Dow Chemical (NYSE:DOW)
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3 Years : From May 2012 to May 2015
--U.S. natural gas exports would be a net benefit to U.S. economy
--Cost to manufacturing not seen as serious
--Higher natural gas prices would erode worker's wages
(Adds details from report, comments from Dow Chemical CEO earlier this week and analyst comments.)
By Tennille Tracy and Ben Lefebvre
WASHINGTON--A study commissioned by the U.S. Energy Department says that natural gas exports would benefit the U.S. economy, leading to net economic gains that would outweigh the downsides resulting from higher natural gas prices.
The long-awaited study, twice delayed by the Energy Department, will help the Obama administration decide whether to approve more than a dozen proposals to export U.S. natural gas. Natural gas producers and would-be exporters have been lobbying to ship more gas overseas, where prices can be five time as high as that in the U.S.
The Energy Department had delayed decisions on the pending projects until the study was complete.
The study delivers a solid endorsement of natural-gas exports at a time when the issue is hotly debated. Some manufacturers have enjoyed rock-bottom prices for natural gas, thanks to the glut unleashed by hydraulic fracturing in the U.S., and have said that exporting too much gas could endanger their competitive advantage.
Dow Chemical Co. (DOW) Chief Executive Andrew Liveris has been one of the most vocal proponents of limiting LNG exports from the U.S. to capture the benefits of cheap feedstock for the domestic manufacturing sector.
"Let's not let the oil price bleed back into the domestic gas market," he said this week, noting that the absence of a global gas benchmark could result in prices for LNG exports, which are indexed to oil prices, start to push up costs in the U.S.
Dow is one of the largest consumers of U.S. natural gas and alongside peers is investing heavily to build new processing facilities on the Gulf Coast to capture feedstocks that are undercut in the world market only by gas produced in the Middle East.
"Maybe we should be careful, permit a few [export facilities], see how it goes," Mr. Liveris said. The company didn't immediately reply to a request for comment on the DOE-commissioned study.
Study authors NERA Economic Consulting noted that exports would have little impact on overall domestic manufacturing. "Serious impact" would be limited to companies with a high exposure to foreign competition and energy bills greater than 5% of their output costs, the report said.
Meanwhile, higher energy costs would eat into workers' wages but be offset by higher earnings from natural gas investments, the report said.
"Benefits that come from export expansion more than outweigh the losses ... and hence LNG exports have net economic benefits in spite of higher domestic natural gas prices," the NERA study authors said.
Nearly 20 LNG export projects have filed for Department of Energy approval, totaling 23.71 billion cubic feet per day of potential export capacity, roughly one third of the current U.S. production of natural gas. So far only Cheniere Energy Inc. (LNG) has received all the necessary permits to export from a terminal in Louisiana to countries that do not have free-trade agreements with the U.S., mostly in Asia, which are the biggest buyers of LNG. The approved Cheniere terminal, dubbed Sabine Pass Liquefaction LLC, has a projected capacity of 2.2 billion cubic feet a day.
Of the remaining proposals, only those that already have initial agreements with buyers and existing facilities will most likely get off the ground, said Bentek analyst Javier Diaz.
"Having a facility already in place really assures buyers," Mr. Diaz said.
The list of potential winners include Freeport LNG in Freeport, Texas, partly owned by ConocoPhillips (COP) and Dow Chemical; Golden Pass LNG near Sabine Pass, Texas, a project backed by Exxon Mobil Corp. (XOM) and Qatar Gas; and Cameron LNG in Cameron Parish, La., owned by Sempra Energy (SRE), Mr. Diaz added.
--Doug Cameron in Chicago contributed to this article.
Write to Tennille Tracy at email@example.com and Ben Lefebvre at firstname.lastname@example.org
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