Exporting surplus U.S. natural gas could add as much as 9 percent a year to prices of the fuel for consumers and industry over the next two decades, government analysts said on Thursday in a report that could provide fodder for critics who want to keep the resource at home.
With U.S. benchmark gas prices sinking to their lowest levels in a decade as a result of booming shale production, natural gas companies want to export some of the glut to higher-priced markets in Europe and Asia, but they need permission from the government. The report is likely to attract scrutiny in Congress, where members of both parties have expressed hope that ample supplies of cheap natural gas created by the shale boom could fuel industrial growth and create more jobs.
The U.S. Energy Information Administration said on average, consumers and industry could spend 3 to 9 percent more each year over a 20-year period on natural gas because of expanded exports.
On average, U.S. consumers could see a 1 to 3 percent increase in their electricity bills between 2015 and 2035 if export plans come to fruition , said the EIA, the statistical arm of the Energy Department. Advances in drilling techniques including hydraulic fracturing, or fracking, have unlocked vast amounts of natural gas for companies such as ExxonMobil , Chesapeake Energy, Anadarko and Devon Energy.
Seven natural gas terminals, originally designed for imports, have asked the government for permission to export instead, an about-face made possible by the sharp rise in domestic production. Cheniere Energy has received an export permit for its Sabine Pass terminal and has applied for another permit for a second project. Companies including Southern, BG, Dominion and Sempra are in the queue.
INDUSTRIAL USERS TAKE BIGGEST HIT
The EIA modeled several scenarios for the price impact of gas exports based on how much gas is eventually exported and how quickly exports ramp up.
The EIA report showed that exports could bring dramatically higher prices at the "wellhead" for producers, especially at first, with average wellhead prices as much as 36 percent higher in 2018 if exports were aggressive. But the EIA said the impact on producer prices would moderate over time.
The low end of the EIA's price impact is based on exports of 6 billion cubic feet per day, which would assume about half of all proposed export terminals move forward. The high end is based on exports of 12 billion cubic feet per day, a figure about equal to all of the proposed projects moving forward, based on Reuters' estimates.
"The fact that EIA has fairly large price impacts in initial years makes me wonder whether they fully factored in anticipation on the part of producers," said Tom Choi, national practice leader for natural gas at Deloitte.
Choi was the coauthor of a recent Deloitte analysis that estimated exports of 6 bcf per day would boost U.S. gas prices by 1.7 percent from 2016 to 2035. He said he was surprised at the price impact projected by the EIA. Companies will ramp up gas production, anticipating that exports will go ahead, which could mitigate the sharp initial price impact projected by the EIA, he said.
"Producers are chomping at the bit ... for these export projects to be completed," Choi said in an interview.
The EIA found industrial users, such as chemical plants, would see the biggest percentage hike in prices due to exports. The EIA report could prompt the Energy Department to be more cautious in its review of export applications, said the head of a trade group for large energy-intensive manufacturers.
"Now they know it can be a huge cost," said Paul Cicio, president of the Industrial Energy Consumers of America, which has asked Congress to force the Energy Department to further study the impact of each export application.
POLITICAL RISK IN RISING NATGAS PRICES
Some Democrats in Congress have said they do not believe natural gas exports should be allowed if prices for consumers and industry rise as a result.
"Today is a wake-up call to American consumers and businesses who rely on natural gas that higher prices are on the horizon if we don't keep our natural gas here in America," said Edward Markey, a Democratic congressman from Massachusetts and a long-time critic of the oil and gas industry.
The results could also provide support to lawmakers who have proposed ways to make it more attractive to use natural gas in the transportation sector, an idea heavily promoted by Texas oil billionaire T. Boone Pickens.
"Do we export our natural gas while continuing to be dependent on importing oil, or retool the U.S. transportation system that focuses on natural gas versus gasoline?" said Chris Jarvis, president of Caprock Risk Management in New Hampshire.
"In our opinion, the latter would create more jobs, stimulate the economy more, and reduce our dependence on foreign oil," Jarvis said.
But proponents have argued that without exports, depressed prices will lead oil and gas companies to drill elsewhere, reducing production and causing prices for buyers to become more volatile.
"The problem with too-low gas prices, which we may be getting very close to at this point, are that we want to have a resource that's sustainable," said Gordon Pickering, director with Navigant Energy, who has analyzed the price impact of exports for several natural gas export applicants.
WHAT'S NEXT: ANOTHER REPORT
Under U.S. law, the Energy Department cannot deny exports to 15 countries that have bilateral free trade agreements with the United States, a list that will soon expand when pacts with South Korea, Colombia and Panama take effect. Exports to other countries are reviewed on a case-by-case basis.
Before making further decisions on pending applications, the Energy Department commissioned the EIA study, which now will be used by an independent contractor to analyze the economic effects of increased exports, said Jen Stutsman, spokesperson for the department. That report is expected sometime this spring, she said.
(Additional reporting by Eileen Houlihan in New York; Editing by Dale Hudson and Lisa Shumaker)