If the Lower 48 states were to export liquefied domestic gas to markets such as Asia and Europe -- most likely from the Gulf Coast region -- it would mean higher gas prices for U.S. consumers, more domestic gas production along with reduced domestic consumption and an increase in pipeline gas imports from Canada, according to a government analysis.

"Larger export levels lead to larger domestic price increases, while rapid increases in export levels lead to large initial price increases that moderate somewhat in a few years," the Energy Information Administration (EIA) said in its report, which was requested by the U.S. Department of Energy's Office of Fossil Energy (DOE/FE).

"On average, from 2015 to 2035 natural gas bills paid by end-use consumers in the residential, commercial and industrial sectors combined increase 3-9% over a comparable baseline case with no exports, depending on the export scenario and case, while increases in electricity bills paid by end-use customers range from 1-3%," the report said.

EIA also found that increased domestic production satisfies 60-70% of the export demand, with "a minor additional contribution" from increased imports from Canada. "Across most cases, about three-quarters of this increased production is from shale resources," the report said.

The rest of the gas that would be exported would be gas not consumed domestically due to higher prices, EIA said. "The electric power sector accounts for the majority of the decrease in delivered natural gas," according to the report. "Due to higher prices, the electric power sector primarily shifts to coal-fired generation, and secondarily to renewable sources, though there is some decrease in total generation due to the higher price of natural gas. There is also a small reduction in natural gas use in all sectors from efficiency improvements and conservation."

EIA was directed to consider four liquefied natural gas (LNG) export scenarios:

Total marketed U.S. natural gas production in 2011 was about 66 Bcf/d. The two ultimate levels of increased natural gas demand due to additional exports in the DOE/FE scenarios represent roughly 9%, or 18% of current production.

In the "low/slow" scenario the impact on wellhead gas prices peaks in 2022 at about 14%, or 70 cents/Mcf. "However, the wellhead price differential falls below 10% by about 2026," EIA said.

In the "high/rapid" LNG export scenario wellhead prices would be about 36% higher, or $1.58/Mcf, in 2018 than if there were no exports. That differential falls below 20% by about 2026, EIA said. "The sharp projected price increases during the phase-in period reflect what would be needed to balance the market through changes in production, consumption and import levels in a compressed timeframe."

EIA found that slower increases in exports lead to more gradual price increases but ultimately produce higher average prices, particularly from 2025 to 2035. "The differential between wellhead prices in the 'high/slow' scenario and the no-additional-exports scenario peaks in 2026 at about 28%, or $1.53/Mcf, and prices remain higher than in the 'high/rapid' scenario," the report said.

"The lower prices in the early years of the scenarios with slow export growth leads to more domestic investment in additional natural gas-burning equipment, which increases demand somewhat in later years relative to rapid export growth scenarios."

Generally, exporting domestic gas is perceived by some to be anti-U.S. consumer, that is to say a threat to supply sufficiency and an elevator of citygate prices. The Industrial Energy Consumers of America, a manufacturers trade association, has been highly critical of LNG export plans.

On behalf of U.S. LNG export hopeful BG Group, last year Deloitte MarketPoint LLC (DMP) assessed the potential economic impacts of LNG export using its "North American Power, Coal and World Gas Model" and found that the price impact would range from less than 10 cents/MMBtu to about 22 cents/MMBtu depending upon location (see Daily GPI, Dec. 19, 2011).

DOE/FE requested the EIA report last August in order to assess the impact of exporting domestic LNG as has been proposed by several parties (see Daily GPI, Jan. 3). The department is weighing applications to export LNG to countries that are not parties to a free trade agreement (FTA) with the United States. In the case of exports to countries that are FTA parties with the United States the department has limited jurisdiction under the Natural Gas Act to block such exports.

Key countries with FTAs include Canada and Mexico, which engage in significant natural gas trade with the United States via pipeline. An FTA with South Korea, currently the world's second largest importer of LNG, which does not currently receive domestically produced natural gas from the United States, has been ratified by both the U.S. and South Korean legislatures but has not yet entered into force.

EIA used the "Annual Energy Outlook 2011" reference case issued in April 2011 as the starting point for its analysis and made several changes to the model to accommodate increased exports. The agency assumed that an Alaska gas pipeline to serve the Lower 48 would not be built during the forecast period in any of the cases in order to isolate the Lower 48 state supply response.

The first party to apply for export authority, Cheniere Energy unit Sabine Pass Liquefaction LLC (see Daily GPI, Nov. 22, 2011), has received approval to export 2.2 Bcf/d under both FTA and non-FTA provisions. Sabine Pass has received a favorable environmental assessment for its project from the Federal Energy Regulatory Commission (see Daily GPI, Dec. 29, 2011).

DOE recently posted a summary of applications and their status on its website. According to the summary of Dec. 22, so far receiving approval to export to countries that are parties to an FTA with the United States are:

All of the projects approved except Jordan Cove also have applications under review to export to non-FTA countries. Cameron LNG LLC has applications under review for export of 1.7 Bcf/d to FTA and non-FTA countries (see Daily GPI, Nov. 4, 2011), DOE said.

Not included in the approval list is Cheniere Energy unit Corpus Christi Liquefaction LLC, which recently announced plans to liquefy and export gas from the Eagle Ford Shale in South Texas (see Daily GPI, Dec. 19, 2011a). DOE had not received an application from Corpus Christi Liquefaction at the time the list was compiled.

Overall, DOE has received applications to export 12.33 Bcf/d to FTA countries and 12.51 Bcf/d to non-FTA countries. The amounts are not additive. These figures include an application from Gulf Coast LNG Export LLC to export 2.8 Bcf/d that was rejected as incomplete.

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