Price Rise Seen Moderate in U.S. Exports of Liquefied Gas

A prospective boom in U.S. exports of liquefied natural gas will have only a modest impact on domestic energy prices and the manufacturers using the fuel, according to a Brookings Institution study.

Gas would rise as much as 50 cents per million British thermal units if exports reached 9 billion cubic feet a day by 2035, according to Charles Ebinger, director of Brookings’ Energy Security Initiative and lead writer of the study released today. The U.S. has approved one terminal to export gas, and it isn’t scheduled to start operating until late 2015.

Drilling techniques such as hydraulic fracturing have cut the cost of producing gas from shale, contributing to an increase in supply that outpaced forecasts, sending prices to the lowest in a decade. The surplus makes it feasible to eventually turn all U.S. gas import terminals into export hubs, according to Ebinger.

“U.S. consumers will pay more up to this narrow range that we’re taking about,” Ebinger said in an interview. “It will be a modest impact on prices.”

Cheniere Energy Inc. (LNG) on April 16 won federal approval to build a $10 billion natural-gas export terminal in Louisiana. Dominion Resources Inc. (D) is seeking to export gas from its Cove Point terminal in Maryland.

If the U.S. becomes an exporter of liquefied natural gas, it will have only a modest impact on domestic energy prices. Photo: Craig Hartley/Bloomberg Close

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If the U.S. becomes an exporter of liquefied natural gas, it will have only a modest impact on domestic energy prices. Photo: Craig Hartley/Bloomberg

Imports Declining

Net imports of natural gas fell to 5 billion cubic feet a day, the lowest level since 1992, according to an Energy Information Administration report in March. Daily gas production rose 10 percent to 64.2 billion cubic feet a day in January from the same month a year earlier, EIA reported in February.

“This report understates the potential negative impacts of natural gas exports on our economy and especially manufacturers,” U.S. Representative Ed Markey of Massachusetts, senior Democrat on the Natural Resources Committee, said in an e-mail. “How we extract and use America’s supply of natural gas will be two of the central energy questions of the coming decade, and our economy and environment can’t afford getting these challenges wrong.”

Chemical manufacturers that depend on natural gas have sought export limits to keep domestic prices low. Dow Chemical Co. (DOW) Chief Executive Officer Andrew Liveris said it would be smart for the U.S. to limit exports to 10 percent of gas output, and that exporting more than 15 percent would tighten markets and send prices higher.

Market’s Role

Restricting exports may create unintended consequences, according to the study. A better course could be to let markets determine the volume of shipments.

“The market will determine after the first few plants if there’s a demand for all these other facilities to come on,” Ebinger said. The government “shouldn’t do anything to retard it, but they don’t need to encourage it other than just keep the regulatory process going.”

A January study by the Energy Department concluded an increase in exports will increase domestic prices. The department is preparing an analysis of economic impacts of gas exports for this summer, Bill Gibbons, a spokesman, said.

“The development of American shale gas resources is having a transformative impact on the U.S. energy landscape,” Gibbons said in an e-mail. “The department will then take time to review the results and develop a path forward for making public interest determinations for the pending export applications.”

Gas for June delivery rose 8.6 cents to settle at $2.371 per million British thermal units yesterday on the New York Mercantile Exchange. Futures have declined 21 percent this year.

To contact the reporter on this story: Jim Efstathiou Jr. in New York at jefstathiou@bloomberg.net

To contact the editor responsible for this story: Jon Morgan at jmorgan97@bloomberg.net

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