UPDATE 4-US study says the more LNG exported the better

Thu Dec 6, 2012 2:25pm IST

(Updates with comments from Asian buyers)

* Report says the greater the exports, the more benefits

* Export application decisions after comment period-DOE

* Report confirms prices will rise for consumers-lawmakers

* More than dozen companies waiting on export approval

By Ayesha Rascoe

WASHINGTON, Dec 6 (Reuters) - A U.S. government-sponsored report gave full-throated endorsement on Wednesday for the expansion of liquefied natural gas exports, saying that shipping surplus gas abroad would help the overall economy, despite raising energy prices.

The report, commissioned by the Energy Department, is expected to help shape the Obama administration's response to more than a dozen proposed export projects put on hold over the past year, as a surge in shale gas production upended the market and depressed domestic prices.

NERA Economic Consulting said it examined the impact of LNG exports in 63 scenarios and found exports to be a net benefit for the economy.

"Moreover, for every one of the market scenarios examined, net economic benefits increased as the level of LNG exports increased," the study said.

But the benefits would not be shared evenly, it warned. Although owners of natural gas resources and many downstream investors will benefit from the export boom, regular wage-earners will face higher home heating costs, the report said.

Over the past year LNG exports have become an increasingly contentious issue, pitting manufacturers concerned that exports will raise prices against gas drillers, who argue that exports are necessary to keep production going strong.

The Obama administration has wrestled with how to strike a balance, deferring a decision on whether to permit any additional projects pending the NERA report.

The battle will drag into next year, as the Department of Energy sets aside more than two months to gather public input on the report and opponents line up to highlight its flaws, including the fact that the pace of the shale gas revolution is too swift to anticipate its full effects.

Dow Chemical, one of several industrial firms expanding U.S. operations in hopes of using cheap energy supplies, said the report was based on "outdated and therefore inaccurate estimates" of future gas demand, spokeswoman Nancy Lamb told Reuters in an e-mail statement.

ASIAN ANTICIPATION

Asian LNG buyers, especially Japanese utilities, which have been eagerly anticipating cheaper North American supplies, are likely to applaud the report, which some see as signalling a greater chance of exports.

"It's a very good news for Japan, though it's somehow expected," said Akira Ishii, senior visiting researcher in oil and gas business at state-backed Japan Oil, Gas and Metals National Corp (JOGMEC).

"A political judgment has yet to be made. But I think the report would make it difficult for President Obama to say no."

Japan, the world's largest importer of LNG, has been increasingly reliant on LNG since the Fukushima disaster in 2011 knocked out much of its nuclear power capacity.

It is still unclear how much volume will be exported and which proposed projects will eventually be approved, Ishii said, however.

One South Korean utility source said sourcing LNG from the U.S. could cut costs as much as a quarter.

Asian LNG long term prices are typically oil-linked, making them pricier than U.S. LNG prices, which have been pressured by the country's shale gas boom. While Asian spot prices now hover around the $15.50 per million British thermal unit (mmBtu) level, U.S. gas prices are still under $4 per mmBtu.

REVIEW TO CONTINUE

Despite the high profile nature of the economic report, the administration has stressed it will be only one factor considered by the department in its review.

Various groups, from manufacturers to environmentalists, have aired their views.

The report comes as the Energy Information Administration projected Wednesday that U.S. natural gas production would grow faster over the next two decades than previously expected.

Natural gas output is seen rising to 31.41 trillion cubic feet in 2035 from 27.99 tcf forecast last year. Natural gas production is expected to hit 33.21 tcf by 2040, the EIA said in its annual energy outlook.

The surge in production would allow the country to be a net exporter of gas as early as 2016, the agency said, projecting exports of 4.4 billion cubic feet a day by 2027.

Following the end of the comment period, the department said it would make case-by-case decisions on the 15 queued applications.

Futures prices for 2015 delivery <0#NG:> had risen as much as 14 cents per million British thermal units following the NERA report, as the market factored in possible expanded exports, said Teri Viswanath, an analyst at BNP Paribas.

"There's not going to be a large price impact, but it's another source of demand growth for gas," she said.

UNDERSTATING IMPACTS?

While gas exports would have a positive effect on the U.S. economy overall, selling gas to foreign countries will raise prices for consumers, the report said.

"Households will be negatively affected by having to pay higher prices for the natural gas they use for heating and cooking," the study found.

Leading U.S. lawmakers challenging gas exports homed in on the report's findings that prices would rise.

An influential skeptic in Congress said the report did not change his mind about the need to "look before we leap" to open up exports.

"If you say there's no shortage of gas and you decide you're going to export an awful lot of it, that can raise prices here at home," said Senator Ron Wyden, an Oregon Democrat and the incoming chairman of the Senate energy committee.

"I've got an awful lot of American companies and American manufacturers who are concerned that can hurt their ability to grow in the United States, and hurt consumers," he said, explaining that he was waiting to hear what factors Energy Secretary Steven Chu will use to rule on applications.

Although energy costs will rise for some households, the report said the increase in export revenues would offset this and lead to increased in real income for U.S. households.

Congressman Edward Markey, the top Democrat on the House Natural Resources committee, expressed concerns that the report may be underestimating the negative impacts on American workers and manufacturing due to old data.

COMPANIES SEEK APPROVAL

Drilling innovations have unlocked vast shale oil and gas reserves, placing the United States in a position to be a major exporter. Several years ago the United States was thought likely to be more dependent on foreign gas.

Companies such as Dominion, Sempra and Exxon Mobil have now lined up to get permission to sell the country's cheap abundant natural gas overseas, where it can fetch much higher prices.

The Energy Department's authorization is needed to export natural gas to all but a handful of countries with free trade agreements.

Following its first and only approval of a gas export terminal, Cheniere's Sabine Pass, the Energy Department said it would delay decisions on projects while it commissioned this study to help guide the review.

U.S. Senator Lisa Murkowski, the top Republican on the Senate energy committee, applauded the report and said it may be time to revisit the department's review process for exports.

"The conclusions in this report on the benefits to the economy should inform the DOE approval process regarding exports," Murkowski said.

Fred Upton, the Republican chairman of the House Energy and Commerce committee, said the report should "pave the way" for export approvals. (Additional reporting by Roberta Rampton, Joe Silha, Edward McAllister, Ernest Scheyder in NEW YORK, Risa Maeda and Osamu Tsukimori in TOKYO, Jane Chung in SEOUL, Rebekah Kebede in PERTH; Editing by Bernard Orr, Dale Hudson, Marguerita Choy, M.D. Golan and Clarence Fernandez)

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