Shale Gas Exports: Economic Gains Up, Price Increases Minimal

Location: New York

Date: 2012-12-11

Shale gas may not just be a boon to U.S. energy developers and their industrial users. It may also be desired by enterprises based in Asia and Europe -- something that is one-step closer to reality now that a report issued by the U.S. Department of Energy has given such exports a favorable review.

The analysis says that the shale gas could be shipped overseas in the form of liquefied natural gas (LNG) and that overall, it would produce a net economic benefit for this country by generating an additional $47 billion in gross domestic product by 2020. It says that such expansion would exceed the minor job losses in the manufacturing sector as a result of the higher prices it would pay for domestically-produced natural gas. Some local supplies would be diverted overseas to meet demands there, pushing prices here somewhat higher.

“LNG exports are not likely to affect the overall level of employment in the U.S.,” saysNERA Economic Consulting, which conducted the study on behalf of the energy agency. “There will be some shifts in the number of workers across industries, with those industries associated with natural gas production and production and exports attracting workers.”

Relevant manufacturing businesses, it adds, will see only a slight dip in their employment levels as a result of the U.S. allowing exports. That would equate to one-half of one percent. The study, however, did not address another key obstacle, which is the environmental impacts of the drilling used to dig out the shale gas that is embedded in rock formations deep underground.

The report helps pave the way for the Energy Department’s Federal Energy Regulatory Commission to allow as many as 15 LNG receiving terminals to be converted to export facilities. Earlier this year, the regulatory commission voted to permit Cheniere Energy to retrofit Sabine Pass so that it could begin to export LNG, which is expected to occur by 2014.

Cheniere, whose Sabine facility sits on the Texas and Louisiana border near the Gulf of Mexico, says that it will add jobs and that its project will indirectly support thousands of others. Multiple other LNG export applications are sitting before federal energy regulators that include those of Dominion, Sempra and Southern Union, all of which require federal approval to export.

Search for Shale

The most recent study released by the Energy Department complements a similar one produced in January by the Energy Information Administration. That earlier one says that larger export levels will cause domestic natural gas prices to initially spike but within a few years, they will moderate.

It says that the greater oversea’s demand will prompt domestic energy producers to search for more shale gas. That increased development should satisfy about 60 percent to 70 percent of the new demand from Europe and Asia. It says that value of the remaining portion will jump and potentially force electric generators to seek other fuel forms to serve their customers.

“On average, from 2015 to 2035, natural gas bills paid by end-use consumers in the residential, commercial and industrial sectors combined increase 3 percent to 9 percent over a comparable baseline case with no exports,” says the Energy Information Administration. “Increases in electricity bills paid by end-use customers range from 1 percent to 3 percent.”

The Energy Department is estimating that shale gas will comprise 57 percent of all natural gas development in this country by 2030. Prices are now about $3.40 to $3.70 per million Btus, which is much less than those double-digit rates paid by the Europeans and the Asians. Some of those regions are also rich with shale gas, although the drilling knowledge in Asia is lagging while some of the regulatory pressures in Europe are delaying development there.

For its part, the United States not only faces pressure from chemical manufacturers that are reliant on a cheap feedstock to run their energy-intensive plants but it is also getting hit by green groups that fear “fracking” for shale will pollute drinking water supplies. In appears that the U.S. government will allow for both the exports and the added drilling, rationalizing that free trade promotes economic growth while the fracking can be properly regulated.

The shale gas revolution is positioned to lead the way to economic recovery here. Obstacles lay ahead. But the latest government-sponsored study making the rounds is giving the Obama administration the cover that it needs to both facilitate new production and to streamline the export application process.

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