News Column

Natural Gas Exports Bring Big Economic Benefits, but Domestic Prices Could Rise

Dec. 7, 2012

Ted Sickinger

A long-awaited study on the costs and benefits of exporting burgeoning U.S. supplies of natural gas concludes that the more natural gas sent overseas, the better for the U.S. economy.

The study, sure to stoke further controversy, says exporting will be an economic windfall for gas producers, the owners of export terminals, and their shareholders. Those gains are so big, it concluded, that they outweigh milder negative impacts spread more broadly around the economy.

The negatives include a net loss of U.S. wage income as U.S. industry and consumers absorb increased gas prices. Those increases are forecast to range between 0 and 32 percent, depending on how much and how quickly the U.S. ups its exports.

The 230-page study, commissioned by the U.S. Department of Energy at the request of lawmakers including Oregon Sen. Ron Wyden, has prompted speculation that federal energy regulators will fast track approval of a backlog of applications to export gas.

Yet the macroeconomic analysis, authored by NERA Economic Consulting in Washington, contains a number of microeconomic conclusions that will inflame opponents of gas exports. The question has special relevance in Oregon, home to a number of energy intensive industries as well as two proposals to build gas export terminals in Coos Bay and Warrenton.

Forecast employment impacts in the study were minimal, but varied by industry. The study showed a big upside for the gas industry, and a downside in output for agriculture, chemicals and electric generation. More severe economic harm, the study concluded, is limited to energy intensive industries such as aluminum and pulp and paper manufacturing.

Wyden, the incoming chair of the Energy and Natural Resources committee, on Thursday reiterated his longstanding concern that raising prices could jeapordize a domestic manufacturing renaissance sparked by abundant gas supplies and low costs, while giving overseas competitors a new advantage.

There is support among many in Congress for exporting gas, but Wyden says his committee will be pursuing the question of whether resulting domestic prices increases will squeeze out billions of dollars in natural gas related investments contemplated in the U.S. chemical, industrial and electric generation sectors. He also wants Energy Secretary Stephen Chu to spell out clear criteria for approving applications to export gas.

"It's time to look before you leap," Wyden said.

Broadly speaking, Wyden said the study confirmed a price impact, but only considered a fraction of the supply that companies have already applied to export. The DOE has already approved export applications equal to 40 percent of daily U.S. gas consumption, and has applications pending to export another third of U.S. daily consumption.

Only a few projects have received permits to build export terminals from the Federal Energy Regulatory Commission, however, and there may never be sufficient international demand -- or low enough U.S. prices -- to build out all that export capacity.

The study said the global market limits how high U.S. exports and prices can rise because importers will turn to other global suppliers if U.S. prices rise too high. It also acknowledged significant uncertainty about the sustainability of the U.S. shale gas boom, how much it will cost to extract the natural gas, and environmental concerns that could lead to limits on shale gas development.

The battle over liquefied natural gas terminals has been fierce in Oregon. Backers of proposed export terminals in Coos Bay and Warrenton point to the jobs that would be created by the construction and ongoing operation of terminals and pipelines to export gas.

Environmentalists, meanwhile, worry about the impact of increased fracking and whether higher gas prices would dissuade utilities from shutting older coal fired power plants and switching to cleaner gas. Other concerns include public safety, the use of eminent domain to seize private property for pipelines, and associated impacts on farms, forests and rivers.

"It's a lot of money for the folks who own the gas and the terminals, and everyone else gets stuck with the bill," said Craig Segall, a staff attorney for the Sierra Club. "If you use gas, it's immediately visible to you in higher prices, whereas some nebulous increase in GDP is not."

The DOE has 15 pending applications to export gas. It says the report and resulting comments will be taken into consideration as it makes public interest determinations in each case. It is accepting initial comments on the report for 45 days.

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(c)2012 The Oregonian (Portland, Ore.)

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