Industry Groups Refute Concerns Over US LNG Export Benefits

Industry associations American Petroleum Institute (API) and the Western Energy Alliance (WEA) jointly called for the U.S. Department of Energy (DOE) to approve applications for U.S. liquefied natural gas (LNG) export terminals beyond the one application that has been approved so far.

In a conference call with reporters Monday, API and WEA officials countered comments by proponents of LNG export restrictions that exporting natural gas would drive up domestic gas prices and put U.S. manufacturers at a disadvantage, arguing that the United States was capable of expanding gas production to meet demand.

The call came as the public comment period ended for DOE's 2012 Liquefied Natural Gas export Cumulative Impact Study, conducted by NERA Economic Consulting for the U.S. Energy Information Administration. Both groups decided to take the opportunity to reply to comments received so far on the study.

"In analyzing the comments, we found none that provided sufficient credible information to undermine the study's basic premise that the overall U.S .economy would greatly benefit from LNG exports, nor any that convincingly make the case for DOE to deny export terminal licenses," WEA said in a Feb. 22 letter to DOE.

Officials noted that expanding U.S. production would benefit consumers by creating new jobs and economic growth for the United States Recent data shows an average 213,000 new jobs per year could be created from 2015 to 2035 and $700 billion in growth could be created in the chemicals and manufacturing industries due to increased natural gas production, Erik Milito, director of upstream and industry operations with API, said.

The increase in U.S. natural gas supply thanks to the shale boom undercuts the main argument of proponents for restricting exports, which is that DOE used outdated supply data in its analysis that said allowing exports would be beneficial, Milito noted.

"The most recent data from DOE confirms that supplies will be very robust. This implies that there is more than sufficient natural gas to meet domestic and export needs with little adverse impact on prices – and that the net economic benefits of allowing exports are even greater than earlier though," Milito added. "The critics simply didn't acknowledge what an energy juggernaut the shale gas revolution has become and that it is still growing.

Further, the DOE study focuses rigidly on production and price increases, with not enough study into the ability of producers to increase capacity. While gas activity has fallen off in certain dry gas basins such as the San Juan, Powder and Green River basins, more associated gas is being produced with oil in the Bakken and Permian plays, meaning that gas production can be increased in response to demand and keep gas prices down, said Kathleen Sgamma, vice president of government and public affairs with WEA, a group that represents over 400 exploration and production companies, mostly smaller producers with less than 15 employees.

Nineteen projects have either been approved or proposed for U.S. public lands that could create jobs and drilling activity if they are allowed to move forward. These projects also could substantially add natural gas production in the western United States, said Sgamma, who pointed out that the most recent study used data that underestimated U.S. gas production.

However, United States should take advantage of its "first-mover" advantage with the abundant shale gas supplies now available and move forward with LNG exports before the window of opportunity runs out, Sgamma commented.

"Other nations are starting to invest in American-developed horizontal drilling and hydraulic fracturing technology to develop their own reserves. Now is the time for the Obama administration to approve LNG export terminal licenses, rather than continuing to delay job creation and economic growth."

To date, DOE has approved one LNG export application for the Sabine Pass project in Louisiana. The facility is scheduled to begin exporting LNG in 2015. Milito said he believes that the United States won't see "unlimited and unfettered" exports, noting that the market will impose natural gas limitations on which projects moved forward following approval by DOE.

Last week, a group of U.S. senators including Jim Inhofe (R-Oklahoma), Mary Landrieu (D-La.) and Mark Begich (D-Alaska) urged DOE Secretary Steven Chu to support the NERA Economic Consulting Report on U.S. LNG exports, rebutting comments filed that expressed concerns over whether U.S. LNG exports would be in the U.S. public interest.

"For the United States to be a hub of cheap energy, it is imperative to pursue government policies that allow the private sector to make every energy resource as abundant, accessible and as versatile in its consumption as possible," the senators wrote in a Feb. 21 letter. "Achieving this objective requires that producers be allowed access to markets, and that consumers be allowed access to resources.

"Providing this access without bias for one source over another will encourage more widespread production of all energy resources. This will benefit the economy, as it will be accompanied by increased economic activity, job creation, and more widespread energy choices," the senators commented in the letter.

Proponents of restricting U.S. LNG exports include some U.S. manufacturing and petrochemical companies who argue that exporting gas would raise U.S. domestic prices, putting these companies at a competitive disadvantage versus companies from other countries. Some environmental groups who are opposed to hydraulic fracturing also have expressed opposition to U.S. LNG exports, saying that exporting gas would result in increased hydraulic fracturing activity and that NERA did not factor in environmental damage into the costs of allowing LNG exports.

Karen Boman has more than 10 years of experience covering the upstream oil and gas sector. Email Karen at kboman@rigzone.com.

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