On December 5, 2012, the U.S. Department of Energy (the
"Department") released for public review and comment its
long-awaited report on the potential impact of liquefied natural
gas ("LNG") exports on the U.S. economy. The
Department's Report, which was prepared by NERA Economic
Consulting ("NERA"), evaluates the macroeconomic impact
of LNG exports on the U.S. economy with particular emphasis given
to the energy and manufacturing sectors. The NERA Report
complements an earlier study which was conducted by the U.S. Energy
Information Administration ("EIA") for the Department in
January 2012.
In announcing the Report's availability, the Department made
clear that the findings in the Report were those of NERA, and not
the Department. The deadline for filing initial public comments on
the Report is January 24, 2013, and reply comments are due no later
than February 25, 2013.
Under Section 3 of the Natural Gas Act, an entity proposing to
export natural gas (including LNG) from the U.S. must obtain
authorization from the Department. The Department is required to
review proposed exports to countries that do not have a free trade
agreement with the U.S. ("Non-FTA Nations"), and must
authorize the export unless it finds that the proposed export
"will not be consistent with the public interest." In
making this determination, the Department considers economic,
energy security, and environmental impacts.
The Department currently is reviewing 15 applications that propose
to export a total of almost 12 billion cubic feet per day of
natural gas from the lower 48 states to Non-FTA Nations. In a
conditional authorization issued by the Department in May 2011 for
the proposed Sabine Pass Liquefaction Project, the Department
stated that it would have to review the potential cumulative impact
of the Sabine Pass authorization and any future LNG export
authorizations on the U.S. economy when considering subsequent
applications to export LNG to Non-FTA Nations.
In the Report, NERA examined the economic impact of different
levels of LNG exports under a total of 63 different market
scenarios. Across all these scenarios, NERA concluded that the U.S.
was projected to gain net economic benefits from allowing LNG
exports, and that the net economic benefits increased as the level
of LNG exports increased. However, consistent with the prior EIA
study, NERA also found that increased levels of LNG exports could
lead to negative economic impacts, including slightly higher
natural gas prices, reduced capital and wage income to certain
classes of consumers, negative competitive impacts on energy
intensive manufacturers, and higher prices for electricity.
The conclusions in the Report are likely to be hotly contested,
with numerous entities and organizations filing comments either in
support or opposition to additional exports of LNG. On one hand, a
trade association of LNG producers, shippers, terminal operators
and developers, and energy trade associations, as well as other
companies in the energy development and production sector, have
released statements in support of the Report and its conclusions.
In contrast, energy-intensive manufacturers and other energy trade
associations have objected to LNG exports on the fear that
increased domestic natural gas prices will hurt economic growth in
the U.S. and the international competitiveness of energy-intensive
manufacturers.
The Report already has been scrutinized by a number of elected
officials. Some officials, including Senator Lisa Murkowski (R-AK),
have expressed support for increased LNG exports. Others, such as
Representative Ed Markey (D-MA), have criticized the Report on the
grounds that it improperly relies on dated information, and have
voiced concerns that increased LNG exports will benefit oil and gas
companies at the expense of consumers.
The issue of LNG exports has also raised the level of debate over
hydraulic fracking, a practice which is credited with helping to
create a surplus of natural gas supplies in the U.S. Because their
focus was on economic impacts, neither the NERA Report nor the
preceding EIA report consider environmental impacts, let alone the
issue of hydraulic fracking. The Sierra Club has protested a
pending export application at the Department on the grounds that
the potential environmental harm that would result from the
increased hydraulic fracturing that would be associated with
increased LNG exports had not been considered by the Department.
Similarly, a group of 110 health professionals recently petitioned
the Administration to delay the approval of additional LNG export
applications until studies on the medical and epidemiological
effects of hydraulic fracturing can be completed.
Regardless of whether you or your organization supports or opposes
increased exports of LNG from the U.S., one thing is clear –
it is important that you file comments and make your opinion on
this issue known to the Department.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.