Shale Gas Exports: Economic Gains Up, Price Increases Minimal

U.S. Energy Department Study Gives Obama Administration Cover

Ken Silverstein | Dec 10, 2012

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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.,” says NERA 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.


EnergyBiz Insider has been awarded the Gold for Original Web Commentary presented by the American Society of Business Press Editors. The column is also the Winner of the 2011 Online Column category awarded by Media Industry News, MIN. Ken Silverstein has been honored as one of MIN’s Most Intriguing People in Media.

Twitter: @Ken_Silverstein

energybizinsider@energycentral.com


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Comments

The "trap" of the shale gas bubble continues...

This is so clearly another bubble that it is embarrassing so few in the energy industry see it.  Ostriches or complicit in the act of deception???  Dig it up faster so you can ship oversees to be burned by an economic competitor.  Fine, as long as WE don't continue subsidizing O&G's efforts to do this.  Yet those tax and structuring subsidies specific to O&G aren't going anywhere.  

Another boom and bust cycle unknowingly supported by the populace--sadly there will be a day of reconning for all.  The "party" of growth for growth's sake is going to end badly (the Industrial Revolution).

EXPORT US NATURAL GAS WOULD RAISE DOMESTIC ENERGY COSTS

The abundance of low cost Natural Gas from unconventional source (i.e. shale) would provide a profitable export. At present Natural Gas is trading at about $2.6/MMBTU and is expect to stay below $4/MMBTU for the next few years. During this time natural gas could be exported in the form of Liquified Natural Gas [LNG]. LNG plants have proposed and could be built to address the wide spread of Natural Gas costs between US [$2.50 – 4/MCF], Europe [$10/MCF] and Asia [$15/MCF].

A down-side exists to this scenario. A recent estimate states that US natural gas prices could escalate 22 – 23 cents per MMBTU for every Bcf/day of gas exports. Combine this with converting some of the 45 GW of coal generating capacity slated for retirement by 2018. LNG export and use of natural gas for base-loaded power plants will increase cost of electricity to both industry and consumers.

Richard W. Goodwin West Palm Beach FL

 

The worst form of a truth is a half truth!

Kudos to you on framing the question of natural gas exports in the manner that you did!  By limiting the scope fo the question to the effect that NG exports would have on US employment, you successfully diverted attention away from the real economic and environmental problems that come with fracked Natural gas.

By itself, exporting NG won't raise prices enough to cause people to lose their jobs, but it will cause NG prices to rise.  Combine this increase in demand with the adoption of NG as a fuel source for our transportation needs and NG prices will rise even more.

The end result is that the oil and gas industries will benefit financially, but Americans won't really benefit that much and will be the ones shouldering the environmental risks connected with fracking.  Also, let's not forget that the fracking process uses millions of gallons of water per well.  That water is then either lost in the fracking process (where it can migrate to contaminate aquifers) or interned in injection wells (where it can increase seismic activity).  Either way, we lose a resource that in the long run is far more valuable than oil or natural gas!

 

Bob "The Clean Energy Guy" Mitchell