January 19, 2012 / 4:23 PM / in 6 years

UPDATE 5-US natural gas exports to push prices higher-EIA

* Natural gas producers seek government permission for exports
    * Energy Department will consider impact of exports on prices
    * EIA says costs could rise 3-9 pct/yr by 2035 with added exports
    * Department also awaiting report on impact of exports on jobs

 (Adds comment from Dow Chemical vice president)	
    By Ayesha Rascoe and Roberta Rampton	
    WASHINGTON, Jan 19 (Reuters) - 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 in a decade as a
result of booming production from shale, 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. 	
    Chemical makers like Dow Chemical that are building new plants due
to ample supplies of cheap natural gas are closely watching export decisions.	
    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.	
    "It's going to make things more politically difficult," said Whitney Stanco,
senior policy analyst with Guggenheim Securities, noting she expects the
government eventually will approve projects in tranches while carefully
analyzing the impact of added exports.	
    "I think that we'll see some more approvals," Stanco said.	
    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.	
    "Exports are unlikely to be as high as the study forecasts," said Nikos
Tsafos, analyst at PFC Energy, noting that he thought the minimal long-term
price impact projected by the EIA was in the ballpark.	
    A recent Deloitte analysis estimated exports of 6 bcf per day would boost
U.S. gas prices by 1.7 percent from 2016 to 2035. Tom Choi, coauthor of the
study, said he was surprised at the EIA's projections.	
    "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.	
    "Producers are chomping at the bit" to export gas and have already ramped up
production, which could mitigate the sharp initial price jump projected by the
EIA, Choi said.	
    The EIA found industrial users would see the biggest percentage hike in
prices due to exports.	
     "We believe that the United States is best served through exports of
value-added products as opposed to basic raw materials," said George Biltz,
vice-president of energy and climate change with Dow Chemical, noting the
company does not actively oppose nor support exports of natural gas.	
    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 impact of increased exports on jobs and the economy,
said Jen Stutsman, spokesperson for the department. That report is expected
sometime this spring, she said.	
	
 (Additional reporting by Eileen Houlihan, Edward McAllister and Ernest
Scheyder; Editing by Dale Hudson, Lisa Shumaker and Bob Burgdorfer)
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