New EIA Report Asks: What if the US Exported More LNG?

In a report recently released by the EIA, the Office of Energy Analysis (OEA) takes a stab at answering a question that was formally asked by the Department of Energy’s Office of Fossil Energy back in August 2011: What would be the “impact of increased domestic natural gas demand, as exports?”

OEA’s analysis considered four different scenarios consisting of a slow (1 Bcf/d/yr) or rapid (3 Bcf/d/yr) rate of “phasing-in” increased exports, and a low (6 Bcf/d) or high (12 Bcf/d) ultimate expected rate of export.^[1]

As one might expect, their results suggest that increased exports of natural gas (as liquefied natural gas, or LNG) would lead to upward pressure on domestic gas prices. This, in turn, would result in increased domestic production, and (to a lesser degree) upward pressure on electricity prices. The level of the impact on power generation would partly be a function of the difference between the rate of the increase in exports, and the rate of the increase in production.^[1]

This upward tick in natural gas production could reverse a recent trend that has seen companies moving away from dry gas plays. As an example, Chesapeake Energy just announced plans to  reduce the number of its operating dry gas rigs by ~68%,  a result of the currently low natural gas prices.^[2]

The current state of affairs in the domestic natural gas markets is significantly different than it was just a few years ago, prior to the rapid adoption of hydraulic fracturing and horizontal drilling, and prior to the recession. Several LNG regassification import terminals were permitted, financed, and built based on the expectation that the US would remain a net importer of natural gas for the foreseeable future.^[3][4]

Now, several of those import facilities are going through a similar process to get liquefaction facilities in place that will enable the exports being considered in this EIA report. Cheniere Energy is doing just this. The company has plans to construct a liquefaction facility at its Sabine Pass LNG import facility, which will have approximately a 2.6 Bcf/d export capacity. The company has already initiated FERC, NEPA and DOE permitting procedures and expects the facility to begin operations as early as 2015. They are also considering plans to construct an additional 1.8 Bcf/d export facility in Corpus Christi.^[5] 

However, it is still not certain that companies like Cheniere Energy will be able to recognize a return on their investment with these export facilities. Just as the adoption of new drilling technologies reduced the need for US LNG imports, the spread of those technologies to other parts of the world may also reduce the US opportunity to export.

Very importantly, the authors of this EIA report note that the National Energy Modeling System (NEMS) used for their projections “is not a world energy model and does not address the interaction between the potential for additional U.S. natural gas exports and developments in world natural gas markets.”^[1]

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End Notes:

[1] EIA Report, “Effect of Increased Natural Gas Exports on Domestic Energy Markets,” Dated 19 January 2012: http://www.eia.gov/analysis/requests/fe/pdf/fe_lng.pdf

[2] O&GJ, Chesapeake dry rig count cut: http://www.ogj.com/articles/2012/01/chesapeake-cuts-operated-dry-gas-drilling-rig-count.html

[3] FERC: Approved & Proposed (Potential) North American LNG Import/Export Terminals: http://ferc.gov/industries/gas/indus-act/lng.asp

[4] Market Watch, LNG Exports: http://www.marketwatch.com/story/shale-gas-opens-door-to-us-lng-exports-2011-12-05

[5] Market Watch, Cheniere: http://www.marketwatch.com/story/cheniere-plans-second-us-lng-export-terminal-2011-12-16

Will we not make a difference?

Energy in Nature and Society is a book by Vaclav Smil on general energetic of complex systems, and at the end of the chapter on environmental consequences, he stated:

“that future limits on human energy use may arise, not from the resource shortage but from the necessity to keep these cycles compatible with the long-term habitability of the biosphere.”

From his book, I learned that the earth could provide us plenty fossil fuels to support our current lifestyle comfortably through out the 21st century, but if we continue the way we are polluting the atmosphere, the climate may not make it.

It seems like that more people are realizing this; with the growing effort in reducing carbon emission world wide, one would only expect that the trend would show the same.  More people are cutting their energy consumption, supporting renewable energies, and improving their car & appliance efficiencies.  Even big events such as Super Bowl and Winter Olympic are also putting in effort to reduce their carbon emission.  However, the latest forecast from EIA doesn’t seem to match this trend. Its forecast on energy consumption up to 2035 remains steady growth similar to the growth since 1980, and carbon emission remains to grow.

As we can see that there is a drastic drop in energy consumption around 2008, and corresponding to this, the US carbon emission dropped 6.3% in 2009.  The poor economy was the main explanation for this drop, but a growing effort to reduce fuel consumption nation wide could also have caused this drop. It’s strange that the EIA forecast does not follow this down slope but predicts the consumption to go back up and continue increase at similar rate as the past 30 years. Then, how will this impact the climate be if the forecast is accurate? Will we not make a difference? Or, is this a way to encourage the consumer continue their previous lifestyle and consume more energy?

The report did mention a rapid growth in sales of unconventional vehicle  technologies, but somehow it doesn’t seem to change the transportation consumption forecast much.

” such as flex-fuel, hybrid, and diesel vehicles, as well as slower growth in sales of new light trucks. Sales of hybrid vehicles, including plug-in hybrid electric vehicles (PHEVs), increase from 2.6 percent of new LDV sales in 2008 to 24.6 percent in 2035. PHEV sales grow rapidly as a result of the EIEA2008 tax credits, increasing to about 90,000 vehicles annually in 2015. In 2035, PHEVs account for 2.6 percent of new LDV sales and 1.7 percent of the total LDV stock.”

The effort to help reduce energy consumption by the current administration is very strong.  I have linked a conference video of Secretary Chu addressing the loan from the US government to Nissan to build electrical cars, and the US EPA & DOE are working together on energy efficiency program the State Energy Efficiency (SEE) Action Network.

“Secretary Chu lays out a roadmap for how the U.S. can lead the world in making the clean vehicles we need at the 2010 Washington Auto Show. He also announced that the Department of Energy had closed on a $1.4 billion loan to Nissan to build the all-electric LEAF in Tennessee and create up to 1,300 American jobs.”

I’m no energy expert, but I found EIA’s latest forecast report misleading. Even though we are not running out of fossil fuels any time soon, we have passed the limit for long-term habitability of the biosphere. So much effort and money have been contributed to starting a new sustainable future, and the old fossil fuel based economy will eventually be supported by renewable energies. I’m looking forward to see an energy and carbon emission forecast that shows this trend.