Report endorses liquefied natural gas exports

A federal report endorsing exports of liquefied natural gas gives developers of the proposed multibillion-dollar facilities the “green light” to move forward, an LSU energy expert said Thursday.

The report, issued by the U.S. Department of Energy, weighed the costs and benefits of liquefied natural gas exports on the economy. Exports provide new markets for producers and the giant facilities are labor intensive to construct, but exports also threaten to raise the price of gas domestically, which impacts consumers and the chemical industry.

“I would say (the report) certainly moves the traffic signal from a yellow to a green light,” said David Dismukes, associate director of LSU’s Center for Energy Studies.

“The projects that are going now, provided they can get their financing and contracts, now face much, much less uncertainty about how regulation may be coming down on them,” he said.

So far, 22 liquefaction facilities have been proposed nationwide — six of them onshore or offshore in Louisiana. Only Cheniere Energy’s $5.6 billion Sabine Pass project in Cameron Parish has been approved to export to countries that don’t have a free-trade agreement with the United States.

The proposed projects could export 28.7 billion cubic feet of natural gas per day, well over a third of current domestic production, according to the Department of Energy.

But Dismukes said less than half of the proposed projects will get developed because of the cost and the competition globally.

Natural gas prices in Europe and Asia, which rely on imports, are several times the price in the United States. Domestic producers hope to capitalize on the difference by exporting liquefied natural gas, which is cooled to 260 degrees below zero and turned it into a liquid. The liquid gas, now compressed, is shipped on specially equipped tankers.

The report, by NERA Energy Consulting for the Department of Energy, says LNG exports would mean higher utility bills for businesses and consumers, although prices wouldn’t rise sharply. It says prices would rise between 22 cents to $1.11 per thousand cubic feet in five years. The amount would depend on a number of factors, including the volume of exports and domestic demand.

Utilities and energy-intensive industries, such as chemical manufacturers, would also be harmed by higher gas prices, the report says. However, the economic benefit to natural gas producers and their shareholders, including pension funds, would be greater than the harm to consumers and others.

The report does not address environmental issues. The Sierra Club and other environmental groups have criticized LNG facilities, saying natural gas produced by hydraulic fracturing uses hundreds of thousands of gallons of water for each well and pollutes drinking water and the air. The energy industry says the practice has been used for decades and does not harm the environment.

Dismukes said the study was favorable overall and shows that global competition will limit U.S. exports.

“One of the points that I’ve been trying to make is while gas prices seem really, really affordable to us relative to where we’ve been, there’s still a lot of cheap gas that’s out there around the world,” Dismukes said. “I mean really cheap, like $1.50 type-production cheap. And once that stuff ramps up it’ll squeeze out any U.S. exports.”

The U.S. spot price for natural gas is now around $3.60 per thousand cubic feet.

Investing billions of dollars in liquefaction projects will be a big risk because at some point, U.S. export terminals will face competition from facilities using even cheaper natural gas, Dismukes said. But that cheap production will take time to get to the market.

Charles Ebinger, director of the Brookings Institute’s Energy Security Initiative, said he was pleased with the NERA report, which showed a net benefit to the country in every export scenario.

Brookings issued a report in May that recommended allowing the market to dictate exports.

The NERA report should dramatically strengthen the advocates of exporting natural gas, Ebinger said. About the only surprise from the report was that Dow Chemical continues to oppose exports and Sen. Ron Wyden, D-Ore., still questions whether exports are good for the country, Ebinger said.

“Don’t let facts get in the way of your analysis,” Ebinger joked.

Dow Chemical executives have criticized the NERA report, saying it didn’t take into account the manufacturers’ growing use of the fuel.

Dan Borné, president of the Louisiana Chemical Association, said the industry group believes that the highest and best use of gas is as a component of chemical manufacturing.

Economist Loren Scott said he agrees with the NERA report that the benefits of exports far outweigh the costs.

“I really don’t think it’s going to be possible for natural gas prices to go up very much as a result of this export,” Scott said.

For one thing, the amount of exports wouldn’t be that great, Scott said. For another, the slightest increase in natural gas prices will allow energy companies to uncap wells that have been shut down, like those in Louisiana’s Haynesville Shale, because of low prices.

“We’ve got more than enough natural gas to cover our domestic needs and exports and keep the price relatively low,” Scott said. “There’s just so much of it.”

Scott said exports wouldn’t affect any of the enormous industrial projects proposed in Louisiana, such as Sasol Ltd.’s natural gas-to-liquids complex in Lake Charles.

Those companies accounted for exports in planning those projects, Scott said.

Low natural gas prices have given chemical companies in Louisiana, and the rest of the country, a huge competitive advantage over their European competitors, Scott said. That’s because the European companies use oil, which is far more expensive than natural gas, as a feedstock.

As long as the price of a barrel of oil is at least seven times the price for 1,000 cubic feet of natural gas, U.S. chemical companies can still “beat the pants off’ their European competitors, Scott said. Oil is now around $88 a barrel, more than 20 times the price for 1,000 cubic feet of gas.