Cheniere’s proposed LNG export project in Cameron Parish, Louisiana is currently the only proposed U.S. project that has received an authorization from the Department of Energy (“DOE”) to export LNG to countries with which the United States does not have a free trade agreement (“FTA”) requiring national treatment for trade in natural gas. Shortly after approving Cheniere’s application, DOE’s Office of Fossil Energy suspended review and approval of all applications for export of LNG to such countries. [1] This “de facto moratorium” on further non-FTA export authorizations was set to last until the completion of two studies the DOE commissioned on the impact of LNG exports on U.S. markets and gas prices. [2]

With the DOE’s release (at long last) of the second study in December 2012, the studies are now complete. [3] DOE has invited public comment on each of the studies, and it expects to act on the pending non-FTA export applications “on a case-by-case basis” after the close of the public comment period on February 24, 2013. [4] At that time, DOE intends to first process those pending applications where the applicant received FERC approval to use the FERC pre-filing process on or before December 5, 2012. [5] DOE has published an order of priority with respect to processing the pending applications, which is as follows:[6]

Click here to see table.

The first study commissioned by DOE, titled “Effect of Increased Natural Gas Exports on Domestic Energy Markets,” was published in January 2012 by the U.S. Energy Information Administration (the “EIA”). [7] This study focused mainly on the effects of increased gas exports on domestic energy prices. The EIA assessed four scenarios using two different levels of exports: 6 billion cubic feet per day (Bcf/d) and 12 Bcf/d. [8] These levels of exports are equivalent to 9 percent and 18 percent, respectively, of 2011 U.S. natural gas production. As of the date of this article, the volumes authorized or requested for export to countries without a qualifying FTA by Sabine Pass and the other, still pending, applications far exceed 12 Bcf/d. [9] Overall, the EIA found that increased gas exports will lead to increased natural gas and electricity prices domestically. However, the study also noted that 60 percent to 70 percent of the increase in gas exports may be satisfied by increased gas production, with an additional amount likely to be satisfied through increased Canadian imports. The study also noted that about 75 percent of the increased gas production necessary to satisfy the increase in gas exports is likely to come from shale gas. Natural gas prices in 2020 are projected across the four scenarios to range from $3.46 to $6.37 per million cubic feet, and carbon dioxide emissions are projected to increase, as higher natural gas prices cause some electric generators to burn coal instead.

The second study, conducted by independent consulting firm NERA Economic Consulting, assessed the broader macroeconomic impacts of U.S. LNG exports, analyzing the impact on the U.S. economy of a number of different scenarios that spanned “a wide range of different assumptions about levels of exports, global market conditions, and the cost of producing natural gas in the U.S.” [10] Although the study found that LNG exports would cause domestic natural gas prices to rise, the authors concluded that this rise would be limited by market forces because foreign purchases of U.S. LNG would diminish “if the U.S. wellhead price rises above the cost of competing supplies.” [11] Importantly, the study found that, across all scenarios, “the U.S. was projected to gain net economic benefits from allowing LNG exports” [12] and that “U.S. economic welfare consistently increases as the volume of natural gas exports increase[s].” [13]

Although LNG exports are expected to create net economic benefits, the NERA study acknowledges that there will be winners and losers. According to NERA, natural gas producers and exporters win by virtue of increased export revenues and payments for liquefaction services, and this added foreign-sourced revenue gets “shifted back to the workers and owners of businesses involved directly and indirectly in natural gas production and exports.” [14] However, the rise in energy costs associated with U.S. LNG exports is projected to “depress both real wages and the return on capital in all other industries.” [15] Furthermore, “[t]he electricity sector, energy-intensive sector, and natural gas-dependent goods and services producers will all be impacted by price rises.” [16] Despite the net economic benefits predicted by the study, energy-intensive industries (such as steel, plastics, chemicals, paper, glass, and fertilizer) will undoubtedly be a continuing source of opposition to U.S. LNG exports. [17]

It is not clear what criteria or guidance will emerge from these studies, or whether DOE will determine that they result in sufficient measurable data to materially change its approach to the analysis of export applications. DOE has stated that it will take into account public comments on these studies in making its public interest determinations on the pending non-FTA export applications. [18] Thus, while Sabine Pass has succeeded in obtaining export authorization, and DOE’s hired consultants have signaled that LNG exports portend a net national benefit, it is doubtful that the battle over the appropriate scope of review of LNG export authorization applications is over.

This article is based upon an excerpt from the authors’ forthcoming article “U.S. LNG Export Projects: Regulatory Outlook and Contracting Mechanisms” scheduled for publication in Volume 8.1 of the Texas Journal of Oil, Gas, & Energy Law.