As it weighs the implications of allowing liquefaction and export of domestic natural gas, the U.S. Department of Energy should consider “benefits from trade that are difficult to quantify or not evident at first sight,” a researcher said in a recent white paper.

In “LNG Exports: What State Utility Commissions Need to Know,” Ken Costello, principal researcher with the National Regulatory Research Institute, argues that the potential bettering of international relations, positive effects on gas importing countries, and stronger leverage for the United States in trade negotiations should be considered when weighting liquefied natural gas (LNG) exports.

“Policymakers should not evaluate LNG exports in isolation but [rather] as part of the government’s overall trade policy,” Costello wrote. “The possible aftermath of banning the trade of a single product is the unwillingness of foreign countries to trade other products and services with the U.S.

“One option that policymakers might consider is to limit the volume of LNG exports. Policymakers, for example, can favor LNG exports as a general policy but support restricting the magnitude of exports to prevent ‘excessive’ domestic price increases and mitigate the environmental damage from gas production.”

Restricting export volumes would be a political compromise, Costello said. Arbitrary decisions about export volumes would likely create market distortions. “Quotas have their own inherent problems that generally are not in a country’s best interest,” he said.

This lines up with the thinking of two energy experts who recently talked with NGI about exports. Deloitte’s Bill Hederman and energy economist Michelle Foss both said the market would be the best regulator of export volumes (see Daily GPI, Sept. 26).

Costello based his paper on the findings of numerous other research papers and reports on LNG exports, and their potential impact on the domestic gas market.

“Some of the studies reviewed for this paper argue that the market offers a natural adjustment mechanism to higher domestic gas prices by making exports less profitable,” Costello wrote. “For example, with a lower spread between domestic and foreign prices likely, we would see fewer LNG facilities built over time. The studies are effectively recommending that the market, rather than government, should constrain the number of LNG export facilities and export volumes.”

Costello’s paper is intended to be a guide for state utility regulators when they consider the potential consequences of LNG exports, even though they don’t have a say in whether exports actually happen. State regulators’ “main concern, naturally, is the effect that exports would have on domestic gas prices,” Costello wrote. “This paper’s primary conclusion is that, even if natural gas prices increase because of LNG exportation, it would be wrong to conclude that LNG exports are bad for the country.”

©Copyright 2012Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.