solely,” he said.

LNG is sold in Japan and Taiwan for the equivalent of about $16 per m British thermal units, according to Argus, the data company.

The NERA study said new exports would mean lower American wages and a boost to energy companies, acknowledging that “impacts will not be positive for all groups in the economy”.

Edward Markey, a congressional Democrat who has introduced bills to limit gas exports, said: “This report confirms that if natural gas exports move forward on a large scale there will be a massive wealth transfer from working Americans to oil and gas companies.”

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