Outlook Suggests Green Light For More Gas Exports

A market forecast released yesterday by the U.S. Energy Information Administration paints a rosy picture of an abundant domestic natural gas supply that is ample to serve both an emerging export industry and some of its most vocal opponents, potentially clearing the way for further export approvals by the Energy Department.

"Higher natural gas production ... supports increases in exports of both pipeline and liquefied natural gas," EIA said in a preview of its "Annual Energy Outlook 2014," while also predicting that "low natural gas prices [will] boost natural gas-intensive industries."

EIA's "reference case" makes predictions for the domestic energy market through 2040 and is based on current laws, regulations and technologies. It serves as a base case for a deeper, more complex set of case studies the agency will publish this spring covering the same time period.

DOE officials have said throughout the year that they would look to the "Annual Energy Outlook" for a sense of how the department's natural gas export policy was faring in the real world, as they have issued a series of conditional permits for LNG producers to chase lucrative markets around the world.

"The Department will continue to monitor any market developments and assess their impact in subsequent public interest determinations as further information becomes available, including the EIA's Annual Energy Outlook Report at the end of 2013," officials said as recently as last month, in a press release announcing new export capacity it has approved for a project backed by Freeport LNG (EnergyWire, Nov. 18).

LNG exports have been caught up in a tug of war by powerful interests over the past few years, as would-be exporters argue that shipping the fuel overseas would secure stable markets for natural gas producers and reduce price volatility for consumers, while helping the U.S. balance of trade and boosting the economy.

Critics, led by Dow Chemical Co. and focused in energy-intensive industries like chemicals and metal production, have countered that exporting large volumes of LNG would threaten a nascent domestic "manufacturing renaissance" that is sensitive to the price and availability of raw materials like natural gas and the liquids produced alongside it.

Something for everyone

In the 20-page "early release overview" EIA published yesterday, officials described a base case in which a rising tide of energy production helps both sides in the export debate to flourish (see related story).

The forecast sees 3 percent yearly growth in shipments from natural-gas-intensive industries for the first 10 years of the projection period, slowing to just more than half that rate through 2040 with most of the growth concentrated in bulk chemicals and metals-based durables.

Industrial shipments of bulk chemicals would grow at a slightly faster rate through 2025 thanks to an abundant supply of natural gas liquids, on which many are based, the projection states. That growth rate is projected at 3.4 percent, up from a 1.9 percent growth rate predicted just a year ago.

Past 2030, the study says, growing competition from overseas would flatten the output curve.

For pipeline- and ship-based natural gas exports, the forecast is also upbeat.

EIA sees the United States becoming a net LNG exporter in 2016 as new projects get off the ground with shipments reaching 3.4 billion cubic feet per day by 2025 and 5.8 bcf per day by 2040.

That amounts to a 160 percent increase from EIA's 2013 outlook to the 2014 one, "supported by increased use of LNG in markets outside North America, strong domestic production, and low U.S. natural gas prices relative to other global markets," the authors said.

A key point in the export debate has been how LNG shipments would affect domestic pricing, and specifically whether long-term contracts with buyers in countries that pay far more for gas -- prices in Japan run three to five times what they are in the United States -- would import those prices back to the United States. But the EIA study suggests not.

"The Henry Hub spot price for natural gas in the AEO2014 Reference case is higher than projected [last year] through 2037, with price increases in the near term driven by faster growth of consumption in the industrial and electric power sectors and, later, growing demand for export at LNG facilities. A sustained increase in production follows, leading to slower price growth over the rest of the projection period," it predicts.

No pause in permits?

One question among LNG industry stakeholders is whether DOE would noticeably halt its consideration of export applications to consider data coming in at year-end from EIA.

Officials hinted over the summer, during appearances on Capitol Hill to testify on the issue and elsewhere, that they could take some time to consider new inputs from the information agency.

But during a confirmation hearing last month, Chris Smith, who has been the acting head of DOE's Office of Fossil Energy and is tapped to formally take its helm, told the Senate Energy and Natural Resources Committee that there were no plans to halt the review of proposals. "At this point, our process is to continue to move forward," he said, making decisions "expeditiously on a case-by-case basis."

Bill Cooper, president of the Center for LNG, said the new data only add to the arguments for moving quickly to approve the nearly two dozen projects seeking permission to ship LNG to countries that lack free-trade agreements with the United States, a list that includes top current and projected world buyers like Japan, China and India.

"I see it as a plus," Cooper said of the forecast. "On a per-capita basis, it looks like consumers are better off. ... Prices do go up, but still in the $4 [per million British thermal units, or MMBtu] range, which historically is a good deal."

Representatives of America's Energy Advantage, a trade group that opposes significant growth in LNG exports and includes Dow Chemical, the American Public Gas Association, aluminum manufacturer Alcoa Inc., Eastman Chemical Co., materials company Celanese Corp. and steelmaker Nucor Corp., did not respond to questions yesterday.

But investment analyst group Clearview Energy Partners said in a brief that the forecast may not quiet critics of LNG exports.

The EIA reference case "describes an intermediate future where the U.S. natural gas supply grows rapidly and fulfills all end-use demands while remaining modestly priced," Clearview noted. "EIA is a statistical agency, not a policy-setting body, but this rosy picture might -- by itself -- soothe DOE and White House decision-makers contemplating the pace and scope of LNG exports."

However, Clearview said, the fact that EIA sees natural gas prices eventually rising into the $6 per MMBtu range for industrial users could fuel continued calls by skeptics for additional study of the export issue.

New ammunition for critics could come from a projected jump in demand from U.S. neighbors, especially Mexico, Clearview noted. EIA points to southbound pipeline exports growing more than fourfold over the study period, a form of trade that DOE is severely limited in regulating since Mexico is a U.S. free-trade partner.

"With continued southbound volume growth, we would not be surprised if LNG export skeptics pointed to pipelines as a factor that could increase economic risks for heavy industry. This assertion may overlook the practicality of geographic proximity, but it could still weigh into future decision-making," Clearview said.

Click here for the EIA reference case.

Republished from EnergyWire with permission. EnergyWire covers the politics and business of unconventional energy. Click here for a free trial

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