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Exporting Natural Gas Could Mean Higher Prices

January 22, 2012

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There's been a lot of interest in natural gas as an alternative fuel for some types of trucking, largely because of its attractive price compared to diesel. But a study released by the U.S. Department of Energy says if natural gas exports continue to increase, it could cause prices here in the U.S. to rise by between 36% and 54% by 2018.
America's abundant natural gas supplies have led to cheap prices -- which critics say could rise if natural gas is exported.
America's abundant natural gas supplies have led to cheap prices -- which critics say could rise if natural gas is exported.


Some companies are seeking permits to ship liquefied natural gas overseas. After Cheniere Energy got a permit last May to ship gas from its Sabine Pass facility in Louisiana, manufacturers using natural gas, led by the Washington-based Industrial Energy Consumers of America, complained that sales to foreign countries may raise prices at home.

The EIA report is a response to an August 2011 request from the Department of Energy's Office of Fossil Energy for an analysis of "the impact of increased domestic natural gas demand, as exports."

The report found that with expected exports of 12 billion cubic feet of natural gas per day (bcf/day)-the amount of capacity companies have already applied to export-domestic natural gas prices could rise around 24% to 57% above baseline levels, depending on how quickly exports are ramped up and assumptions regarding the U.S. shale gas resource base.

U.S. natural-gas prices are at record lows. In face, Chesapeake Energy Corp., the second-largest U.S. natural-gas producer, will cut output and idle drilling rigs, reports BusinessWeek.

However, even without the exports, natural gas prices will increase under all scenarios considered by the DOE's Energy Information Administration.

"Rapid increases in export levels lead to large initial price increases that moderate somewhat in a few years," the agency said in the report. "Slower increases in export levels lead to more gradual price increases but eventually produce higher average prices during the decade between 2025 and 2035."

The Industrial Energy Consumers of America, which is against the exporting of natural gas, applauded the report. "It would be irresponsible for the DOE to approve export applications without first doing an economic analysis of the impact, but in fact, that is what has occurred," it said, noting that the law does not require the DOE to conduct a study on each export application to determine its impact to natural gas and electricity prices or the economy. It says The Natural Gas Act of 1938 never anticipated that the U.S. would potentially export natural gas.

LNG exports also were criticized by congressional Democrats, including Rep. Ed Markey of Massachusetts, the Ranking Member of the Natural Resources Committee and a senior member of the Energy and Commerce Committee, and Sen. Ron Wyden of Oregon.

The recent shale gas boom has led to the highest level of domestic natural gas production in U.S. history, notes Markey in a press release. The Department of Energy has already approved one application to export 2.2 billion cubic feet per day of natural gas and is now reviewing applications for seven more facilities. If all eight projects go forward, the total amount exported would equal about 18% of the natural gas currently consumed in the United States, according to analysis of data provided by DOE to the Democratic staff of the House Natural Resources Committee.

Rep. Markey sent a letter to Energy Secretary Steven Chu expressing concern about the impact of natural gas exports on American consumers and businesses and questioned the Energy Secretary about his department's review of natural gas export applications.

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