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Researcher: Allowing LNG Export 'Right Policy Call'

U.S. regulators should approve applications to export liquefied domestic natural gas, but they should let markets decide whether and to what extent exports happen, a Council on Foreign Relations researcher asserts in an upcoming paper. Exports will have drawbacks, but these can be mitigated and will be outweighed by benefits of export, council Senior Fellow Michael Levi told reporters Wednesday.

Levi's analysis focused on six areas of concern as they relate to LNG export:

One of the benefits of LNG export is that many countries want access to U.S. gas, he said, and the United States should take advantage of that. Opening the U.S. gas market to global access -- particularly from Asia -- could be an important bargaining chip when it comes to trade talks in other areas, Levi said. "The United States has something others want; there's no reason not to try to get something for it."

Because of this and other reasons, Levi said allowing exports while addressing associated risks "is the right policy call."

Levi's paper, "A Strategy for U.S. Natural Gas Exports," is to be released Wednesday (June 13) by The Hamilton Project at the Brookings Institution. Levi's laissez fare attitude toward LNG exports is similar to one outlined by Brookings researchers earlier this year (see Daily GPI, May 7).

While some petrochemical and other end-user interests have voiced opposition to exports on fears that they would raise domestic gas prices, Levi said his research found that such a price impact would be modest. In the case of petrochemical interests, which rely increasingly on U.S.-sourced natural gas liquids (NGL), particularly ethane, exports might be a good thing. Increased domestic gas production stimulated by export demand would also increase the production of NGLs, he said.

Levi noted that the American Chemistry Council earlier this year said it would oppose restrictions on the export of LNG. "We put our confidence in the free market to determine natural gas supply and demand. We would oppose legislation that attempts to restrict exports of natural gas," ACC said in a recent statement.

When it comes to the impact exports would have on gas prices paid by consumers, here again Levi said benefits would outweigh the consequences of exports. Those most harmed by higher domestic gas prices, namely low-income consumers, could be compensated with funds from increased corporate tax revenue resulting from export operations. Levi said higher tax revenue would be more than enough to cover higher energy costs realized by low-income consumers.

The Sierra Club and other environmental groups have expressed opposition to exporting LNG as it would stimulate more domestic gas production and increased use of hydraulic fracturing to stimulate unconventional wells (see Daily GPI, April 23). Levi acknowledged this but argued that better industry "self-policing" and stricter enforcement of state-level regulations with perhaps some minimal federal standards could address this risk. "The key here is we're not talking about creating a big increase in production overnight," he said, adding that the industry and regulators would have time to ramp up efforts to address any environmental risks.

In April the U.S. Department of Energy approved the first application for a company -- Cheniere Energy units Sabine Pass LNG and Sabine Pass Liquefaction -- to export LNG to countries with which the United States does not have a free trade agreement (see Daily GPI, April 18). Since then DOE has put the permitting process on hold while it awaits the completion of the second half of a two-part study to assess the impact of LNG exports on the economy, including domestic gas prices, job creation, gross domestic product and the balance of trade. The results of the study are due by late summer.

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