On December 5, 2012, the U.S. Department of Energy, Office of Fossil Energy (DOE) posted the long awaited results of a third-party study on the potential macroeconomic impacts of liquefied natural gas (LNG) exports.
Although the study’s aggregate macroeconomic results suggest that LNG export has net benefits to the U.S. economy, whether the study will help expedite DOE’s issuance of export authorizations remains unclear. DOE has approved only one LNG export project to non-free trade agreement countries – to Sabine Pass Liquefication, LLC – while fifteen applications await a decision pending the results of this study, which now are open to public comment.
Federal law generally requires approval of natural gas exports to countries that have a free trade agreement with the United States. For other countries, section 3(a) of the Natural Gas Act authorizes DOE to grant applications for export authorizations as long as the proposed exports are consistent with the public interest.
It is DOE’s policy that section 3(a) creates a rebuttable presumption that a proposed export is consistent with the public’s interest. DOE’s public interest analysis of export applications focuses on the domestic need for the natural gas proposed to be exported, whether there is a threat to domestic security supply, and other factors to the extent they are shown to be relevant to the public interest, such as any economic, energy security, and environmental impacts.
The study’s broad conclusions bolster arguments in support of LNG exports. Across all analyzed scenarios, the United States was projected to gain economic benefits from allowing LNG exports, according to the metrics of welfare, gross domestic product, aggregate consumption, and trade balance. Moreover, the net benefits across all scenarios examined and the benefits generally were found to become larger as the amount of exports increases.
Opponents of LNG export, however, may point to higher domestic LNG prices as a major reason for DOE to withhold authorizations. The study noted that increases in domestic LNG prices could hurt trade-sensitive industries (e.g., the steel industry), the electricity sector, and other energy-intensive industries. Opponents are likely to highlight that higher operating costs in these sectors will shift to consumers, in the form of high prices for goods being produced, and onto suppliers, whose workers and owners may experience losses.
Currently, fifteen export applications are pending for DOE’s public interest consistency determination. The study supports a conclusion that LNG exports produce an overall net benefit to the U.S. economy, but DOE may focus more on near-term impacts identified in the study The very fact that DOE commissioned the study to focus on trade-sensitive and energy-intensive sectors demonstrates that to them it is an area of particular concern. As much as the report favors DOE authorizing LNG exports, the results are not the slam dunk that the industry had hoped it would be.
DOE posted the report in the fifteen pending export application dockets and invites public comment on each. DOE intends to consider the comments and the report as it makes its public interest determination in each case. Comments are due January 24, 2013 and reply comments are due January 25, 2013 in all cases.