Thursday, December 6, 2012

DOE Study Endorses Natgas Export

The U.S. Department of Energy's feasibility study on the impact of exporting natural gas has been completed and it shows that exporting natural gas would lead to "net economic benefits" and would be in the nation's best interest (another link).  It is now up to the DOE to rule on the approximately 15 LNG export applications pending.  The favorable study is not a guarantee of approval, but the DOE has stated that the results of the study would play into its permit decisions.

The study, which was completed by NERA Economic Consulting and had been delayed a couple of times, hardly creates an open-and-shut case for LNG export.  Critics will hammer away at the assumptions and conclusions, and the DOE is unlikely to take any action on approving new permits for at least a month while it absorbs the implications of the study and receives public comments.  The DOE has indicated that all applications will be considered on a case-by-case basis, and it is unlikely that all of the applications will be approved.

The winning argument showed that the net wealth transfer in exporting gas outweighed the slightly increased prices that manufacturers and home consumers would see.  The study was an economic study and did not consider environmental concerns.

There has been a great deal of lobbying on behalf of chemical producers and manufacturers who argue that the current "manufacturing renaissance" would be in danger if we begin exporting gas.  In truth, not all of the 15+ applications will be approved, and export will mainly serve to strengthen the domestic gas production industry by diversifying the consumer base, thus helping to build a floor under gas prices.  While manufacturers like the current low gas prices, what they really appreciate the certainty associated with a large, reliable supply.  Commodity prices can be hedged as long as the supply remains robust, and the manufacturing concerns knew all along that natural gas prices at the current level aren't sustainable.

This is great news for natural gas. I have to say that I was really sweating this one out.  While gas producers are going to lift a glass to celebrate this victory, the coal producers are probably pretty excited too.  They would love to see a permanent floor under gas prices that is higher than the cost of coal.

No comments: