[Federal Register Volume 83, Number 248 (Friday, December 28, 2018)]
[Notices]
[Pages 67251-67273]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-28238]
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DEPARTMENT OF ENERGY
Study on Macroeconomic Outcomes of LNG Exports: Response to
Comments Received on Study
AGENCY: Office of Fossil Energy, Department of Energy.
ACTION: Notice of response to comments.
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FE Docket No.
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Jordan Cove Energy Project, L.P......................... 12-32-LNG
Gulf LNG Liquefaction Company, LLC...................... 12-101-LNG
[[Page 67252]]
CE FLNG, LLC............................................ 12-123-LNG
MPEH LLC................................................ 13-26-LNG
Venture Global Calcasieu Pass, LLC...................... 13-69-LNG
Eos LNG LLC............................................. 13-116-LNG
Barca LNG LLC........................................... 13-118-LNG
Commonwealth LNG, LLC................................... 13-153-LNG
Venture Global Calcasieu Pass, LLC...................... 14-88-LNG
SCT&E LNG, LLC.......................................... 14-98-LNG
Venture Global Calcasieu Pass, LLC...................... 15-25-LNG
G2 LNG LLC.............................................. 15-45-LNG
Texas LNG Brownsville LLC............................... 15-62-LNG
Strom Inc............................................... 15-78-LNG
Port Arthur LNG, LLC.................................... 15-96-LNG
Rio Grande LNG, LLC..................................... 15-190-LNG
Eagle LNG Partners Jacksonville, LLC.................... 16-15-LNG
SeaOne Gulfport, LLC.................................... 16-22-CGL
Venture Global Plaquemines LNG, LLC..................... 16-28-LNG
Driftwood LNG, LLC...................................... 16-144-LNG
Fourchon LNG, LLC....................................... 17-105-LNG
Galveston Bay LNG, LLC.................................. 17-167-LNG
Freeport LNG Expansion L.P., and FLNG................... 18-26-LNG
Corpus Christi Liquefaction Stage III, LLC.............. 18-78-LNG
Energ[iacute]a Costa Azul, S. de R.L. de C.V............ 18-144-LNG
Energ[iacute]a Costa Azul, S. de R.L. de C.V............ 18-145-LNG
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SUMMARY: On June 12, 2018, the Office of Fossil Energy (FE) of the
Department of Energy (DOE) gave notice of the availability of a study,
Macroeconomic Outcomes of Market Determined Levels of U.S. LNG Exports
(2018 LNG Export Study or 2018 Study), in the above-referenced
proceedings and invited the submission of public comments on the Study.
DOE commissioned the 2018 LNG Export Study to inform its decision on
pending and future applications seeking authorization to export
domestically produced liquefied natural gas (LNG) from the lower-48
states to countries with which the United States does not have a free
trade agreement (FTA) requiring national treatment for trade in natural
gas, and with which trade is not prohibited by U.S. law or policy (non-
FTA countries). The 2018 LNG Export Study evaluates a wider range of
scenarios than DOE's prior LNG export studies, including examining the
probability of various export scenarios. In this document, DOE/FE
responds to the 19 public comments received on the 2018 Study and
summarizes its conclusions on the Study. The 2018 LNG Export Study and
the public comments are posted on the DOE/FE website at: https://fossil.energy.gov/app/docketindex/docket/index/10.
DATES: Applicable on: December 28, 2018.
FOR FURTHER INFORMATION CONTACT: Amy Sweeney, U.S. Department of Energy
(FE-34), Office of Regulation, Analysis, and Engagement, Office of
Fossil Energy, Forrestal Building, Room 3E-042, 1000 Independence
Avenue SW, Washington, DC 20585; (202) 586-2627;
[email protected]; or Cassandra Bernstein, U.S. Department of
Energy (GC-76), Office of the Assistant General Counsel for Electricity
and Fossil Energy, Forrestal Building, Room 6D-033, 1000 Independence
Ave. SW, Washington, DC 20585; (202) 586-9793;
[email protected].
SUPPLEMENTARY INFORMATION:
Acronyms and Abbreviations. A number of acronyms and abbreviations
are used in this document and set forth below for reference.
AEO Annual Energy Outlook
APA Administrative Procedure Act
API American Petroleum Institute
Bcf/d Billion Cubic Feet per Day
Bcf/yr Billion Cubic Feet per Year
CLNG Center for Liquefied Natural Gas
CNG Compressed Natural Gas
DOE Department of Energy
DQA Data Quality Act
EA Environmental Assessment
EIA U.S. Energy Information Administration
EIS Environmental Impact Statement
FE Office of Fossil Energy, U.S. Department of Energy
FERC Federal Energy Regulatory Commission
FTA Free Trade Agreement
GDP Gross Domestic Product
GNGM Global Natural Gas Model
HOGR High Oil and Gas Resource and Technology
IEA International Energy Agency
IEO International Energy Outlook
JCEP Jordan Cove Energy Project L.P.
LNG Liquefied Natural Gas
LOGR Low Oil and Gas Resource and Technology
MMBtu Million British Thermal Units
mtpa Million Metric Tons per Annum
NEPA National Environmental Policy Act of 1969
NERA NERA Economic Consulting
NGA Natural Gas Act of 1938
NGL Natural Gas Liquid
NOA Notice of Availability
ppm Parts Per Million
ROW Rest of World
Tcf Trillion Cubic Feet
WEO World Energy Outlook
I. Background
A. DOE Export Authorizations Under Section 3 of the Natural Gas
Act
B. Public Interest Review for Non-FTA Export Authorizations
C. Judicial Decisions Upholding DOE's Non-FTA Authorizations
II. DOE's Prior LNG Export Studies
A. 2012 EIA and NERA Studies (Collectively, the 2012 LNG Export
Study)
B. 2014 and 2015 LNG Export Studies
III. Overview of 2018 LNG Export Study
IV. 2018 LNG Export Study, Macroeconomic Outcomes of Market Determined
Levels of U.S. LNG Exports
A. Overview of NERA's Findings
B. Methodology and Scenarios
C. NERA's Global Natural Gas Model (GNGM)
D. NERA's NewEra Macroeconomic Model
E. Results of the 2018 Study
V. Notice of Availability of the 2018 LNG Export Study
VI. Comments on the 2018 LNG Export Study and DOE/FE Responses
A. Data Input and Estimates of Natural Gas Demand
B. Economic Benefits Associated With LNG Exports
C. Distributional Impacts
D. Regional Impacts
E. Estimates of Domestic Natural Gas Supply
[[Page 67253]]
F. Cost of Environmental Externalities
G. Natural Gas Price Impacts
H. Benefits to U.S. Trade Balance
I. Procedural Arguments
J. Potential Impact on DOE/FE's Regulatory Process
VII. Discussion and Conclusions
I. Background
A. DOE Export Authorizations Under Section 3 of the Natural Gas Act
DOE is responsible for authorizing exports of domestically produced
natural gas to foreign countries pursuant to section 3 of the Natural
Gas Act (NGA), 15 U.S.C. 717b.\1\ In relevant part, section 3(c) of the
NGA applies to applications for exports of natural gas, including LNG,
to countries with which the United States has entered into a free trade
agreement (FTA) requiring national treatment for trade in natural gas,
and with which trade is not prohibited by U.S. law or policy (FTA
countries).\2\ Section 3(c) was amended by section 201 of the Energy
Policy Act of 1992 (Pub. L. 102-486) to require that FTA applications
``shall be deemed to be consistent with the public interest'' and
granted ``without modification or delay.'' \3\ Therefore, DOE/FE
approves applications for FTA authorizations without modification or
delay.\4\ None of the comments or discussion herein apply to FTA
authorizations issued under NGA section 3(c).
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\1\ The authority to regulate the imports and exports of natural
gas, including liquefied natural gas, under section 3 of the NGA (15
U.S.C. 717b) has been delegated to the Assistant Secretary for FE in
Redelegation Order No. 00-006.02 issued on November 17, 2014.
\2\ 15 U.S.C. 717b(c). The United States currently has FTAs
requiring national treatment for trade in natural gas with
Australia, Bahrain, Canada, Chile, Colombia, Dominican Republic, El
Salvador, Guatemala, Honduras, Jordan, Mexico, Morocco, Nicaragua,
Oman, Panama, Peru, Republic of Korea, and Singapore. FTAs with
Israel and Costa Rica do not require national treatment for trade in
natural gas.
\3\ 15 U.S.C. 717b(c).
\4\ Unless otherwise stated, all references to exports of LNG
herein refer to domestically produced natural gas liquefied in the
United States. Additionally, DOE/FE uses the terms ``authorization''
and ``order'' interchangeably.
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For applications to export natural gas to non-FTA countries,
section 3(a) of the NGA sets forth the following standard of review:
[N]o person shall export any natural gas from the United States
to a foreign country or import any natural gas from a foreign
country without first having secured an order of the [Secretary of
Energy \5\ ] authorizing it to do so. The [Secretary] shall issue
such order upon application, unless after opportunity for hearing,
[he] finds that the proposed exportation or importation will not be
consistent with the public interest. The [Secretary] may by [the
Secretary's] order grant such application, in whole or part, with
such modification and upon such terms and conditions as the
[Secretary] may find necessary or appropriate.\6\
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\5\ The Secretary's authority was established by the Department
of Energy Organization Act, 42 U.S.C. 7172, which transferred
jurisdiction over imports and export authorizations from the Federal
Power Commission to the Secretary of Energy.
\6\ 15 U.S.C. 717b(a) (emphasis added).
DOE has consistently interpreted this provision as creating a
rebuttable presumption that a proposed export of natural gas to non-FTA
countries is in the public interest.\7\ Accordingly, DOE conducts an
informal adjudication on non-FTA applications and will grant each
application unless DOE finds that the proposed exportation will not be
consistent with the public interest.\8\ Before reaching a final
decision, DOE must also comply with the National Environmental Policy
Act of 1969 (NEPA), 42 U.S.C. 4321 et seq.
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\7\ See Sierra Club v. U.S. Dep't of Energy, 867 F.3d 189, 203
(DC Cir. 2017) (``We have construed [NGA section 3(a)] as containing
a `general presumption favoring [export] authorization.' '')
(quoting W. Va. Pub. Serv. Comm'n v. U.S. Dep't of Energy, 681 F.2d
847, 856 (DC Cir. 1982)).
\8\ See id. (``there must be `an affirmative showing of
inconsistency with the public interest' to deny the application''
under NGA section 3(a)) (quoting Panhandle Producers & Royalty
Owners Ass'n v. Econ. Regulatory Admin., 822 F.2d 1105, 1111 (DC
Cir. 1987)). We note that, as of August 24, 2018, qualifying small-
scale exports of natural gas to non-FTA countries are treated
differently--specifically, they are deemed to be consistent with the
public interest under NGA section 3(a) (10 CFR 590.102(p);
590.208(a)). See U.S. Dep't of Energy, Small-Scale Natural Gas
Exports; Final Rule, 83 FR 35106 (July 25, 2018).
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B. Public Interest Review for Non-FTA Export Authorizations
Although section 3(a) establishes a broad public interest standard
and a presumption favoring export authorizations, the statute does not
define ``public interest'' or identify criteria that must be
considered. In prior decisions, DOE/FE has identified a range of
factors that it evaluates when reviewing an application to export LNG
to non-FTA countries. These factors include economic impacts,
international impacts, security of natural gas supply, and
environmental impacts, among others. To conduct this review, DOE/FE
looks to record evidence developed in the application proceeding.\9\
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\9\ See, e.g., Eagle LNG Partners Jacksonville II LLC, DOE/FE
Order No. 4078, FE Docket No. 17-79-LNG, Opinion and Order Granting
Long-Term, Multi-Contract Authorization to Export Liquefied Natural
Gas in ISO Containers Loaded at the Eagle Maxville Facility in
Jacksonville, Florida, and Exported by Vessel to Free Trade
Agreement and Non-Free Trade Agreement Nations (Sept. 15, 2017).
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DOE/FE's prior decisions have also looked to certain principles
established in its 1984 Policy Guidelines.\10\ The goals of the Policy
Guidelines are to minimize federal control and involvement in energy
markets and to promote a balanced and mixed energy resource system. The
Guidelines provide:
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\10\ New Policy Guidelines and Delegations Order Relating to
Regulation of Imported Natural Gas, 49 FR 6684 (Feb. 22, 1984)
[hereinafter 1984 Policy Guidelines].
The market, not government, should determine the price and other
contract terms of imported [or exported] natural gas . . . . The
federal government's primary responsibility in authorizing imports
[or exports] will be to evaluate the need for the gas and whether
the import [or export] arrangement will provide the gas on a
competitively priced basis for the duration of the contract while
minimizing regulatory impediments to a freely operating market.\11\
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\11\ Id. at 6685.
While nominally applicable to natural gas import cases, DOE/FE
subsequently held in Order No. 1473 that the same policies should be
applied to natural gas export applications.\12\
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\12\ Phillips Alaska Natural Gas, DOE/FE Order No. 1473 at 14
(citing Yukon Pacific Corp., DOE/FE Order No. 350, Order Granting
Authorization to Export Liquefied Natural Gas from Alaska, 1 FE ]
70,259, ] 71,128 (1989)).
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In Order No. 1473, DOE/FE stated that it was guided by DOE
Delegation Order No. 0204-111. That delegation order, which authorized
the Administrator of the Economic Regulatory Administration to exercise
the agency's review authority under NGA section 3, directed the
Administrator to regulate exports ``based on a consideration of the
domestic need for the gas to be exported and such other matters as the
Administrator finds in the circumstances of a particular case to be
appropriate.'' \13\
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\13\ DOE Delegation Order No. 0204-111 at 1; see also 1984
Policy Guidelines, 49 FR 6690. In February 1989, the Assistant
Secretary for Fossil Energy assumed the delegated responsibilities
of the Administrator of the Economic Regulatory Administration.
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Although DOE Delegation Order No. 0204-111 is no longer in effect,
DOE/FE's review of export applications has continued to focus on: (i)
The domestic need for the natural gas proposed to be exported, (ii)
whether the proposed exports pose a threat to the security of domestic
natural gas supplies, (iii) whether the arrangement is consistent with
DOE/FE's policy of promoting market competition, and (iv) any other
factors bearing on the public interest described herein. Under this
public interest standard, DOE has issued 30 final authorizations to
export domestically produced LNG or compressed natural gas (CNG) to
non-FTA countries to date, bringing the
[[Page 67254]]
cumulative total of approved non-FTA exports to 23.05 billion cubic
feet per day (Bcf/d) of natural gas, or 8.41 trillion cubic feet (Tcf)
per year.\14\ Each of these non-FTA orders authorize an export term of
20 years, as set forth in the orders.
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\14\ See Mexico Pacific Limited LLC, DOE/FE Order No. 4312, FE
Docket No. 18-70-LNG, Opinion and Order Granting Long-Term, Multi-
Contract Authorization to Export U.S.-Sourced Natural Gas by
Pipeline to Mexico for Liquefaction and Re-Export in the Form of
Liquefied Natural Gas to Non-Free Trade Agreement Countries, at 37
(Dec. 14, 2018).
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C. Judicial Decisions Upholding DOE's Non-FTA Authorizations
Beginning in 2015, Sierra Club petitioned the U.S. Court of Appeals
for the District of Columbia Circuit (D.C. Circuit) for review of five
long-term LNG export authorizations issued by DOE/FE under the standard
of review described above. Sierra Club challenged DOE/FE's approval of
LNG exports to non-FTA countries from projects proposed or operated by
the following authorization holders: Freeport LNG Expansion, L.P., et
al.; Dominion Energy Cove Point LNG, LP (formerly Dominion Cove Point
LNG, LP); Sabine Pass Liquefaction, LLC; and Cheniere Marketing, LLC,
et al. The D.C. Circuit subsequently denied four of the five petitions
for review: one in a published decision issued on August 15, 2017
(Sierra Club I),\15\ and three in a consolidated, unpublished opinion
issued on November 1, 2017 (Sierra Club II).\16\ Sierra Club
subsequently withdrew its fifth and remaining petition for review.\17\
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\15\ Sierra Club vs. U.S. Dep't of Energy, 867 F.3d 189 (Aug.
15, 2017) (denying petition of review of the LNG export
authorization issued to Freeport LNG Expansion, L.P., et al.).
\16\ Sierra Club v. U.S. Dep't of Energy, Nos. 16-1186, 16-1252,
16-1253, 703 Fed. Appx. 1 (D.C. Cir. Nov. 1, 2017) (denying
petitions of review of the LNG export authorization issued to
Dominion Cove Point LNG, LP; Sabine Pass Liquefaction, LLC; and
Cheniere Marketing, LLC, et al., respectively).
\17\ See Sierra Club v. U.S. Dep't of Energy, No. 16-1426, Per
Curiam Order (D.C. Cir. Jan. 30, 2018) (granting Sierra Club's
unopposed motion for voluntarily dismissal).
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In Sierra Club I, the D.C. Circuit concluded that DOE/FE had
complied with both NGA section 3(a) and NEPA in issuing the challenged
non-FTA authorization. Freeport LNG Expansion, L.P. and its related
entities (collectively, Freeport) had applied to DOE/FE for
authorization to export LNG to non-FTA countries from the Freeport
Terminal located on Quintana Island, Texas. DOE/FE granted the
application in 2014 in a volume equivalent to 0.4 Bcf/d of natural gas,
finding that Freeport's proposed exports were in the public interest
under NGA section 3(a). DOE/FE also considered and disclosed the
potential environmental impacts of its decision under NEPA. Sierra Club
petitioned for review of the Freeport authorization, arguing that DOE
fell short of its obligations under both the NGA and NEPA. The D.C.
Circuit rejected Sierra Club's arguments in a unanimous decision,
holding that, ``Sierra Club has given us no reason to question the
Department's judgment that the [Freeport] application is not
inconsistent with the public interest.'' \18\
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\18\ Sierra Club I, 867 F.3d at 203.
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In the consolidated opinion in Sierra Club II issued on November 1,
2017, the D.C. Circuit ruled that ``[t]he court's decision in [Sierra
Club I] largely governs the resolution of the [three] instant cases.''
\19\ Upon its review of the remaining ``narrow issues'' in those cases,
the Court again rejected Sierra Club's arguments under the NGA and
NEPA, and upheld DOE/FE's actions in issuing the non-FTA authorizations
in those proceedings.\20\
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\19\ Sierra Club, 703 Fed. Appx. 1 at *2.
\20\ Id.
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II. DOE's Prior LNG Export Studies
The 2018 LNG Export Study \21\ builds upon four prior studies
commissioned by DOE to examine the economic impacts of U.S. LNG
exports. With one early exception, DOE/FE has issued the 30 existing
non-FTA authorizations based on its consideration of one or more of
these economic studies under NGA section 3(a). These studies are
summarized below.
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\21\ NERA Economic Consulting, Macroeconomic Outcomes of Market
Determined Levels of U.S. LNG Exports (June 7, 2018), available at:
https://www.energy.gov/sites/prod/files/2018/06/f52/Macroeconomic%20LNG%20Export%20Study%202018.pdf [hereinafter 2018
LNG Export Study].
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A. 2012 EIA and NERA Studies (Collectively, the 2012 LNG Export Study)
In 2011, DOE/FE engaged the U.S. Energy Information Administration
(EIA) and NERA Economic Consulting (NERA) to conduct a two-part study
of the economic impacts of U.S. LNG exports, which together was called
the ``2012 LNG Export Study.'' The first part, performed by EIA and
originally published in January 2012, assessed how specified scenarios
of increased natural gas exports could affect domestic energy markets.
Specifically, EIA examined how prescribed levels of natural gas exports
(at 6 Bcf/d and 12 Bcf/d) above baseline cases could affect domestic
energy markets.
The second part, performed by NERA under contract to DOE, evaluated
the macroeconomic impact of LNG exports on the U.S. economy. NERA used
a general equilibrium macroeconomic model of the U.S. economy with an
emphasis on the energy sector and natural gas in particular. The 2012
NERA Study projected that, across all scenarios studied--assuming
either 6 Bcf/d or 12 Bcf/d of LNG export volumes--the United States
would experience net economic benefits from allowing LNG exports.
In December 2012, DOE/FE published a notice of availability of the
2012 LNG Export Study in the Federal Register for public comment.\22\
DOE/FE subsequently responded to the public comments in connection with
the LNG export proceedings identified in that notice.\23\
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\22\ See 2012 LNG Export Study, 77 FR 73627 (Dec. 11, 2012),
available at: http://energy.gov/sites/prod/files/2013/04/f0/fr_notice_two_part_study.pdf (Notice of Availability of the LNG
Export Study).
\23\ See, e.g., Freeport LNG Expansion L.P., et al., DOE/FE
Order No. 3282, FE Docket No. 10-161-LNG, Order Conditionally
Granting Long-Term, Multi-Contract Authorization to Export Liquefied
Natural Gas by Vessel from the Freeport LNG Terminal on Quintana
Island, Texas to Non-Free Trade Agreement Nations, at 56-109 (May
17, 2013).
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B. 2014 and 2015 LNG Export Studies
By May 2014, in light of the volume of LNG exports to non-FTA
countries then-authorized by DOE/FE and the number of non-FTA export
applications still pending, DOE/FE determined that an updated study was
warranted to consider the economic impacts of exporting LNG from the
lower-48 states to non-FTA countries.\24\ On May 29, 2014, DOE
announced plans to undertake new economic studies to gain a better
understanding of how potentially higher levels of U.S. LNG exports--at
levels between 12 and 20 Bcf/d of natural gas--would affect the public
interest.\25\
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\24\ Because there is no natural gas pipeline interconnection
between Alaska and the lower 48 states, DOE/FE generally views those
LNG export markets as distinct. DOE/FE therefore focuses on LNG
exports from the lower-48 states for purposes of determining
macroeconomic impacts.
\25\ See U.S. Dep't of Energy, Office of Fossil Energy, Request
for an Update of EIA's January 2012 Study of Liquefied Natural Gas
Export Scenarios, available at: http://energy.gov/fe/downloads/request-update-eia-s-january-2012-study-liquefied-natural-gas-export-scenarios (May 29, 2014) (memorandum from FE to EIA).
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DOE/FE commissioned two new macroeconomic studies. The first,
Effect of Increased Levels of Liquefied Natural Gas Exports on U.S.
Energy Markets, was performed by EIA and published in October 2014
(2014 EIA LNG Export Study or 2014 Study).\26\ The 2014 Study
[[Page 67255]]
assessed how specified scenarios of increased natural gas exports could
affect domestic energy markets. At DOE's request, this 2014 Study
served as an update of EIA's January 2012 study of LNG export scenarios
and used baseline cases from EIA's Annual Energy Outlook 2014 (AEO
2014).\27\
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\26\ U.S. Energy Information Administration, Effect of Increased
Levels of Liquefied Natural Gas Exports on U.S. Energy Markets (Oct.
2014), available at: https://www.eia.gov/analysis/requests/fe/pdf/lng.pdf.
\27\ Each Annual Energy Outlook (AEO) presents EIA's long-term
projections of energy supply, demand, and prices. It is based on
results from EIA's National Energy Modeling System (NEMS) model.
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The second study, The Macroeconomic Impact of Increasing U.S. LNG
Exports, was performed jointly by the Center for Energy Studies at Rice
University's Baker Institute and Oxford Economics under contract to
DOE/FE (together, Rice-Oxford) and published in October 2015 (2015 LNG
Export Study or 2015 Study).\28\ The 2015 Study is a scenario-based
assessment of the macroeconomic impact of levels of U.S. LNG exports,
sourced from the lower-48 states, under different assumptions including
U.S. resource endowment, U.S. natural gas demand, international LNG
market dynamics, and other factors. The 2015 Study considers export
volumes ranging from 12 to 20 Bcf/d of natural gas, as well as a high
resource recovery case examining export volumes up to 28 Bcf/d of
natural gas. The analysis covers the 2015 to 2040 time period.
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\28\ Center for Energy Studies at Rice University Baker
Institute and Oxford Economics, The Macroeconomic Impact of
Increasing U.S. LNG Exports (Oct. 29, 2015), available at: http://energy.gov/sites/prod/files/2015/12/f27/20151113_macro_impact_of_lng_exports_0.pdf.
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In December 2015, DOE/FE published a Notice of Availability of the
2014 and 2015 LNG Export Studies in the Federal Register, and invited
public comment on those Studies.\29\ DOE/FE subsequently responded to
the public comments in connection with the LNG export proceedings
identified in that notice.\30\
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\29\ U.S. Dep't of Energy, Macroeconomic Impacts of LNG Exports
Studies; Notice of Availability and Request for Comments, 80 FR
81300, 81302 (Dec. 29, 2015).
\30\ See, e.g., Sabine Pass Liquefaction, LLC, DOE/FE Order No.
3792, FE Docket No. 15-63-LNG, Final Opinion and Order Granting
Long-Term, Multi-Contract Authorization to Export Liquefied Natural
Gas by Vessel From the Sabine Pass LNG Terminal Located in Cameron
Parish, Louisiana, to Non-Free Trade Agreement Nations, at 66-121
(Mar. 11, 2016).
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III. Overview of 2018 LNG Export Study
At the time DOE commissioned the 2018 LNG Export Study earlier this
year, DOE/FE had 25 pending applications requesting authorization to
export domestically produced LNG to non-FTA countries.\31\ In light of
both the cumulative volume of exports to non-FTA countries authorized
at that time (equivalent to 21.35 Bcf/d of natural gas) and the
additional volume of LNG requested for export in those pending
applications, DOE/FE determined that a new macroeconomic study was
warranted.\32\ Accordingly, DOE/FE, through its support contractor
KeyLogic Systems, Inc., commissioned NERA to conduct the 2018 LNG
Export Study.
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\31\ See U.S. Dep't of Energy, Study on Macroeconomic Outcomes
of LNG Exports; Notice of Availability of the 2018 LNG Export Study
and Request for Comments, 83 FR 27314 (June 12, 2018) (identifying
25 docket proceedings).
\32\ Additionally, to date, DOE/FE has authorized a cumulative
total of LNG exports to FTA countries under section 3(c) of the NGA
in a volume of 59.33 Bcf/d from LNG projects. These FTA volumes are
not additive to the authorized non-FTA volumes.
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Like the four prior economic studies, the 2018 LNG Export Study
examines the impacts of varying levels of LNG exports on domestic
energy markets. As explained below, the 2018 LNG Export Study assesses
different levels of ``unconstrained'' LNG exports (defined as market-
determined levels of exports), and analyzes the outcomes of different
LNG export levels on the U.S. natural gas markets and the U.S. economy
as a whole, over the 2020 to 2050 time period. As part of this
analysis, DOE/FE directed NERA to examine the likelihood of conditions
leading to various export scenarios, making it the first DOE
macroeconomic study to squarely address this issue.
To summarize, the 2018 LNG Export Study differs from DOE/FE's prior
economic studies in the following ways:
(i) Includes a larger number of scenarios (54 scenarios) to capture
a wider range of uncertainty in four natural gas market conditions than
examined in the previous studies;
(ii) Includes LNG exports in all 54 scenarios that are market-
determined levels, including the three alternative baseline scenarios
that are based on the projections in EIA's Annual Energy Outlook 2017
(AEO 2017);\33\
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\33\ U.S. Energy Info. Admin., Annual Energy Outlook 2017 (with
projections to 2050) (Jan. 5, 2017), available at: https://www.eia.gov/outlooks/aeo/pdf/0383(2017).pdf.
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(iii) Examines unconstrained LNG export volumes beyond the levels
examined in the previous studies;
(iv) Examines the likelihood of those market-determined LNG export
volumes; and
(v) Provides macroeconomic projections associated with several of
the scenarios lying within the more likely range.
IV. 2018 LNG Export Study, Macroeconomic Outcomes of Market Determined
Levels of U.S. LNG Exports
A. Overview of NERA's Findings
NERA's key findings in the 2018 Study include the following:
The more likely range of LNG exports in the year 2040 was
judged to range from 8.7 to 30.7 Bcf/d of natural gas. This assessment
was based on a probabilistic analysis of 54 different scenarios
constructed for the Study.\34\
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\34\ See 2018 LNG Export Study at 14.
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U.S. natural gas prices range from $5 to approximately
$6.50 per million British thermal unit (MMBtu) in 2040 (in constant
2016 dollars) under Reference case supply assumptions. These central
cases have a combined probability of 47%.\35\
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\35\ Id. at 17.
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Levels of gross domestic product (GDP) are most sensitive
to assumptions about U.S. supply of natural gas, with high supply
driving higher levels of GDP. For each of the supply scenarios, higher
levels of LNG exports in response to international demand consistently
lead to higher levels of GDP. GDP achieved with the highest level of
LNG exports in each group exceeds GDP with the lowest level of LNG
exports by $13 to $72 billion in 2040 (in constant 2016 dollars).\36\
---------------------------------------------------------------------------
\36\ Id. at 18.
---------------------------------------------------------------------------
About 80% of the increase in LNG exports is satisfied by
increased U.S. production of natural gas, with positive effects on
labor income, output, and profits in the natural gas production
sector.\37\
---------------------------------------------------------------------------
\37\ Id. at 21.
---------------------------------------------------------------------------
Chemical industry subsectors of the economy that rely
heavily on natural gas for energy and as a feedstock continue to
exhibit robust growth even at higher LNG export levels. This growth is
only insignificantly slower than cases with lower LNG export levels.
Even the most extreme scenarios of high LNG exports
outside the more likely probability range (exhibiting a combined
probability of less than 3%) show higher overall economic performance
in terms of GDP, household income, and consumer welfare than lower
export levels associated with the same domestic supply scenarios.
B. Methodology and Scenarios
The 2018 Study develops 54 scenarios by identifying various
assumptions for domestic and international supply and demand conditions
to capture a wide range of uncertainty in the natural gas markets. The
scenarios include three
[[Page 67256]]
baseline cases based on EIA's AEO 2017 projections (the most recent EIA
projections available at the time), with varying assumptions about U.S.
natural gas supply.\38\ Alternative scenarios add other assumptions
about both future U.S. and international demand for natural gas.
International assumptions are based on EIA's International Energy
Outlook 2017 (IEO 2017) and the International Energy Agency's (IEA)
World Energy Outlook 2016 (WEO 2016).
---------------------------------------------------------------------------
\38\ See id. at 12; see also supra at note 33.
---------------------------------------------------------------------------
As noted above, the 2018 Study also examines the likelihood of
conditions leading to various export scenarios. Specifically, the 2018
Study includes peer-reviewed probabilities of uncertainties surrounding
developments in the international and domestic natural gas markets that
were, in turn, combined to develop the 54 export scenarios and their
associated macroeconomic impacts.
1. Scenarios
a. U.S. Natural Gas Supply
The amount of natural gas that can be supplied at a given price
depends on a number of factors, including how extraction technology
develops, the magnitude of the extractable resource, political
positions for or against limits on unconventional natural gas resource
development (i.e., hydraulic fracturing), as well as the cost to
develop natural gas resources.\39\ The 2018 Study specifies three
different cases for U.S. natural gas supply derived from EIA's AEO
2017:
---------------------------------------------------------------------------
\39\ 2018 LNG Export Study at 25.
---------------------------------------------------------------------------
i. AEO 2017's Reference case provides a central estimate of U.S.
natural gas production;
ii. High Oil and Gas Resource and Technology (HOGR) case provides
more optimistic resource development estimates than the Reference case;
and
iii. Low Oil and Gas Resource and Technology (LOGR) case provides
less optimistic resource development estimates than the Reference case.
The differences in the natural gas production levels across these three
cases arise from varying assumptions around unproven offshore
resources, onshore shale gas resources, tight gas resources, and
conventional and tight oil associated gas resources, as well as the
costs of producing these resources.\40\
---------------------------------------------------------------------------
\40\ Id. at 25-26, 28; see also AEO 2017 at 12, 16.
---------------------------------------------------------------------------
b. U.S. Natural Gas Demand
The 2018 Study notes that U.S. natural gas demand is primarily
influenced by economic growth, population growth, per capita income,
and environmental policies that influence fuel choices among sources of
energy and total demand for energy.\41\ The 2018 Study specifies three
different cases for U.S. natural gas demand:
---------------------------------------------------------------------------
\41\ 2018 LNG Export Study at 26.
---------------------------------------------------------------------------
i. AEO 2017's Reference case, which provides a central estimate of
U.S. natural gas demand;
ii. A Robust Economic Growth case, which provides a high estimate
for U.S. natural gas demand driven by higher levels of gross domestic
product growth; and
iii. A Renewables Mandate case, which provides a low estimate for
U.S. natural gas demand driven by the imposition of a stringent
renewables mandate.
c. Rest of World Natural Gas Supply
The 2018 Study considers two cases for international natural gas
supply:
i. IEO 2017's Reference case; and
ii. A Low Supply case, which was created by reducing the IEO 2017
Reference case natural gas production consistent with supply reductions
in the LOGR case for U.S. supply.\42\
---------------------------------------------------------------------------
\42\ Id. at 29-30.
---------------------------------------------------------------------------
d. Rest of World Natural Gas Demand
NERA notes that there are relatively few global natural gas
forecasts that provide a range of scenarios that would allow NERA to
isolate drivers of global natural gas demand outside the United
States.\43\ NERA identifies two such forecasts as EIA's IEO 2017 and
IEA's WEO 2016. The 2018 Study considers three cases for international
natural gas demand:
---------------------------------------------------------------------------
\43\ Id. at 30.
---------------------------------------------------------------------------
i. IEO 2017's Reference case;
ii. WEO 2016's Current Policies scenario, which provided a high
estimate for international natural gas demand; and
iii. WEO 2016's 450 parts per million (ppm) case, which provides a
low estimate for international natural gas demand based on policies
with the objective of limiting the average global temperature increase
in 2100 to 2 degrees Celsius above pre-industrial levels.
2. Probability Assignments
A key feature of the 2018 Study is to provide not only
quantification of the effects to the U.S. natural gas market and its
overall economy under each of the scenarios outlined, but also an
assessment of the probability of each of these scenarios, and thus the
probability of the natural gas and macroeconomic outcomes associated
with each.
NERA first developed estimates of the probabilities for the level
of U.S. supply and demand, as well as supply and demand in the rest of
the world.\44\ DOE/FE and its support contractor KeyLogic, Inc.
contacted a set of independent experts recommended by DOE (hereinafter
the peer reviewers) to obtain their probability assignments for these
same four metrics. After receiving feedback from the peer reviewers,
NERA reevaluated the original probability assignments to arrive at the
final probabilities.
---------------------------------------------------------------------------
\44\ Id. at 37.
---------------------------------------------------------------------------
a. U.S. Supply Case Probabilities and Ranges
The peer reviewers did not converge on common recommendations for
U.S. supply case probabilities and ranges. One peer reviewer suggested
focusing the probabilities more towards the Reference case by reducing
the prominence of both the high and low cases.\45\ Another peer
reviewer recommended reducing the probability for the Reference case
and increasing the probabilities for both the high and low cases.
Several other peer reviewers agreed with the original assignment of
probabilities. According to NERA, there did not appear to be a
consensus on how to change the proposed probabilities. The
recommendations from the peer reviewers seemed either to offset each
other or to agree with the original probabilities. For this reason,
NERA decided to retain the original probability assignments. NERA made
no change to its original range of U.S. supply values or the
probabilities assigned to them.
---------------------------------------------------------------------------
\45\ Id. at 43.
---------------------------------------------------------------------------
b. U.S. Demand Scenario Probabilities and Ranges
In evaluating NERA's U.S. demand scenario probabilities and ranges,
the peer reviewers did not have a consistent theme in their
recommendations. One peer reviewer recommended greater emphasis on the
Reference case, while another recommended deemphasizing the Reference
case to increase the importance of the high and low cases.\46\ Two
other peer reviewers recommended that NERA retain the probability
assignments with no changes. Because the recommendations lacked a
common theme but nevertheless seemed to offset each other, NERA
retained the original probability assignments and made no changes to
the original range of U.S. Demand.
---------------------------------------------------------------------------
\46\ Id.
---------------------------------------------------------------------------
[[Page 67257]]
c. Rest of World Supply Scenario Probabilities and Ranges
In evaluating the Rest of World supply scenarios, NERA noted
several common themes from the peer reviewers. Several of the peer
reviewers felt the proposed probabilities were reasonable. Another peer
reviewer recommended assigning greater probability to the Reference
case. No peer reviewer recommended that the low case receive more
emphasis. As a result, the probability of the Reference case was
increased by 5% while reducing the probability of the low case by the
same amount. NERA made no changes to the original range of Rest of
World Supply.
d. Rest of World Demand Scenario Probabilities and Ranges
In evaluating the Rest of World demand scenarios, NERA noted common
agreement on several themes. None of the peer reviewers recommended
increasing the probability of the low world demand case. Several of the
peer reviewers agreed that the Reference case should receive greater
importance, with the high case receiving less importance. The peer
reviewers disagreed on the degree to which the relative importance
should be modified. In addition, the peer reviewers felt that the high
end of the range for Rest of World demand should be increased to a
level double the original differential between the reference and high
cases. Based on the peer review recommendations, the high end of the
range was increased as recommended by one peer reviewer. Overall, the
high case probability was decreased to 50%, the Reference case
probability was increased to 45%, and the low case stayed at a
probability of 5%.
Table 1 below presents the final probability assignments after peer
review and the central estimate of the ranges adopted for the
analysis.\47\
---------------------------------------------------------------------------
\47\ 2018 LNG Export Study at 43-44 (Table 3).
Table 1--Final Probability Assignments and Central Supply/Demand Estimates (Trillions of Cubic Feet) for Each Case in 2040
--------------------------------------------------------------------------------------------------------------------------------------------------------
U.S. supply U.S. demand ROW supply ROW demand
--------------------------------------------------------------------------------------------------------------------------------------------------------
Case................................... AEO 2017, HOGR Robust .............. WEO
Economic
Growth
High........................................... Estimate............................... 49 39 .............. 172
Probability............................ 30% 17% .............. 50%
--------------------------------------------------------------------------------------------------------------------------------------------------------
Case................................... AEO 2017, AEO 2017, IEO 2017, IEO 2017,
Reference Reference Reference Reference
Reference...................................... Estimate............................... 39 33 139 145
Probability............................ 55% 66% 80% 45%
--------------------------------------------------------------------------------------------------------------------------------------------------------
Case................................... AEO 2017, Renewables Low Supply WEO 2016,
LOGR Mandate 450 ppm
Low............................................ Estimate............................... 28 27 90 113
Probability............................ 15% 17% 20% 5%
--------------------------------------------------------------------------------------------------------------------------------------------------------
C. NERA's Global Natural Gas Model (GNGM)
The 2018 Study used the GNGM, which NERA describes as a worldwide
model of the natural gas market based on LNG trade, interregional
pipelines, and regional supply and demand.\48\ This model allows NERA
to examine the likely direct and indirect impacts on regional natural
gas markets of various industry developments and policy choices. Using
the GNGM, NERA can take into account developments in individual regions
and gauge region-specific market outcomes.
---------------------------------------------------------------------------
\48\ Id. at 33.
---------------------------------------------------------------------------
The GNGM's structure has full flexibility in terms of the time
periods and regions it covers. For the 2018 Study, the model divides
the world into 18 regions and solves for equilibrium natural gas flows,
supply, and demand for the years 2020 to 2040 in five-year time
steps.\49\ The model can be adapted to analyze any individual region in
the world, as well as to consider a more granular time scale. The
regional structure allows the model to factor in key components driving
the natural gas market, including pipeline and marine linkages among
regions, competition among supplier regions, and competition between
LNG and natural gas pipelines.
---------------------------------------------------------------------------
\49\ Id.
---------------------------------------------------------------------------
D. NERA's NewERA Macroeconomic Model
NERA developed the NewERA model to forecast the impact
of policy, regulatory, and economic factors on the energy sector and
the economy as a whole. To evaluate policies that have significant
impacts on the entire U.S. economy, NERA uses the NewERA
model to capture the effects as they ripple through all sectors of the
economy and the associated feedback effects. The version of the
NewERA model used for the 2018 Study includes a
macroeconomic model that represents all sectors of the economy.
The macroeconomic model incorporates all production sectors,
including liquefaction plants required for LNG exports; energy
extraction; manufacturing and service sectors; and final demand for
goods and services by households, the government, and for
investment.\50\ The consequences of changes in LNG exports are
transmitted throughout the U.S. economy as sectors respond until the
economy reaches equilibrium. Producers and households are able to
change their demand for goods and services in response to changes in
prices.
---------------------------------------------------------------------------
\50\ Id. at 34.
---------------------------------------------------------------------------
The NewERA model addresses the key factors affecting
future U.S. natural gas demand, supply, and price. One of the major
uncertainties is the availability of shale gas in the United States. To
account for this uncertainty and the effect it could have on domestic
markets, the NewERA model includes resource supply curves
for U.S. natural gas. The model also accounts for pipeline trade in
natural gas with Mexico and Canada, and the potential build-up of
liquefaction plants for exporting LNG. The NewERA model also
has a supply (demand) curve for U.S. imports (exports) that represents
how
[[Page 67258]]
the global LNG market price would react to changes in U.S. imports or
exports.\51\
---------------------------------------------------------------------------
\51\ Id.
---------------------------------------------------------------------------
U.S. wellhead natural gas prices in the NewERA model are
matched to the resulting prices from the GNGM. The baselines for the
NewERA model are based on EIA's AEO 2017 Reference, High Oil
and Gas Supply, and Low Oil and Gas Supply cases.
E. Results of the 2018 Study
The 54 scenarios in the 2018 Study provide a wide range of results.
NERA chose to focus on a subset of more likely outcomes, given DOE's
assumptions about the probabilities associated with U.S. natural gas
production, demand and supply, and demand for natural gas in the rest
of the world. NERA defined the more likely outcomes as those that
result in U.S. LNG exports that are within a one standard deviation of
the mean level of exports.\52\ In the Study, NERA stated that an
interval of plus or minus one standard deviation was chosen as more
informative because it indicates a reasonable range of uncertainty
without unduly emphasizing very unlikely outcomes.\53\
---------------------------------------------------------------------------
\52\ 2018 LNG Export Study at 47.
\53\ Id.
---------------------------------------------------------------------------
The 2018 Study finds that, by the year 2040, there is a 16% chance
that U.S. LNG exports will be below 9.0 Bcf/d and a 16% chance that
they will be above 30.7 Bcf/d of natural gas.\54\ Put differently,
there is approximately a 68% probability that U.S. LNG exports will be
between 9.0 and 30.7 Bcf/d in 2040. Table 2 below lists 27 scenarios
that are the ``more likely'' scenarios in 2040 (i.e., within one
standard deviation of the mean for all 54 scenarios).\55\ The scenario
nomenclature in Table 2 refers to the case used for U.S. natural gas
supply, U.S. natural gas demand, Rest of World natural gas supply, and
Rest of World natural gas demand, respectively.
---------------------------------------------------------------------------
\54\ Id. at 49-50.
\55\ 2018 LNG Export Study at 50-51 (Table 4).
Table 2--LNG Exports and Scenario Probability for the More Likely
Scenarios in 2040
------------------------------------------------------------------------
Scenario
Scenario LNG exports probability
Bcf/day (%)
------------------------------------------------------------------------
Low_High_Low_High....................... 22.7 0.3
Low_Low_Low_High........................ 26.1 0.3
Low_Low_Low_Ref......................... 12.4 0.2
Low_Ref_Low_High........................ 23.4 1.0
Low_Ref_Low_Ref......................... 9.9 0.9
Ref_High_Low_Low........................ 15.5 0.1
Ref_High_Low_Ref........................ 28.9 0.8
Ref_High_Ref_High....................... 23.4 3.7
Ref_High_Ref_Ref........................ 12.4 3.4
Ref_Low_Low_Low......................... 18.3 0.1
Ref_Low_Low_Ref......................... 30.5 0.8
Ref_Low_Ref_High........................ 25.7 3.7
Ref_Low_Ref_Ref......................... 18.6 3.4
Ref_Ref_Low_Low......................... 17.0 0.4
Ref_Ref_Low_Ref......................... 29.6 3.3
Ref_Ref_Ref_High........................ 24.0 14.5
Ref_Ref_Ref_Ref......................... 12.9 13.1
High_High_Low_Low....................... 22.2 0.1
High_High_Ref_High...................... 30.1 2.0
High_High_Ref_Low....................... 8.7 0.2
High_High_Ref_Ref....................... 22.6 1.8
High_Low_Low_Low........................ 23.6 0.1
High_Low_Ref_Low........................ 12.4 0.2
High_Low_Ref_Ref........................ 23.6 1.8
High_Ref_Low_Low........................ 22.8 0.2
High_Ref_Ref_High....................... 30.7 7.9
High_Ref_Ref_Low........................ 9.0 0.8
High_Ref_Ref_Ref........................ 23.3 7.1
------------------------------------------------------------------------
The 2018 Study summarized changes in Henry Hub prices in 2040 (in
constant 2016 dollars) by the different U.S. natural gas supply
scenarios, as follows:
For all of the reference U.S. supply scenarios in the more
likely range, Henry Hub natural gas prices could be from $5 to $6.50
per million British thermal units (MMBtu) in 2040. These mid-range
scenarios have a combined probability of 47%.\56\
---------------------------------------------------------------------------
\56\ Id. at 54; see also id. at 53 (Figure 12).
---------------------------------------------------------------------------
For all of the HOGR supply scenarios in the more likely
range, Henry Hub prices range from $3.50 to $4 per MMBtu in 2040.\57\
These scenarios with natural gas prices at the low end of the range
have a combined probability of 22%.\58\
---------------------------------------------------------------------------
\57\ Id. at 53 (Table 12).
\58\ Id. at 54.
---------------------------------------------------------------------------
For all of the LOGR supply scenarios in the more likely
range, Henry Hub prices range from $10 to $13 per MMBtu in 2040. These
scenarios with natural gas prices at the high end of the range have a
combined probability of 3%.
The 2018 Study finds two important relationships between U.S. LNG
exports and U.S. natural gas prices:
``Increasing U.S. LNG exports under any given set of
assumptions about U.S. natural gas resources and their production leads
to only small increases in U.S. natural gas prices;'' \59\ and
---------------------------------------------------------------------------
\59\ Id. at 55 (discussing Figure 12).
---------------------------------------------------------------------------
``Available natural gas resources have the largest impact
on natural gas prices. Therefore, U.S. natural gas prices are far more
dependent on available resources and technologies to extract
[[Page 67259]]
available resources than on U.S. policies surrounding LNG exports.''
\60\
---------------------------------------------------------------------------
\60\ Id.
Applying the same one-standard deviation interval of a probability
greater than 16% and less than 84% reveals that the more likely range
of Henry Hub price is from $3.90 to $6.70 per MMBtu of natural gas.\61\
---------------------------------------------------------------------------
\61\ 2018 LNG Export Study at 55; see also id. at 56 (Figure
13).
---------------------------------------------------------------------------
The 2018 Study identifies 12 representative scenarios for
macroeconomic analysis. The 12 scenarios include three different
baselines and nine alternative shock scenarios (three per
baseline).\62\ The scenarios are grouped according to the outlook for
U.S. natural gas supply, as described previously: Reference, HOGR, and
LOGR cases. All of the nine alternative NewERA scenarios
project LNG export levels that are higher than their corresponding
reference scenario. This selection of scenarios allows the analysis to
capture the macroeconomic effects of higher LNG exports associated with
higher levels of demand for U.S. LNG exports from the rest of the
world.
---------------------------------------------------------------------------
\62\ Id. at 62.
---------------------------------------------------------------------------
However, not all of the scenarios evaluated produce LNG export
levels that fall within a one-standard deviation interval around the
mean of modeled LNG export volumes (the ``more likely'' range).
Therefore, the 2018 Study discusses the macroeconomic effects for the
seven macroeconomic scenarios that do fall within the range of more
likely scenarios, as shown in bold in Table 3: \63\
---------------------------------------------------------------------------
\63\ Id. at 63 (Table 9).
Table 3--Macroeconomic Scenarios
----------------------------------------------------------------------------------------------------------------
Cumulative
U.S. supply U.S. demand ROW supply ROW demand LNG exports probability
(Bcf/day) (%)
----------------------------------------------------------------------------------------------------------------
Ref................ Ref................ Ref............... Ref............... 12.9 33
Ref................ Ref................ Low............... Ref............... 29.6 76
Ref................ Ref................ Low............... High.............. 45.7 96
Ref................ Ref................ Ref............... High.............. 24.0 68
High............... Ref................ Ref............... Ref............... 23.3 47
High............... Ref................ Low............... Ref............... 40.4 91
High............... Ref................ Low............... High.............. 52.8 99
High............... Ref................ Ref............... High.............. 30.7 87
Low................ Ref................ Ref............... Ref............... 0.1 5
Low................ Ref................ Low............... Ref............... 9.9 16
Low................ Ref................ Low............... High.............. 23.4 48
Low................ Ref................ Ref............... High.............. 8.2 11
----------------------------------------------------------------------------------------------------------------
Finally, the 2018 Study summarizes a number of the broad
macroeconomic effects on the U.S. economy of increased LNG exports, as
discussed below.
1. U.S. Consumer Well-Being Increases With Rising LNG Exports
For the more likely scenarios, consumer welfare ranges from $30.25
trillion to $30.26 trillion (a variation of $10 billion).\64\ As U.S.
LNG exports increase, U.S. households receive additional income from
two sources. First, the LNG exports provide additional export revenues,
and second, households that hold shares in companies that own
liquefaction plants receive additional income from take-or-pay tolling
charges for LNG exports. These additional sources of income for U.S.
consumers outweigh the income loss associated with higher energy
prices.
---------------------------------------------------------------------------
\64\ See id. at 67; see also id. at 66 (Figure 16), 67 (Table
10).
---------------------------------------------------------------------------
2. Total Economic Activity Expands With Rising LNG Exports
Gross domestic product (GDP), or the level of total economic
activity in the economy, is another economic metric that is often used
to evaluate the effect of a change to the economy. The GDP effects
associated with higher LNG exports increase as the economy benefits
from investment in the liquefaction process, export revenues, resource
income, and additional wealth transfers (in the form of tolling
charges). The impact of LNG exports results in shifts in income between
different sources, but overall GDP improves as LNG exports increase for
all scenarios with the same U.S. natural gas supply conditions.
Levels of GDP are most sensitive to assumptions about U.S. supply,
with high natural gas supply driving higher levels of GDP. For each of
the supply scenarios, higher levels of LNG exports in response to
international demand consistently lead to higher levels of GDP. GDP
achieved with the highest level of LNG exports in each group exceeds
GDP with the lowest level of LNG exports by $13 to $72 billion in 2040
(in constant 2016 dollars).\65\
---------------------------------------------------------------------------
\65\ 2018 LNG Export Study at 18.
---------------------------------------------------------------------------
3. Sectoral Growth Rates Change Negligibly for Key Economic Sectors and
Energy-Intensive Sectors
Sectoral growth rates remain robust for all of the sectors that
rely on natural gas as fuel and raw material input. The variation in
the growth rates attributable to differences in LNG exports ranges from
one to seven basis points (0.01% to 0.07%). Even for the scenario with
the largest change in sectoral growth rates, the change is still
relatively small.\66\ According to NERA, it is reasonable to conclude
that an increased level of LNG exports will have a negligible effect on
how quickly these sectors grow.\67\
---------------------------------------------------------------------------
\66\ Id. at 70.
\67\ Id.
---------------------------------------------------------------------------
4. Household Income Shifts Between Different Sources But Is Positive
Overall
When comparing changes in resource income between the baseline and
the scenarios, resource income associated with natural gas
significantly increases. This is because both the value of the natural
gas resource, as well as returns to specialized capital and labor,
increase when additional LNG exports are allowed.\68\ Value-added
income (wage and capital income) also increases because of the
increased opportunity for exports and the resulting boost to labor
income, profits, and GDP.
---------------------------------------------------------------------------
\68\ Id. at 73.
---------------------------------------------------------------------------
At the same time, the resource income associated with coal and
crude oil changes minimally. Therefore, the total change in resource
income is positive for the scenarios, and the changes in
[[Page 67260]]
resource income increase with the level of LNG exports. Income
associated with net transfers includes government transfers and all
tolling charges on LNG exports. Government transfers remain the same
between the baseline and scenarios, so the net transfer reflects the
additional wealth transfer. Changes in tax revenue are ``grossed up''
in value added.\69\
---------------------------------------------------------------------------
\69\ Id. at 73.
---------------------------------------------------------------------------
5. Aggregate Consumption and Investment Is Higher
Aggregate consumption measures the total spending on goods and
services in the economy. Within each U.S. natural gas supply scenario,
aggregate consumption is higher when LNG exports are higher.
As with the welfare and GDP results, wealth transfer associated
with LNG exports increases household income which, in turn, leads to
higher spending on goods and services. Under the Reference U.S. natural
gas supply scenario, aggregate consumption is $25,049 billion and LNG
exports are 12.9 Bcf/d. When LNG exports increase as a result of
natural gas demand pull, aggregate consumption is $25,054 billion (for
29.6 Bcf/d), an increase of about $5 billion.\70\ A similar pattern is
observed in the outcomes for aggregate consumption in each of the
groups of scenarios based on alternative U.S. natural gas supply
assumptions.\71\
---------------------------------------------------------------------------
\70\ We noted that, in the narrative section of the 2018 Study
on this point, there is a typo in the Reference case number. See
2018 LNG Export Study at 75 (``Under the Reference U.S. natural gas
supply scenario, Ref_Ref_Ref_Ref, aggregate consumption is $24,049
billion and LNG exports are 12.9 Bcf/d.''). The $24,049 billion
number is actually $25,049, as shown in the corresponding Table 14.
See id. at 76.
\71\ 2018 LNG Export Study at 75.
---------------------------------------------------------------------------
6. U.S. LNG Exports Are Backed by Increased Natural Gas Production
The results from NERA's analysis indicate there is no support for
the concern that LNG exports would come at the expense of domestic
natural gas consumption. To the contrary, a large share of the increase
in LNG exports is supported by an increase in domestic natural gas
production, leading to a modest increase in natural gas prices and
additional income from export revenues.\72\ About 80% of the increase
in LNG exports is satisfied by increased domestic production of natural
gas, with positive effects on labor income, output, and profits in the
natural gas production sector.
---------------------------------------------------------------------------
\72\ Id. at 77.
---------------------------------------------------------------------------
In the Reference U.S. supply scenarios, as total natural gas
exports increase from 5.8 Tcf (in the Ref_Ref_Ref_Ref scenario) to 12.9
Tcf (in the Ref_Ref_Low_Ref scenario), natural gas production increases
for the corresponding scenarios from 37.7 Tcf to 43.9 Tcf,
respectively, in 2040.\73\
---------------------------------------------------------------------------
\73\ Id. at 78 and Figure 21.
---------------------------------------------------------------------------
V. Notice of Availability of the 2018 LNG Export Study
On June 12, 2018, DOE published notice of availability (NOA) of the
2018 LNG Export Study and a request for comments.\74\ The purpose of
the NOA was ``to enter the 2018 LNG Export Study into the
administrative record of the 25 pending non-FTA export proceedings
[identified in the NOA] and to invite comments on the Study for use in
the pending and future non-FTA application proceedings.'' \75\ DOE
provided the following instructions:
---------------------------------------------------------------------------
\74\ See U.S. Dep't of Energy, Study on Macroeconomic Outcomes
of LNG Exports; Notice of Availability of the 2018 LNG Export Study
and Request for Comments, 83 FR 27314 (June 12, 2018).
\75\ Id. at 27315.
Comments must be limited to the methodology, results, and
conclusions of the 2018 LNG Export Study on the factors evaluated.
These factors include the potential impact of LNG exports on
domestic energy consumption, production, and prices; the
macroeconomic factors identified in the Study, including gross
domestic product, consumption, U.S. economic sector analysis, and
U.S. LNG export feasibility analysis; and any other factors included
in the Study. In addition, comments may be directed toward the
feasibility of various scenarios used in the Study.\76\
---------------------------------------------------------------------------
\76\ Id. at 27316 (noting that ``[w]hile this invitation to
comment covers a broad range of issues, DOE may disregard comments
that are not germane to the present inquiry.'').
Publication of the NOA began a 45-day public comment period that ended
on July 27, 2018.
DOE received 19 comments on the 2018 LNG Export Study from a
variety of sources, including participants in the natural gas industry,
environmental organizations, and individuals. Of those, nine comments
supported the Study,\77\ eight comments opposed the 2018 Study and/or
exports of LNG,\78\ one comment took no position,\79\ and one comment
was non-responsive.\80\ The NOA and comments received on the NOA are
available on DOE's website at https://fossil.energy.gov/app/docketindex/docket/index/10.
---------------------------------------------------------------------------
\77\ Supporting comments were filed by the Marcellus Shale
Coalition; the Center for Liquefied Natural Gas (CLNG); the
Pennsylvania Chamber of Business and Industry; the American
Petroleum Institute (API); Cheniere Energy, Inc. (Cheniere); Jordan
Cove Energy Project L.P. (JCEP); LNG Allies; NextDecade Corp.; and
Anonymous. The Anonymous comment is comprised of five comments filed
by the same anonymous author.
\78\ Opposing comments were filed by Patricia Weber; Oil Change
International; Food & Water Watch; Industrial Energy Consumers of
America (IECA); Oregon Wild; Sierra Club; Deb Evans and Ron Schaaf
(the Evans Schaaf Family); and Jody McCaffree (individually and as
executive director of Citizens for Renewables/Citizens Against LNG).
Oil Change International and Food & Water Watch filed identical
comments.
\79\ Comment of John Young.
\80\ Comment of Vincent Burke.
---------------------------------------------------------------------------
VI. Comments on the 2018 LNG Export Study and DOE/FE Response
DOE has evaluated the comments received during the public comment
period. Below, DOE/FE summarizes: (i) The pertinent arguments by topic,
with reference to representative comments, and (ii) DOE/FE's basis for
the conclusions that it drew in reviewing those comments. In so doing,
DOE/FE has responded to the relevant and significant issues raised by
the commenters.\81\
---------------------------------------------------------------------------
\81\ See, e.g., Public Citizen v. F.A.A., 988 F.2d 186, 197
(D.C. Cir. 1993).
---------------------------------------------------------------------------
A. Data Inputs and Estimates of Natural Gas Demand
1. Comments
Every commenter supporting the 2018 LNG Export Study expresses
support for NERA's study design. For example, Cheniere states that the
2018 Study's ``refined approach'' is well-suited to the present
context, in which DOE/FE has approved non-FTA exports in a volume (at
the time of Cheniere's filing) up to 21.35 Bcf/d, with more non-FTA
applications pending.\82\ The commenters point out that the study
design--with 54 different scenarios reflecting a range of market
uncertainties and market-determined levels of export volumes--differs
from past studies that were based on prescribed LNG export volumes.
JCEP states that the 2018 Study takes the ``next logical step'' in
studying unbounded exports driven by market demand.\83\ For this
reason, commenters including LNG Allies and API characterize the 2018
Study as the most comprehensive of DOE's export studies to date.
---------------------------------------------------------------------------
\82\ Comment of Cheniere at 3.
\83\ Comment of JCEP at 3.
---------------------------------------------------------------------------
LNG Allies observes that the 2018 Study uses data from AEO 2017 for
its analysis, but notes that the projections in EIA's Annual Energy
Outlook 2018 (AEO 2018) \84\ indicate ``significantly lower natural gas
prices in the United States in the future, as well as considerably
higher U.S. natural gas production under all scenarios (versus
[[Page 67261]]
AEO 2017).'' \85\ LNG Allies asserts that, had it been possible for the
2018 Study to draw upon EIA's most recent data in AEO 2018, the
evidence supporting market-determined levels of U.S. LNG exports would
have been ``even more persuasive.'' \86\
---------------------------------------------------------------------------
\84\ U.S. Energy Info. Admin., Annual Energy Outlook 2018 (with
projections to 2050) (Feb. 6, 2018), available at: https://www.eia.gov/outlooks/aeo/pdf/AEO2018.pdf.
\85\ Comment of LNG Allies at 2.
\86\ Id. (emphasis in original).
---------------------------------------------------------------------------
JCEP also endorses the 2018 Study's design as ``appropriate and
important given the state of the U.S. LNG export market to date.'' \87\
Specifically, JCEP notes that some LNG export projects have received
authorizations from the Federal Energy Regulatory Commission (FERC) and
DOE, but have not yet moved forward on construction or may never move
forward. In JCEP's view, these ``stalled'' projects should not prevent
other projects from obtaining export authorizations through artificial
limits on approved export volumes. Therefore, JCEP asserts, the 2018
Study correctly evaluated LNG exports limited only by market demand,
not by regulatory constraints imposed by DOE.\88\
---------------------------------------------------------------------------
\87\ Comment of JCEP at 3.
\88\ Id.
---------------------------------------------------------------------------
On the other hand, several commenters--including Sierra Club,
Oregon Wild, and the Industrial Energy Consumers of America (IECA)--
challenge the scope of the 2018 Study and the data used as inputs.
Specifically, these commenters assert that the 2018 Study relies on
inaccurate assumptions that fail to reflect conditions that adversely
affect (and will continue to affect) the viability of U.S. LNG exports.
First, Oregon Wild states that the U.S. market for fossil fuels is
deeply flawed. According to Oregon Wild, the current prices for natural
gas do not reflect either the full costs of production or significant
externalities (e.g., global climate change and ocean acidification),
and thus are artificially low. Low prices for LNG, in turn, result in
artificially high demand and supply that ``far exceeds'' optimal
levels.\89\ Consequently, Oregon Wild states that increasing exports of
U.S. LNG ``will increase the supply of a commodity that is already
oversupplied at a global scale.'' \90\
---------------------------------------------------------------------------
\89\ Comment of Oregon Wild at 1.
\90\ Id.
---------------------------------------------------------------------------
Commenters including Oil Change International, Food & Water Watch,
and Sierra Club assert that the 2018 Study is based on flawed
projections of global demand for natural gas. Sierra Club argues that
the 2018 Study ``drastically overstates'' global demand, which
``significantly skews'' the 2018 Study's overall analysis and
conclusions.\91\ Oil Change International, Food & Water Watch, and
other commenters also allege the following deficiencies in NERA's study
design:
---------------------------------------------------------------------------
\91\ Comment of Sierra Club at 1.
---------------------------------------------------------------------------
Fails to account for the negative impacts of increased
natural gas production and related infrastructure;
Fails to consider shifts in anti-fossil fuel energy
policies at the state level that will impact U.S. supplies;
Fails to acknowledge the transition to renewable energy
and storage (i.e., flexible generation technologies) that compete with
natural gas globally, as well as efforts in the United States to build
out renewable energy sources and increase energy efficiency;
Improperly relies on ``projected diminishing Rest of
World'' natural gas supplies;
Fails to properly account for economic costs related to
environmental issues, particularly the costs associated with climate
change; and
Fails to account for international efforts to address
climate change and/or assumes that such efforts will fail, which
allegedly will impact global demand for natural gas.\92\
---------------------------------------------------------------------------
\92\ Comments of Oil Change International and Food & Water Watch
at 1.
---------------------------------------------------------------------------
Addressing the climate change argument, Oil Change International
and Food & Water Watch first challenge the statement in the 2018 Study
that `` `NERA [has] followed the development of international
agreements on climate change for many years, and we do not expect that
future progress will be very much greater than in the past.' '' \93\ On
this basis, NERA attributed a ``low probability''--specifically, a 5%
probability--to the ``low international demand case'' for the rest of
the world (ROW), in which international demand for natural gas is
reduced due to policies to address climate change.\94\
---------------------------------------------------------------------------
\93\ Id. at 2 (citing 2018 LNG Export Study at 42).
\94\ 2018 LNG Export Study at 41-42.
---------------------------------------------------------------------------
The Evans Schaaf Family submitted a comment challenging NERA's
assumption, asserting that ``[t]he most glaring of [NERA's] predictions
is that there is a mere 5% probability that the [Rest of World] would
meet the 450 ppm [parts per million] of CO2e [carbon dioxide
equivalent] as set forth in the Paris Climate Agreement.'' \95\ The 450
ppm case assumes a set of policies with the objective of limiting the
average global temperature increase in 2100 to 2 degrees Celsius above
pre-industrial levels.\96\ NERA noted that, ``[t]o achieve this
concentration, it is necessary to phase out all fossil fuel use
including natural gas over the course of the next century.'' \97\ Oil
Change International and Food & Water Watch contend, however, that NERA
``provide[d] no scientific reasoning for attributing a 5% probability
to international gas demand levels that align with the . . . 450 ppm
Scenario.'' \98\
---------------------------------------------------------------------------
\95\ Comment of the Evans Schaaf Family at 1.
\96\ 2018 LNG Export Study at 30; see also id. at 41 (explaining
that the ``lowest natural gas demand is obtained from a scenario in
which the IEA assumes that every country adopts policies sufficient
to keep global greenhouse gas concentrations under 450 ppm CO2e.'').
\97\ Id. at 41.
\98\ Comments of Oil Change International and Food & Water Watch
at 2.
---------------------------------------------------------------------------
Oil Change International and Food & Water Watch also state that the
2018 Study should have given much greater emphasis to low natural gas
demand scenarios that align with the Paris Agreement.\99\ In their
view, rather than NERA adopting a ``subjective and cynical'' view
towards international climate negotiations, a ``methodologically sound
approach would be to project the level of U.S. LNG exports that align
with global success in meeting the Paris goals.'' \100\ They point out
that the Paris Agreement has been ratified by more than 170 nations,
with the United States being the only country to back away from the
Agreement.
---------------------------------------------------------------------------
\99\ Id.
\100\ Id.
---------------------------------------------------------------------------
According to the commenters, this approach would show a much lower
global demand for U.S. LNG exports by the middle of this century,
indicating a very different trajectory to any of those described in the
2018 Study. They claim that, by attributing a low probability to the
likelihood that demand for U.S. natural gas will be reduced in light of
climate policies, the 2018 Study is ``predicated on a failure to
prevent catastrophic climate impacts.'' \101\
---------------------------------------------------------------------------
\101\ Id.
---------------------------------------------------------------------------
Similarly, Sierra Club asserts that the 2018 Study overstates
global natural gas demand, and thus market support for U.S. LNG
exports, ``by assuming that the most likely [demand] scenario is for
the rest of the world to take no further action to limit greenhouse gas
emissions.'' \102\ Specifically, Sierra Club disputes NERA's judgment
that the high demand case--assigned a 65% probability--should assume
that 2016 is the last year in which the global community undertakes any
effort to limit greenhouse gas emissions, i.e., that no further action
is taken between 2018 and 2040.\103\ In Sierra Club's view, ``this
[[Page 67262]]
scenario might represent a useful hypothetical `ceiling' on global
natural gas demand,'' but the 2018 Study does not demonstrate that it
is plausible, much less the ``most likely'' scenario.\104\
---------------------------------------------------------------------------
\102\ Comments of Sierra Club at 1 (emphasis in original).
\103\ Id. (citing 2018 LNG Export Study at 41-43) (NERA
explaining that ``we assign . . . the highest probability to the WEO
Current Policies case that assumes no additional actions to limit
emissions [after 2016].'').
\104\ Id.
---------------------------------------------------------------------------
Turning to renewable energy, Oil Change International and Food &
Water Watch cite recent analysis from Bloomberg New Energy Finance, the
New Energy Outlook 2018.\105\ They argue that this Bloomberg analysis
projects a very different picture of future energy demand than assumed
in the 2018 Study. For example, they argue that, by 2050, renewable
energy will make up over two-thirds of global power generation, while
fossil energy will have declined to 29% from 63% today.\106\ Citing
these and other projections, the commenters argue that there will be
substantial constraints on growth in the demand for U.S. LNG. The
commenters argue that, without these adjustments, the 2018 Study
exaggerates both the potential for U.S. LNG exports and the related
macroeconomic benefits.
---------------------------------------------------------------------------
\105\ Comments of Oil Change International and Food & Water
Watch at 3 n.4 (citation omitted).
\106\ Id. at 3.
---------------------------------------------------------------------------
Patricia Weber and other commenters express concern about NERA's
statement that the 2018 Study `` `does not investigate' '' the
variations in domestic versus foreign ownership of assets as part of
its NewEra model.\107\ Ms. Weber questions why NERA did not
consider the implications for the U.S. economy of a foreign-owned
pipeline exporting U.S. LNG through a foreign-owned facility. She cites
JCEP's pending LNG export project, in which the proposed Jordan Cove
Energy Project and associated Pacific Connector Gas Pipeline would be
owned by a Canadian corporation.\108\
---------------------------------------------------------------------------
\107\ Comment of Patricia Weber at 1 (quoting 2018 LNG Export
Study at 34 n.34) (NERA stating that, ``[i]n the NewERA
model, it is possible to represent these variations in domestic
versus foreign ownership of assets and capture export revenues to
better understand the issues. However, this study does not
investigate these issues.'').
\108\ Id.
---------------------------------------------------------------------------
Similarly, Ms. Weber and the Evans Schaaf Family question whether
the 2018 Study excludes Canadian (or Mexican) natural gas supply as a
factor. In their view, since NERA states that ``countries in the North
American region share a single natural gas market,'' \109\ any
macroeconomic benefits associated with LNG exports should be applied
across North America, and not assumed to accrue only to the United
States, as the 2018 Study suggests.
---------------------------------------------------------------------------
\109\ 2018 LNG Export Study at 56 n.48.
---------------------------------------------------------------------------
Finally, some commenters, including Ms. Weber and Jody McCaffree,
dispute the 2018 Study's conclusions regarding international levels of
U.S. LNG exports. They suggest that the current volumes of LNG exports
across the world (not only U.S. LNG) are already excessive and will
result in a global oversupply. Citing a 2017 report by the
International Gas Union, Ms. McCaffree warns that ``it would take 15
years . . . until the current excess of LNG volumes would likely be
absorbed into the international LNG export markets.'' \110\ Ms. Weber
also questions whether the 2018 Study considers any potential
macroeconomic impacts if the infrastructure created from increased LNG
exports exceeds the bounds of what the market demands--for example, if
the LNG industry ``overbuilds'' two to three times more export capacity
than ultimately needed.\111\
---------------------------------------------------------------------------
\110\ Comment of Jody McCaffree at 2 (emphasis in original)
(citing International Gas Union, 2017 World LNG Report, at 4-5)
(attached as Exh. 1 to McCaffree Comment).
\111\ Id.
---------------------------------------------------------------------------
2. DOE/FE Response
The 2018 Study considered 54 different scenarios of LNG exports
from the United States over the coming decades. Different assumptions
regarding future supply and demand conditions provided a wide range of
possible outcomes for further macroeconomic analysis. Through a peer-
reviewed process, the 2018 Study assigned probabilities for each of the
supply and demand cases, which, when combined, provided likelihoods for
the scenarios. This approach allowed NERA to consider very unlikely
scenarios for U.S. LNG exports--with export levels much lower and much
higher than the Reference case--thus providing a more comprehensive
range of outcomes than considered in DOE's previous LNG export studies.
The 2018 Study found a ``positive correlation between GDP and LNG
exports for the more likely scenarios in 2040,'' such that ``[i]n all
scenarios with common assumptions about U.S. natural gas supply and
demand, there is greater gain in GDP as the LNG export volume
increases.'' \112\
---------------------------------------------------------------------------
\112\ 2018 LNG Export Study at 67.
---------------------------------------------------------------------------
We take note of EIA's projections in AEO 2018, published on
February 6, 2018, for natural gas supply, demand, and prices.\113\ One
commenter noted the lower domestic natural gas prices and higher
domestic natural gas production projected in AEO 2018 than in the
projections from AEO 2017 used in the 2018 Study. Projected Reference
case domestic dry natural gas production for the year 2040 increased by
2.41 Tcf between AEO 2017 and AEO 2018 (from 37.74 Tcf to 40.15 Tcf,
respectively). The Henry Hub price in 2040 declined from $5.18 per
million British thermal units (MMBtu) in the AEO 2017 projections to
$4.50/MMBtu in the AEO 2018 projections (both prices in constant 2017
dollars). Reference case LNG exports in the year 2040 increased from
the 2017 to 2018 projections by 0.92 Tcf (from 4.44 Tcf to 5.36 Tcf).
As described here, the AEO 2018 Reference case, even more so than AEO
2017, projects robust domestic supply conditions that are more than
adequate to meet domestic needs and supply exports.
---------------------------------------------------------------------------
\113\ See AEO 2018, supra note 84.
---------------------------------------------------------------------------
Several commenters suggested the 2018 LNG Export Study overstates
the future level of U.S. LNG exports, as well as the probability of
those levels of exports occurring. DOE/FE commissioned the 2018 Study
to inform its public interest analysis of pending long-term
applications to export LNG to non-FTA countries beyond the 21.35 Bcf/d
of exports already approved at that time. To develop scenarios with
much larger volumes of exports than under Reference case conditions,
the 2018 Study performers examined unconstrained cases and assigned
probabilities to help illustrate the likelihood of LNG export levels
much lower and much higher than the Reference case. The macroeconomic
analysis of the export scenarios provides valuable input to inform DOE/
FE's public interest analysis. The 2018 Study does not (and was not
intended to) provide an analysis of any ``optimal'' level of LNG
exports based on different policy objectives. Further, the 2018 Study
Reference case rate of exports in 2040 (``Ref_Ref_Ref_Ref'') is in the
range of LNG exports projected in AEO 2018 for the same time period--
12.9 Bcf/d in the 2018 Study, compared to 14.7 Bcf/d in AEO 2018.
If increased global demand for U.S. LNG exports does not
materialize, as some commenters suggest, there would be no
corresponding incremental domestic supply or price impact since
additional LNG exports would not occur, irrespective of regulatory
approvals. As some commenters point out, multiple proposed projects
have received full approval for their export facilities from FERC and
DOE, yet they have neither made a final investment decision nor begun
construction. Given the significant capital costs of liquefaction and
export facilities, project developers in the United States typically
must demonstrate long-term
[[Page 67263]]
demand for their projects through the execution of long-term contracts
to raise the needed capital to finance their projects. DOE/FE also
notes that current large-scale liquefaction capacity in operation or
under construction in the United States today equals approximately 11
Bcf/d of exports, which is more than 3 Bcf/d below the AEO 2018
Reference case rate of LNG exports projected in 2040.
B. Economic Benefits Associated With LNG Exports
1. Economic Benefits Realized to Date
a. Comments
Cheniere states that it agrees with the results of the 2018 LNG
Export Study, and emphasizes that, ``for Cheniere, the positive
economic impacts of LNG exports are not just a matter of economic
theory.'' \114\ In the years since DOE/FE published its first LNG
export study, Cheniere--through its subsidiary, Sabine Pass
Liquefaction, LLC--has constructed and launched operations at the
Sabine Pass Liquefaction Project, located at the Sabine Pass LNG
Terminal in Cameron Parish, Louisiana. Cheniere states that it has
constructed four liquefaction trains at the Sabine Pass LNG Terminal,
and is in the process of commencing exports from a fifth train.\115\
DOE/FE (as well as the Anonymous commenter) notes that Cheniere began
exporting U.S. LNG from the Sabine Pass LNG Terminal on February 24,
2016, and, to date, has exported 501 LNG cargoes from Sabine Pass (both
long-term and short-term exports) with deliveries to 29 countries and
regions worldwide.\116\ Cheniere states that, through other
subsidiaries, it is also in the process of constructing three
liquefaction trains at the Corpus Christi LNG Terminal in San Patricio
County, Texas.
---------------------------------------------------------------------------
\114\ Comment of Cheniere at 1.
\115\ Id.
\116\ See FE LNG Monthly, Dec. 2018, and LNG Annual 2016, 2017,
available at: https://www.energy.gov/fe/listings/lng-reports; see
also Comment of NextDecade Corp. at 9; Comment of API at 2.
Additionally, we note that Dominion Energy Cove Point LNG, LP (DECP)
commenced LNG exports on March 2, 2018. To date, DECP has exported
36 LNG cargoes from its terminal in Lusby, Maryland (both long-term
and short-term exports), with deliveries to 13 countries and regions
worldwide.
---------------------------------------------------------------------------
According to Cheniere, these two LNG export projects have created
approximately 9,000 direct construction jobs at peak construction over
a period of several years, as well as more than 1,000 permanent, full-
time jobs.\117\ Cheniere asserts that the construction and operation of
both the Sabine Pass and Corpus Christi Liquefaction Projects have
generated, and will continue to generate, tens of thousands of indirect
jobs across the United States. Cheniere states that, to date, it has
sourced natural gas for the Sabine Pass Liquefaction Project from
dozens of producers located in Texas, Louisiana, Arkansas,
Pennsylvania, Ohio, West Virginia, Oklahoma, Illinois, and Kentucky.
Cheniere maintains that jobs have been created due to the demand its
LNG export operations have created for natural gas infrastructure--
including in the steel industry and in other segments of the natural
gas supply chain.\118\
---------------------------------------------------------------------------
\117\ See Comment of Cheniere at 2.
\118\ See id.
---------------------------------------------------------------------------
In this regard, Cheniere states that liquefaction projects require
a wide variety of manufactured parts and components, many of which can
be sourced from domestic manufacturers. Cheniere states that, to date,
its LNG facilities have procured components from 1,590 U.S.
manufacturers in 46 states.\119\ In sum, Cheniere maintains that,
``through its procurement of domestic natural gas and across its
manufacturing supply chain,'' it ``has seen first-hand the broad
economic benefits of LNG exports to the American economy.'' \120\
---------------------------------------------------------------------------
\119\ See id.
\120\ Id.
---------------------------------------------------------------------------
The American Petroleum Institute (API) agrees that the results of
the 2018 LNG Export Study ``are consistent with U.S. LNG experience to
date.'' \121\ Specifically, API states that U.S. LNG cargoes commenced
in early 2016, yet the impact on domestic prices of natural gas has
been negligible. Likewise, the Pennsylvania Chamber of Business and
Industry states that concerns about significant increases in natural
gas prices occurring after DOE/FE began authorizing LNG exports have
not been borne out.\122\
---------------------------------------------------------------------------
\121\ Comment of API at 2.
\122\ Comment of Pennsylvania Chamber of Business and Industry
at 1-2; see infra at Sec. VI.G.
---------------------------------------------------------------------------
b. DOE/FE Response
The 2018 Study did not attempt to quantify the macroeconomic
impacts or other direct and indirect effects of LNG exports since
February 2016. Nonetheless, to provide one estimate of the current
value of U.S. LNG exports, DOE/FE points to the quantity and price of
U.S. LNG exported to date, as reported by DOE/FE export authorization
holders. Since initial exports began from the lower-48 states in
February 2016, a cumulative volume of over 1.7 trillion cubic feet of
natural gas has been exported through October 2018, and the
corresponding volume-weighted prices for the same period yield a value
of over $7.9 billion.\123\ Additionally, as noted previously, since
U.S. LNG exports from the lower-48 states began, the projected Henry
Hub price in 2040 has decreased from AEO 2017 to AEO 2018, which is a
function of the size of domestic natural gas supply to meet both
domestic and export demand.
---------------------------------------------------------------------------
\123\ LNG exports of 186,841 million cubic feet (MMcf) in 2016 *
$4.71/thousand cubic feet (Mcf) + LNG exports of 707,542 MMcf in
2017 * $4.69/Mcf + LNG exports of 852,368 MMcf from Jan.-Oct. 2018
at $4.90/Mcf, as reported in EIA's Natural Gas Monthly (Nov. 2018),
available at: https://www.eia.gov/naturalgas/monthly/pdf/table_05.pdf (Table 5, U.S. natural gas exports, 2016-2018) and FE
LNG Monthly, Dec. 2018, available at: https://www.energy.gov/fe/listings/lng-reports.
---------------------------------------------------------------------------
2. Macroeconomic Benefits Under DOE's Studies to Date
a. Comments
Several commenters point out that the 2018 LNG Export Study builds
on both DOE's prior macroeconomic studies and several studies conducted
by other authors in reaffirming the economic benefits of LNG
exports.\124\ Cheniere notes that, even before the 2018 Study, DOE/FE
had already developed a large body of analysis demonstrating the
substantial macroeconomic benefits of LNG exports to the United States.
Cheniere, JCEP, and API state that DOE's four prior studies were varied
in their methodology, but they all confirm the same fundamental
conclusion: LNG exports are a clear net benefit to the U.S. economy and
are therefore in the public interest.\125\ The commenters maintain that
the conclusions of the 2018 LNG Export Study--especially when
considered along with DOE's prior LNG studies--should put to rest any
lingering concerns that increased U.S. LNG exports are not in the
public interest. According to API, ``[i]t should now be abundantly
clear that U.S. LNG offers sizable benefits to U.S. consumers, workers,
and the economy overall.'' \126\
---------------------------------------------------------------------------
\124\ Cheniere, LNG Allies, and API identify other studies
examining LNG exports by authors including the Brookings
Institution, Deloitte, IHS, IHS Energy, ICF International, and API.
\125\ Comment of Cheniere at 2-3 & nn.6-10 (citations omitted);
Comment of JCEP at 3; Comment of API at 2.
\126\ Comment of API at 3.
---------------------------------------------------------------------------
b. DOE/FE Response
DOE's prior LNG export studies (the 2012, 2014, and 2015 LNG Export
Studies) consistently have projected positive economic benefits from
increased levels of U.S. LNG exports, as measured by GDP.
[[Page 67264]]
C. Distributional Impacts
1. Gross Domestic Product (GDP)
a. Comments
Some commenters, including IECA, Sierra Club, and the Evans Schaaf
Family, allege that any macroeconomic benefits from the 2018 LNG Export
Study are likely overstated. These commenters allege that, in
concluding that LNG exports would create a net benefit to the economy,
the 2018 Study relied too heavily on the fact that exports will
increase GDP while failing to give adequate weight to projected
domestic natural gas price increases, as well as to negative socio-
economic, sectoral, and regional impacts. IECA also disagrees with the
fact that the 2018 Study emphasizes the national net economic benefits
of LNG exports. IECA charges that this focus is not consistent with the
U.S. Supreme Court's definition of ``public interest,'' which it claims
is intended to focus on ``impacts to people, not GDP.'' \127\
---------------------------------------------------------------------------
\127\ Comment of IECA at 3.
---------------------------------------------------------------------------
Other commenters--including the Marcellus Shale Coalition, API,
CLNG, NextDecade Corp., and the Anonymous commenter--assert that LNG
exports will provide macroeconomic benefits to the United States. These
commenters point out that, across a wide range of scenarios, the 2018
Study found that LNG exports will provide a net benefit to the U.S.
economy and will allow for continued economic growth. JCEP and Cheniere
emphasize the 2018 Study's conclusion that `` `there is greater gain in
GDP as the LNG export volume increases.' ''\128\ Specifically, as
commenters point out, the 2018 Study demonstrates that GDP grows as LNG
exports increase because the U.S. economy benefits from investment in
liquefaction facilities, export revenues, income from the upstream and
midstream natural gas industry, and tolling charges generated by the
LNG export facilities. JCEP emphasizes that these increases in GDP
result, in part, from the fact that exports of LNG will not result in
decreased domestic consumption of natural gas. Rather, LNG exports will
be in addition to, not in place of, domestic uses of natural gas.\129\
---------------------------------------------------------------------------
\128\ See, e.g., Comment of Cheniere at 5 (quoting 2018 LNG
Export Study at 67-68).
\129\ Comment of JCEP at 4 (citing 2018 LNG Export Study at 77).
---------------------------------------------------------------------------
NextDecade acknowledges the 2018 Study's conclusion that ``there is
virtually no chance'' that non-FTA LNG exports will reach the 55.04
Bcf/d level in aggregate volumes for which DOE had approved and/or
received applications by 2040 (as of the date of the Study).\130\
Nonetheless, NextDecade points out that, regardless of the volume of
LNG ultimately exported, the 2018 Study found that LNG exports are in
the public interest. For this reason, NextDecade asserts that the
market, not DOE, should decide which of the pending LNG export projects
will meet global market demand. NextDecade further notes the 2018
Study's finding that `` `any restrictions on LNG exports would forgo
the additional GDP to be gained by allowing exports to respond to
market conditions.' '' \131\ In sum, these commenters support NERA's
conclusion that allowing the market to determine the level of U.S. LNG
exports will ``lead to an increase in overall economic activity leading
to higher GDP.'' \132\
---------------------------------------------------------------------------
\130\ Comment of NextDecade Corp. at 11 (quoting 2018 LNG Export
Study at 49).
\131\ Id. (quoting 2018 LNG Export Study at 68).
\132\ 2018 LNG Export Study at 68.
---------------------------------------------------------------------------
b. DOE/FE Response
The 2018 Study measured the broad macroeconomic effects on the U.S.
economy through several metrics, including ``the wellbeing of the
average U.S. consumer, total household income from all sources,
economy-wide investment, output effects on key manufacturing sectors,
and gross domestic product (GDP).'' \133\ With respect to consumer
well-being, the 2018 Study found that all scenarios within the more
likely range of results are welfare-improving for the average U.S.
household. This result is driven by households' receipt of additional
income from export revenues and take-or-pay tolling charges for LNG
exports, and this additional income outweighs the income lost from
higher energy prices.\134\
---------------------------------------------------------------------------
\133\ Id. at 65.
\134\ Id. at 66-67.
---------------------------------------------------------------------------
In terms of total household income, the 2018 Study considered two
broad categories of income sources: Resource income and value-added
income. The resource income reflects the value of the natural gas
resource as well as returns to specialized capital and labor. The
value-added income is a measure of labor income and capital income. In
the 2018 Study, both resource income and value-added income increase as
LNG exports increase for given domestic natural gas supply assumptions
across the more likely scenarios examined.\135\
---------------------------------------------------------------------------
\135\ Id. at 73-74.
---------------------------------------------------------------------------
In terms of economy-wide investment, the 2018 Study shows higher
levels of aggregate investment for higher levels of LNG exports. Within
the natural gas sector, additional investments take place to expand
natural gas production and to build liquefaction capacity. Overall
aggregate investment also grows with capacity increases in industries
that supply machinery and equipment that make up the overall natural
gas value chain.\136\
---------------------------------------------------------------------------
\136\ Id. at 76.
---------------------------------------------------------------------------
Finally, in terms of GDP, as noted previously, the 2018 Study found
a ``positive correlation between GDP and LNG exports for the more
likely scenarios in 2040.'' \137\
---------------------------------------------------------------------------
\137\ Id. at 67.
---------------------------------------------------------------------------
2. Sectoral Impacts
a. Comments
Some commenters, including IECA, Jody McCaffree, and the Evans
Schaaf Family, debate whether LNG exports will impact the domestic
energy-intensive, trade-exposed (EITE) sectors disproportionately, at
too high a cost to the U.S. economy to justify exporting LNG.\138\
Specifically, IECA asserts that increasing U.S. LNG exports reduces the
cost of natural gas to global competitors and simultaneously increases
the domestic cost of natural gas and electricity--creating a ``double
negative impact'' on EITE industries.\139\ According to these
commenters, these price impacts will lead to lost jobs and lower wages
in the EITE sectors, while also making it more difficult for the U.S.
to compete globally, invest capital, and create high-paying middle
class jobs.
---------------------------------------------------------------------------
\138\ IECA states that its members in EITE sectors represent
industries including: Chemicals, plastics, steel, iron ore,
aluminum, paper, food processing, fertilizer, insulation, glass,
industrial gases, building products, automotive, independent oil
refining, and cement. See Comment of IECA at 2.
\139\ Id.
---------------------------------------------------------------------------
According to IECA, the oil and natural gas industry employed
512,000 jobs in 2017, whereas the manufacturing sector currently
employs 12,713,000 jobs.\140\ Of the approximately 12.7 million
manufacturing jobs, approximately 5,125,600 jobs in the EITE industries
would be most affected by LNG exports.\141\ IECA cautions that if DOE
``approves too many export terminals and natural gas prices rise,'' DOE
will be putting ``at risk trillions of dollars of manufacturing assets
and over 12.7 million jobs.'' \142\ In light of the various alleged
flaws in the 2018 Study identified by IECA and discussed herein, IECA
maintains that the 2018 Study overinflates economic growth and job
projections attributed to LNG exports.
---------------------------------------------------------------------------
\140\ Id.
\141\ Id.
\142\ Id.
---------------------------------------------------------------------------
Other commenters, including CLNG and API, dispute these arguments.
They disagree with the notion that an LNG
[[Page 67265]]
export industry cannot co-exist with a growing domestic manufacturing
base. They emphasize the size and productivity of the U.S. natural gas
resource base, contending that there is an abundance of natural gas to
support both LNG export demand and continued growth in the EITE
industries.
CLNG argues that the ``dramatic increase'' in natural gas supply
has enabled an industrial renaissance in the U.S. manufacturing sector,
with demand for natural gas from the manufacturing sector reaching an
all-time high this past winter.\143\ According to CLNG, growth in LNG
exports sends market signals to incentivize domestic production of
natural gas. This increased production benefits U.S. consumers, as well
as industries involved in the natural gas supply chain (such as
construction and manufacturing)--spurring more economic growth.\144\
NextDecade similarly asserts that, under the 2018 Study's most likely
scenarios, industries that rely on natural gas for fuel and as a raw
material input will maintain strong growth, even if LNG exports
increase.\145\
---------------------------------------------------------------------------
\143\ Comment of CLNG at 4 & n.17 (citing Energy Ventures
Analysis, Inc., 2017-2018 Winter Outlook for Natural Gas, 2017).
\144\ See id. at 4.
\145\ Comment of NextDecade Corp. at 5.
---------------------------------------------------------------------------
Additionally, API argues that the economic benefits of increased
natural gas use extend to the industrial sector--including through the
increased production of associated natural gas liquids (NGLs), which
must be extracted before natural gas is liquefied for export. CLNG and
API maintain that growth in NGLs creates a competitive advantage for
U.S. chemical manufacturers and leads to greater investment, industry
growth, and new jobs.\146\ API contends that NGLs ``have bolstered the
U.S. petrochemical sector and fostered a renaissance in U.S.
manufacturing,'' underscoring the value of U.S. LNG at home and
abroad.\147\
---------------------------------------------------------------------------
\146\ Comment of CLNG at 4.
\147\ Comment of API at 2-3.
---------------------------------------------------------------------------
Next, CLNG argues that companies from around the world are
investing in new projects to build or expand their ``shale-advantaged
capacity'' in the United States. CLNG states that, between 2010 and
2015, 48 new industrial projects in the petrochemical, fertilizer,
steel, and natural gas-to-liquids sectors were completed, representing
an investment of $28 billion.\148\ According to CLNG, experts forecast
additional industrial investment of $135 billion to build 59 new
projects and 11 expansions between 2017 and 2022.\149\
---------------------------------------------------------------------------
\148\ Comment of CLNG at 4.
\149\ Id. (citing Energy Ventures Analysis, Inc., 2017-2018
Winter Outlook for Natural Gas, 2017).
---------------------------------------------------------------------------
In sum, CLNG cautions that suppressing LNG exports will limit
production of natural gas which, in turn, will limit both: (i) Overall
economic benefits to the domestic economy, and (ii) the opportunity for
the United States to continue growing its manufacturing sectors that
benefit from increased supplies of natural gas.\150\
---------------------------------------------------------------------------
\150\ Id. at 4.
---------------------------------------------------------------------------
b. DOE/FE Response
With respect to the argument that natural gas confers greater value
on the U.S. economy when used in manufacturing than when produced for
export, DOE observes that more natural gas is likely to be produced
domestically if LNG exports are authorized than if they are prohibited.
There is no one-for-one trade-off between natural gas used in
manufacturing and natural gas diverted for export. These observations
are consistent with DOE/FE's analysis of similar arguments made in
response to its prior macroeconomic studies.\151\ The competition
between the demand for natural gas for domestic consumption and the
demand for natural gas for export is captured in the modelling for the
2018 Study. In scenarios with increased levels of U.S. LNG exports with
common domestic natural gas supply assumptions, the 2018 Study found
that greater economic benefits, in terms of GDP, accrued to the U.S.
economy due to those exports.
---------------------------------------------------------------------------
\151\ See, e.g., Golden Pass Products LLC, DOE/FE Order No.
3978, FE Docket No. 12-156-LNG, Opinion and Order Granting Long-
Term, Multi-Contract Authorization to Export Liquefied Natural Gas
by Vessel from the Golden Pass LNG Terminal Located in Jefferson
County, Texas, to Non-Free Trade Agreement Nations, at 77-80 (Apr.
25, 2017).
---------------------------------------------------------------------------
Contrary to IECA's concerns about the negative impacts to EITE
industries potentially caused by increased LNG exports, the 2018 Study
found: ``All negatively affected sectors, and in particular the natural
gas intensive sectors, continue to grow robustly at higher levels of
LNG exports, albeit at slightly lower rates of increase than they would
at lower levels.'' \152\ The 2018 Study further found that,
``[s]ectoral growths rates remain robust for all of the sectors that
rely on natural gas as fuel and raw material input,'' with ``[t]he
variation in the growth rates attributable to differences in LNG
exports ranges from one to seven basis points (0.01% to 0.07%).'' \153\
Based on these findings (which no commenters attempt to rebut), we are
not persuaded by IECA's claim that DOE's approval of LNG exports will
put trillions of dollars of U.S. manufacturing assets and millions of
jobs at risk, among other alleged negative impacts.
---------------------------------------------------------------------------
\152\ 2018 LNG Export Study at 70.
\153\ Id.
---------------------------------------------------------------------------
With respect to the argument that some industries derive greater
economic value from natural gas than others, DOE/FE continues to be
guided by the long-standing principle established in the 1984 Policy
Guidelines that resource allocation decisions of this nature are better
left to the market, rather than to DOE, to resolve.\154\
---------------------------------------------------------------------------
\154\ See infra Sec. I.B.
---------------------------------------------------------------------------
3. Consumer Welfare
a. Comments
Sierra Club, IECA, the Evans Schaaf Family, and other commenters
maintain that the positive macroeconomic benefits of LNG exports will
not accrue to most U.S. citizens. They contend that the 2018 Study
acknowledges both the positive and negative effects associated with LNG
exports, but glosses over the fact that these positive and negative
effects are not equally or evenly distributed.\155\ According to these
commenters, exports of LNG will harm all Americans by increasing
natural gas prices, and thus most Americans will not share in any
benefits associated with LNG exports.
---------------------------------------------------------------------------
\155\ Comment of Sierra Club at 2 (quoting 2018 LNG Export Study
at 64).
---------------------------------------------------------------------------
Sierra Club and IECA argue that the main beneficiaries of LNG
exports will be a very small fraction of the U.S population--namely,
American households that own stock in natural gas production and export
companies. Sierra Club claims that the 2018 Study ``simply asserts''
that households in general own the LNG production processes and
industries, without providing any analysis of which households own this
stock or how the benefits and harms of exports will be distributed
among the American public.\156\ These commenters argue that, without
such analysis, DOE cannot conclude that LNG exports are in the public
interest. IECA adds that a future revenue stream from LNG exports
cannot predict the level of dividends paid out to shareholders or
whether a share price will rise--and alleges that NERA did not disclose
the economics behind this claim.\157\
---------------------------------------------------------------------------
\156\ Id.
\157\ Comment of IECA at 3.
---------------------------------------------------------------------------
Additionally, IECA argues that the 2018 Study points to a second
economic benefit of LNG exports that will offset household economic
losses due to
[[Page 67266]]
higher energy costs: an increase in the value of the U.S. dollar. IECA
disputes this benefit, contending (among other arguments) that it is
speculative to assume that LNG exports would increase the value of the
dollar, when there are far greater influences on the dollar's
value.\158\
---------------------------------------------------------------------------
\158\ Id.
---------------------------------------------------------------------------
On the other hand, NextDecade contends that all of the ``more
likely'' scenarios considered by NERA will improve consumer welfare for
the average U.S. household, with consumer welfare strengthening even
when global demand for LNG exports increases.\159\ According to
NextDecade, the 2018 Study shows that consumer welfare is highest when
the United States has an abundant, low-cost, domestic natural gas
supply.\160\ Citing the 2018 Study, NextDecade and JCEP argue that this
wealth transfer will benefit U.S. households through increased labor
income and lower prices overall for imported goods--such that the
benefits of LNG exports will outweigh any potential increase to the
marginal cost of supplying natural gas.\161\
---------------------------------------------------------------------------
\159\ Comment of NextDecade Corp. at 5.
\160\ Id.
\161\ Comment of JCEP at 5 (citing 2018 LNG Export Study at 64-
65).
---------------------------------------------------------------------------
b. DOE/FE Response
Consistent with DOE/FE's prior studies, DOE believes that the
public interest generally favors authorizing proposals to export
natural gas that have been shown to lead to net benefits to the U.S.
economy. DOE has observed in previous export authorizations that,
although there could be circumstances in which the distributional
consequences of an authorizing decision could be shown to be so
negative as to outweigh net positive benefits to the U.S. economy as a
whole, DOE had not been presented with sufficiently compelling evidence
that those circumstances were present.
The 2018 Study describes how different households could be affected
by increased levels of LNG exports. In terms of direct benefits, the
2018 Study states that, ``[i]f U.S. households, or their retirement
funds, hold stock in natural gas producers, they will benefit from the
increase in the value of their investment.'' \162\ The 2018 Study noted
indirect benefits of increased LNG exports accruing to households
through the additional wealth transferred into the United States,
``which increases the value of the dollar and reduces prices of other
imported goods.'' \163\ Overall, ``[l]ike other trade measures, LNG
exports will cause shifts in industrial output, employment, and in
sources of income.'' \164\ However, the effects on different households
from increased LNG exports will depend on their income sources.
---------------------------------------------------------------------------
\162\ 2018 LNG Export Study at 64.
\163\ Id.
\164\ Id. at 64-65.
---------------------------------------------------------------------------
As described previously, with respect to consumer well-being, the
2018 Study found that all scenarios within the more likely range of
results are welfare-improving for the average U.S. household. This
result is driven by households' receipt of additional income from
export revenues and take-or-pay tolling charges for LNG exports, and
this additional income outweighs the income lost from higher energy
prices.\165\
---------------------------------------------------------------------------
\165\ Id. at 66-67.
---------------------------------------------------------------------------
Finally, we note that in the consolidated Sierra Club II case, the
D.C. Circuit rejected--in all three cases--Sierra Club's argument that
DOE ``erred by failing to consider distributional impacts'' when
evaluating the public interest under NGA section 3(a).\166\ The Court
upheld DOE/FE's conclusion that ``given that exports will benefit the
economy as a whole and absent stronger record evidence on the
distributional consequences, [DOE/FE] could not say that . . . exports
were inconsistent with the public interest on these grounds.'' \167\ On
this basis, the Court held that DOE/FE had ``adequately addressed''
Sierra Club's concerns regarding distributional impacts.\168\
---------------------------------------------------------------------------
\166\ See Sierra Club v. U.S. Dep't of Energy, Nos. 16-1186, 16-
1252, 16-1253, 703 Fed. Appx. 1, at *3 (DC Cir. Nov. 1, 2017)
(Sierra Club II), discussed infra at Sec. I.C.
\167\ Id. (emphasis added, internal quotations omitted, and
alteration in original).
\168\ Id.
---------------------------------------------------------------------------
None of the commenters advancing this argument have provided a
quantitative analysis of the distributional consequences of authorizing
LNG exports at the household level. Absent stronger record evidence on
these alleged distributional consequences, we cannot say that increased
LNG exports are inconsistent with the public interest on these grounds.
D. Regional Impacts
1. Comments
Some commenters, including Jody McCaffree and the Evans Schaaf
Family, address the negative regional impacts potentially associated
with LNG exports. They argue that local communities near shale gas
production areas, pipelines, and/or LNG export terminals could be
adversely affected by increases in natural gas production and LNG
exports. They cite loss of property through eminent domain, property
devaluation, degradation of infrastructure, environmental and public
health issues (including local air pollution and poisoned drinking
water), and harm to local economies, among other issues.
Other commenters seek to rebut these concerns by identifying the
positive regional benefits associated with LNG exports, both in regions
where shale development and production occur, and the regions in which
LNG export terminals may be located. For example, the Marcellus Shale
Coalition (comprised of nearly 200 producing, midstream, transmission,
and supply chain members committed to the development of natural gas
resources in the Marcellus, Utica, and related geological formations)
cites the economic benefits of LNG exports to Pennsylvania's economy.
The Coalition further asserts that increasing LNG exports is crucial to
stabilizing domestic natural gas markets--particularly in the
Appalachian Basin--and positioning these markets for continued
growth.\169\
---------------------------------------------------------------------------
\169\ Comment of Marcellus Shale Coalition at 1-2.
---------------------------------------------------------------------------
2. DOE/FE Response
A general consideration of regional impacts is outside of the scope
of the 2018 LNG Export Study. DOE/FE believes regional impacts are
appropriately considered on a case-by-case basis during the review of
each non-FTA application, consistent with DOE/FE's longstanding
practice.
E. Estimates of Domestic Natural Gas Supply
1. Comments
Jody McCaffree points to DOE/FE's total approved volume of exports
to both FTA and non-FTA countries in alleging that DOE ``has already
approved LNG exports in excess of projected U.S. production'' of
natural gas.\170\
---------------------------------------------------------------------------
\170\ Comment of Jody McCaffree at 4.
---------------------------------------------------------------------------
Other commenters, including API, CLNG, and the Marcellus Shale
Coalition, assert that the United States has abundant domestic natural
gas reserves. Pointing to the 2018 Study, CLNG asserts that ``[t]he
scenarios where the U.S. reaps the most economic gains at the lowest
price from exporting LNG are those where our supply of natural gas is
highest.'' \171\ CLNG further asserts that the United States is more
than capable of continuing to meet high production and supply
expectations, citing the growth of U.S. natural gas
[[Page 67267]]
production, the growth in total natural gas resource estimates, and
improvements in the ability to detect and extract natural gas.
---------------------------------------------------------------------------
\171\ Comment of CLNG at 3.
---------------------------------------------------------------------------
Commenters, such as API and the Pennsylvania Chamber of Business
and Industry, likewise point to the conclusions of the 2018 Study in
arguing that the vast resources of U.S. natural gas can provide
affordable supplies to meet domestic demand, while simultaneously
providing for an increase in LNG exports. The Pennsylvania Chamber of
Business and Industry maintains that authorizing LNG exports results in
a stable, affordable supply of natural gas to residential, commercial,
and industrial customers. In the Chamber's view, the market development
of natural gas, both domestically and abroad, promotes natural gas
production and the build-out of natural gas transmission and LNG
infrastructure in the United States.\172\
---------------------------------------------------------------------------
\172\ Comment of Pennsylvania Chamber of Business and Industry
at 1-2.
---------------------------------------------------------------------------
2. DOE/FE Response
First, DOE/FE notes that the volumes authorized for export to FTA
and non-FTA countries are not additive to one another. Ms. McCaffree's
argument does not appear to recognize this fact, which is reflected in
DOE's orders. Rather, each authorization grants authority to export the
entire volume of a facility to FTA or non-FTA countries, respectively,
to provide the authorization holder with maximal flexibility in
determining its export destinations. According to EIA data, U.S.
domestic dry natural gas production for the year 2017 averaged a rate
of 74.77 Bcf/d, well in excess of current long-term FTA and non-FTA
authorizations (in non-additive volumes of 59.33 Bcf/d and 23.05 Bcf/d,
respectively).\173\
---------------------------------------------------------------------------
\173\ U.S. Energy Information Administration, ``Short-Term
Energy Outlook,'' available at: https://www.eia.gov/outlooks/steo/data/browser/#/?v=15&f=A&s=0&maptype=0&ctype=linechart (Table 5a,
U.S. Natural Gas Supply, Consumption, and Inventories, ``Total Dry
Gas Production'').
---------------------------------------------------------------------------
DOE/FE takes note of the natural gas production projections in
EIA's AEO 2018, which show significant increases over the forecast
period. In the Reference case, dry natural gas production is projected
to increase by 49% from 2016 to 2040 (26.94 Tcf to 40.15 Tcf).\174\ In
the High Oil and Gas Resource and Technology case, the growth from 2016
to 2040 in dry natural gas production is even larger at 85% (26.94 Tcf
to 49.98 Tcf).\175\
---------------------------------------------------------------------------
\174\ See AEO 2018, supra note 84, https://www.eia.gov/outlooks/aeo/data/browser/#/?id=13-AEO2018&cases=ref2018&sourcekey=0;0 (link
to table: Natural Gas Supply, Disposition, and Prices, ``Dry Gas
Production'').
\175\ Id.
---------------------------------------------------------------------------
F. Cost of Environmental Externalities
1. Comments
Several commenters, including Sierra Club, Oregon Wild, Jody
McCaffree, and the Evans Schaaf Family, maintain that LNG exports will
increase demand for natural gas, thereby increasing negative
environmental and economic consequences associated with natural gas
production. Sierra Club adds that every stage of the LNG lifecycle has
important environmental impacts. These commenters assert that the 2018
Study failed to consider the cost of environmental externalities
associated with LNG exports. The externalities identified by these
commenters include, but are not limited to, the following:
Environmental costs associated with producing more natural
gas to support LNG exports, including the costs, risks, and impacts
associated with hydraulic fracturing and drilling to produce natural
gas; and costs associated with increased water scarcity to support
hydraulic fracturing;
Environmental costs associated with the life cycle of U.S.
LNG (hydraulic fracturing of shale gas, liquefaction, and export) in
the form of increased emissions of GHGs and other global warming
pollution, climate change and climate instability (including droughts
and other extreme weather events), and ocean acidification;
Local and regional costs associated with LNG exports,
including impacts on local communities and industries;
The costs associated with eminent domain, which may be
necessary to build new pipelines to transport natural gas; and
The potential regulatory costs and impacts of
environmental regulations governing hydraulic fracturing and natural
gas drilling.
According to Sierra Club, ``DOE has demonstrated that it plainly
has the tools needed to consider these issues,'' \176\ yet the 2018
Study failed to consider them. The Evans Schaaf Family also urges DOE
to clarify what emissions are being calculated and whether a cost of
those emissions has been included in the results of the 2018
Study.\177\
---------------------------------------------------------------------------
\176\ Comment of Sierra Club at 2.
\177\ Comment of Evans Schaaf Family at 6.
2. DOE/FE Response
Analysis of environmental impacts from the export of U.S. LNG was
not part of the scope of the 2018 Study. Consistent with DOE/FE
practice, all environmental issues will be analyzed in the final order
issued in each of the pending and future non-FTA proceedings.
G. Natural Gas Price Impacts
1. Comments
Several commenters, such as IECA and Sierra Club, address potential
natural gas price impacts associated with LNG exports. They contend
that increases in LNG exports will increase demand for natural gas,
driving up prices in the United States and adversely affecting electric
and natural gas utility consumers, EITE industries, and residential
consumers. In particular, IECA asserts that the 2018 Study's ``most
likely'' scenario--LNG exports up to 30.7 Bcf/d by 2040--could increase
prices 117% above today's Henry Hub prices by 2040, and 44% above EIA's
AEO 2018 price in 2040 (which assumes 14.5 Bcf/d of LNG exports).\178\
IECA alleges that such price hikes would threaten the domestic supply
of natural gas at reasonable prices, such that exports of this
magnitude would not be in the public interest.\179\
---------------------------------------------------------------------------
\178\ Comment of IECA at 2-3.
\179\ Id. at 2 (citing Fed. Power Comm'n v. Hope Gas Co., 320
U.S. 591, 610 (1944)).
---------------------------------------------------------------------------
IECA further warns that ``excessive LNG exports'' may result in
domestic prices for natural gas becoming tied to global demand-driven
pricing.\180\ According to IECA, when global demand increases, so will
U.S. natural gas prices--to the detriment of U.S. consumers.
---------------------------------------------------------------------------
\180\ Id. at 1.
---------------------------------------------------------------------------
On the other hand, commenters such as API, NextDecade, and the
Pennsylvania Chamber of Business and Industry dispute the likelihood of
price increases due to LNG exports. For example, NextDecade points to
the finding of the 2018 Study that U.S. natural gas prices are more
dependent on both the availability of natural gas and extraction
technology than on U.S. LNG export policy--which, it states,
demonstrates the importance of policies that continue to support
natural gas infrastructure, including LNG export authorizations. For
this reason, NextDecade asserts, the 2018 Study shows that higher LNG
exports cause only ``very small'' increases in U.S. natural gas prices,
if any.\181\
---------------------------------------------------------------------------
\181\ Comment of NextDecade Corp. at 5-6 (citing 2018 LNG Export
Study at 55).
---------------------------------------------------------------------------
These commenters contend that, in fact, there have been no
significant price increases since exports of U.S. LNG began in 2016,
contrary to warnings
[[Page 67268]]
made by commenters on DOE's prior LNG export studies. They point to the
2018 Study in arguing that domestic natural gas prices are unlikely to
increase to a level that would impair manufacturing cost
competitiveness or hurt consumers. According to API, the 2018 Study
clearly shows that even at high levels of LNG exports, the impact on
domestic prices is minimal because these exports are generating
incremental new natural gas production that otherwise would not have a
domestic market.\182\ CLNG further argues that allowing U.S. Henry Hub
indexed exports will help sustain lower pricing over the long-term and
provide an alternative to oil-linked natural gas contracts.\183\
---------------------------------------------------------------------------
\182\ Comment of API at 1.
\183\ Comment of CLNG at 5.
---------------------------------------------------------------------------
NextDecade states that, even in New England (which experiences
frequent natural gas price spikes), the 2018 Study shows that the
average base differential between New England and Henry Hub prices is
unlikely to be affected by increases in LNG exports in the long run. As
NextDecade explains, NERA found that these price spikes in New England
are the result of the region's limited natural gas pipeline
infrastructure and localized weather events. Therefore, NextDecade
asserts, the prices spikes will continue regardless of the level of LNG
exports.\184\
---------------------------------------------------------------------------
\184\ Comment of NextDecade Corp. at 6 (citing 2018 LNG Export
Study at 54 n.47).
---------------------------------------------------------------------------
2. DOE/FE Response
The 2018 Study described two relationships between U.S LNG exports
and U.S. natural gas prices based on the modeling results:
``Increasing U.S. LNG exports under any given set of
assumptions about U.S. natural gas resources and their production leads
to only small increases in U.S. natural gas prices;'' and
``Available natural gas resources have the largest impact
on natural gas prices. Therefore, U.S. natural gas prices are far more
dependent on available resources and technologies to extract available
resources than on U.S. policies surrounding LNG exports.'' \185\
---------------------------------------------------------------------------
\185\ 2018 LNG Export Study at 55.
In the 2018 Study results, natural gas prices range from $5 to
$6.50 per MMBtu in 2040 for all the Reference supply scenarios in the
more likely range with a combined probability of 47%. In the high
resource supply scenarios, natural gas prices range from $3.50 to $4
per MMBtu in 2040 with a combined probability of 22%.\186\
---------------------------------------------------------------------------
\186\ Id. at 54.
---------------------------------------------------------------------------
As an initial matter, IECA incorrectly identified the ``most
likely'' scenario of LNG exports from the 2018 Study. ``Table 4'' in
the Study provides the scenario probabilities for the more likely
scenarios.\187\ The most likely scenario has a probability of 14.5% and
is the ``Ref_Ref_Ref_High'' case with exports of 24.0 Bcf/d in
2040.\188\ This scenario is somewhat more likely than the Reference
case (``Ref_Ref_Ref_Ref''), which has a probability of 13.1% and
exports of 12.9 Bcf/d.\189\ The 30.7 Bcf/d scenario
(``High_Ref_Ref_High'') identified by IECA is the third most likely at
7.9%.\190\
---------------------------------------------------------------------------
\187\ Id. at 50-51.
\188\ Id.
\189\ Id.
\190\ Id.
---------------------------------------------------------------------------
Table 4 below shows modeled Henry Hub natural gas prices in 2040
for these three scenarios:'' \191\
---------------------------------------------------------------------------
\191\ 2018 LNG Export Study at Appendix E (pages unnumbered).
Table 4--Exports and Henry Hub Prices for Three Most Likely Scenarios
------------------------------------------------------------------------
Henry Hub in
Scenario LNG exports in 2040 2016$/
2040 (Bcf/d) MMBtu
------------------------------------------------------------------------
Ref_Ref_Ref_High........................ 24.0 6.0
Ref_Ref_Ref_Ref......................... 12.9 5.6
High_Ref_Ref_High....................... 30.7 3.9
------------------------------------------------------------------------
These Henry Hub prices in the 2018 Study are somewhat higher than those
projected in EIA's AEO 2018. AEO 2018 projects LNG exports at a rate of
14.5 Bcf/d in the Reference case in 2040 with a corresponding Henry Hub
price of $4.50 (in constant 2017 dollars). In the High Oil and Gas
Resource and Technology (HOGR) case, LNG exports are larger at 21.9
Bcf/d with a Henry Hub price of $3.02.\192\
---------------------------------------------------------------------------
\192\ AEO 2018, supra note 84,
https://www.eia.gov/outlooks/aeo/data/browser/#/?id=13-AEO2018®ion=0-0&cases=highrt&start=2016&end=2050&f=A&sourcekey=0
(link to table: Natural Gas Supply, Disposition, and Prices, ``High
resource and technology case,'' ``Natural gas spot price at Henry
Hub'').
---------------------------------------------------------------------------
The price projections in the 2018 Study and in EIA's AEO 2018 are
consistent with average annual Henry Hub spot prices over the past two
decades. Between 2000 and 2009, annual average Henry Hub spot prices
ranged from $3.38 to $8.86 per MMBtu; between 2010 and 2017, prices
ranged from $2.52 to $4.37 per MMBtu.\193\
---------------------------------------------------------------------------
\193\ See EIA, Henry Hub Natural Gas Spot Price (Annual),
available at: https://www.eia.gov/dnav/ng/hist/rngwhhda.htm (Dec.
12, 2018).
---------------------------------------------------------------------------
In response to comments noting that increased global demand for
natural gas will increase domestic natural gas prices, several
scenarios in the 2018 Study analyze this relationship and its domestic
macroeconomic impact. Within a domestic natural gas supply scenario,
increased ROW demand for natural gas increases domestic natural gas
prices, all else being equal.\194\ This increased ROW demand also
causes prices throughout the world to increase.\195\ The 2018 Study
discusses this through an ``international demand pull'' scenario,
quantifying the differences between the High_Ref_Ref_Low and
High_Ref_Ref_High cases (where the only assumption changed is the ROW
demand for natural gas). When moving from low to high ROW demand, the
2018 Study shows an increase in the Henry Hub price of $0.50 and an
increase of $2.70 in the wellhead price outside of North America.\196\
While domestic and ROW natural gas prices both increase, the increased
ROW demand drives a larger increase in ROW prices than domestically. In
this way, the 2018 Study shows that U.S. natural gas prices will not
rise to the same levels as global natural gas prices as a result of
increased LNG exports. This result is consistent with the 2015 Study's
analysis of the linkages between U.S. and global natural gas prices, as
DOE/FE previously discussed.\197\
---------------------------------------------------------------------------
\194\ 2018 LNG Export Study at 57-58.
\195\ Id. at 59.
\196\ Id. at 57-60.
\197\ See, e.g., Golden Pass Products LLC, DOE/FE Order No.
3978, at 91-92.
---------------------------------------------------------------------------
As noted previously, the 2018 Study consistently shows
macroeconomic benefits to the U.S. economy in every scenario at the
projected Henry Hub
[[Page 67269]]
natural gas prices, as well as positive annual growth across the
energy-intensive sectors.\198\
---------------------------------------------------------------------------
\198\ 2018 LNG Export Study at 67, 70.
---------------------------------------------------------------------------
H. Benefits to U.S. Trade Balance
1. Comments
API and JCEP point to the conclusion of the 2018 LNG Export Study
that increased exports of natural gas will improve the U.S. balance of
trade. API further argues that LNG exports have helped to position the
United States as an ``energy superpower,'' changing the ``energy
equation'' to the benefit of the United States.\199\
---------------------------------------------------------------------------
\199\ Comment of API at 2.
---------------------------------------------------------------------------
NextDecade maintains that, with estimated export revenues of up to
$129 billion per year by 2040, LNG exports present a significant
opportunity to close the U.S. trade gap. NextDecade further states
that, within the range of the Henry Hub price scenarios, the 2018 Study
demonstrates that the United States is and will be a net exporter of
natural gas--and, indeed, may ``emerge as the world's largest supplier
of LNG in the coming years.'' \200\ According to NextDecade, the 2018
Study also demonstrates that, even though natural gas supply and demand
shocks both inside and outside of the United States have different
impacts on natural gas prices, they result in similar levels of net LNG
exports. Accordingly, NextDecade states that increased LNG exports will
benefit the trade balance regardless of the volume exported.\201\
---------------------------------------------------------------------------
\200\ Comment of NextDecade Corp. at 4.
\201\ Id. at 8.
---------------------------------------------------------------------------
The Pennsylvania Chamber of Business and Industry agrees that the
2018 Study affirms the significant benefits that global trade can bring
to the United States--specifically, through both LNG exports and in
attracting new investment in manufacturing assets reliant on affordable
natural gas.\202\
---------------------------------------------------------------------------
\202\ Comment of Pennsylvania Chamber of Business and Industry
at 1-2.
---------------------------------------------------------------------------
2. DOE/FE Response
Consistent with the observations on the benefits of trade made by
the commenters, the 2018 Study notes that ``[i]ncreased exports of
natural gas will improve the U.S. balance of trade and result in a
wealth transfer into the U.S.'' \203\
---------------------------------------------------------------------------
\203\ 2018 LNG Export Study at 64.
---------------------------------------------------------------------------
I. Procedural Arguments
1. Compliance With Data Quality Act
a. Comments
IECA argues that the 2018 LNG Export Study violates the Data
Quality Act (DQA) because: (i) NERA used a ``proprietary and non-
reproducible economic model,'' and (ii) the Study's peer reviewers
allegedly have a financial interest in LNG exports, such that they
could not be independent in their views.\204\ For these reasons, IECA
contends that the 2018 Study ``cannot be used in decision-making by
DOE.'' \205\
---------------------------------------------------------------------------
\204\ Comment of IECA at 4.
\205\ Id.
---------------------------------------------------------------------------
i. Background on Data Quality Act
In December 2000, Congress passed and the President signed the
Treasury and General Government Appropriations Act for Fiscal Year 2001
(Pub. L. 106-554). Section 515 of that bill is commonly referred to as
the ``Data Quality Act'' or the ``Information Quality Act.'' \206\
Section 515 directed the Office of Management and Budget (OMB) to issue
government-wide guidelines that ``provide policy and procedural
guidance to Federal agencies for ensuring and maximizing the quality,
objectivity, utility, and integrity of information (including
statistical information) disseminated by Federal agencies . . . .''
\207\
---------------------------------------------------------------------------
\206\ Most federal agencies (including DOE) refer to section 515
as the ``Information Quality Act,'' but because IECA uses the ``Data
Quality Act'' terminology, we will do so here.
\207\ Section 515, Treasury & General Gov't Appropriations Act
for Fiscal Year 2001 (Pub.L. 106-554; 114 Stat. 2763A-154)). The
Data Quality Act amended the Paperwork Reduction Act of 1995 (44
U.S.C. Ch. 35).
---------------------------------------------------------------------------
Between 2001 and 2002, OMB published a series of guidelines and
supplementary information implementing the Data Quality Act.\208\ In
final guidelines issued in February 2002, OMB instructed federal
agencies to issue their own implementing guidelines by October 1, 2002.
In its Guidelines, OMB observed that the Data Quality Act ``denotes
four substantive terms regarding information disseminated by Federal
agencies: quality, utility, objectivity, and integrity.'' \209\ In
October 2002, in response to OMB's Guidelines, DOE issued a document
entitled Final Report Implementing Office of Management and Budget
Information Dissemination Quality Guidelines.\210\ DOE explained that
it modeled its Guidelines on the OMB Guidelines with modifications
specific to DOE.\211\
---------------------------------------------------------------------------
\208\ Office of Mgmt. & Budget, Guidelines for Ensuring and
Maximizing the Quality, Objectivity, Utility, and Integrity of
Information Disseminated by Federal Agencies; Republication, 67 FR
8452, 8452-8454 (Feb. 22, 2002) (summarizing OMB's procedural
history in implementing section 515) [hereinafter OMB Guidelines].
\209\ Id. (``quality'' is ``the encompassing term, of which
`utility,' `objectivity,' and `integrity' are the constituents); see
also id. at 8459 (definition of ``quality'').
\210\ U.S. Dep't of Energy, Final Report Implementing Office of
Management and Budget Info. Dissemination Quality Guidelines, 67 FR
62446 (Oct. 7, 2002), available at: https://www.energy.gov/sites/prod/files/nepapub/nepa_documents/RedDont/G-DOE-67FR62446OMBquality.pdf [hereinafter DOE Guidelines].
\211\ Id. at 62446-47.
---------------------------------------------------------------------------
ii. IECA's Arguments
IECA argues that the 2018 Study violates three standards set forth
in the DOE Guidelines: reproducibility, objectivity, and
integrity.\212\ The DOE Guidelines define these terms as follows:
---------------------------------------------------------------------------
\212\ See Comment of IECA at 4-5.
---------------------------------------------------------------------------
Reproducibility: ``means capability of being substantially
reproduced, subject to an acceptable degree of imprecision, and with
respect to analytical results, `capable of being substantially
reproduced' means that independent analysis of the original or
supporting data using identical methods would generate similar analytic
results . . . .'' \213\
---------------------------------------------------------------------------
\213\ DOE Guidelines, 67 FR 62451 (Definition #9,
``Reproducibility'').
---------------------------------------------------------------------------
Objectivity: ``means the information is presented in an
accurate, clear, complete, and unbiased manner and the substance of the
information is accurate, reliable, and unbiased.'' \214\
---------------------------------------------------------------------------
\214\ Id. (Definition #7, ``Objectivity'').
---------------------------------------------------------------------------
Integrity: ``means the information has been secured and
protected from unauthorized access or revision, to ensure that the
information is not compromised through corruption or
falsification.\215\
---------------------------------------------------------------------------
\215\ Id. (Definition #6, ``Integrity'').
IECA also asserts that the 2018 Study is ``influential'' under the
---------------------------------------------------------------------------
DOE Guidelines, which is defined as:
[W]hen used in the context of scientific, financial, or statistical
information, information (1) that is subject to embargo until the
date of its dissemination . . . because of potential market effects;
(2) that is the basis for a DOE action that may result in an annual
effect on the economy of $100 million or more; and (3) that is
designated by a DOE Element as `influential.' \216\
---------------------------------------------------------------------------
\216\ Id. (Definition #3, ``Influential'').
Information qualifying as ``influential'' is generally subject to a
``high degree of transparency of data and methods . . . to facilitate
the reproducibility of [the] information by qualified third parties,''
unless it falls within a stated exemption.\217\
---------------------------------------------------------------------------
\217\ Id. at 62452.
---------------------------------------------------------------------------
First, addressing reproducibility, IECA states that the 2018 Study
uses a ``NERA proprietary economic model,'' such that ``third party
economists have concluded that the results of the study
[[Page 67270]]
are not reproducible.'' \218\ IECA also claims that the 2018 Study
qualifies as ``influential'' under the DQA because ``it may result in
an annual effect on the economy of $100 million or more.'' \219\ IECA
thus appears to suggest that the 2018 Study is subject to a ``high
degree of transparency'' for purposes of reproducibility by ``qualified
third parties.'' \220\
---------------------------------------------------------------------------
\218\ Comment of IECA at 4.
\219\ Id. at 5.
\220\ DOE Guidelines, 67 FR 62452.
---------------------------------------------------------------------------
Second, IECA alleges that the 2018 Study is not ``objective'' and
lacks ``integrity'' within the meaning of the DQA due to alleged
personal bias on the part of NERA's external peer review panel. IECA
claims that ``it is likely that every one of the individuals [involved
in the peer review]--with the exception of peer reviewer John Staub of
EIA--``have or will receive financial benefits from the oil and natural
gas industries.'' \221\ IECA contends that ``[i]ndependent objectivity
and integrity is [sic] needed to validate the economic model and
whether its assumptions are sound regardless of [the peer reviewers']
understanding of the oil and gas business, and not slanted to support
the views of those who desire to export substantial volumes of LNG.''
\222\ On this basis, IECA asks DOE whether the peer reviewers
``disclosed their financial association with the oil and gas
industry.'' \223\ The Evans Schaaf Family similarly questions the basis
for the 2018 Study, given that (in their view) the data inputs for the
Study ``are coming entirely from industry leaders who would likely have
something to gain in developing LNG as a global commodity.'' \224\
---------------------------------------------------------------------------
\221\ Comment of IECA at 5.
\222\ Id.
\223\ Id.
\224\ Comment of Evans Schaaf Family at 1.
---------------------------------------------------------------------------
b. DOE/FE Response
i. Reproducibility
DOE has carefully considered IECA's arguments and determined that
the 2018 LNG Export Study satisfies the DQA's standard for
``reproducibility,'' as discussed below.
DOE/FE has determined that the 2018 Study fulfills the DQA's
objectives in both providing transparency about the Study and ensuring
the quality of information disseminated to the public. As discussed
above, NERA relies on publicly available data for input into its
models, including EIA's AEO 2017, EIA's IEO 2017, and the IEA's WEO
2016. The AEO and IEO projections are published pursuant to the
Department of Energy Organization Act of 1977, which requires the EIA
Administrator to prepare annual reports on trends and projections for
energy use and supply.\225\
---------------------------------------------------------------------------
\225\ See 2018 LNG Export Study at 80-95.
---------------------------------------------------------------------------
In the Study, NERA explains that it developed the possible choices
for each uncertainty beginning with EIA's AEO 2017 Reference case--a
DOE requirement of the Study. In addition, the 2018 Study discusses the
U.S. and Rest of World natural gas market assumptions, including the
linkages between the scenarios and publicly available projections from
EIA and IEA. Appendix B to the Study describes the NewEra
model and provides a detailed discussion of the natural gas supply
elasticity estimates used in the U.S. supply scenarios, which were
based on an analysis of four recent studies.\226\ Appendix C provides
the supply and demand ranges and probability scenarios.\227\ Appendix E
provides the detailed GNGM model results for the 54 scenarios
considered in the 2018 Study, including levels of LNG exports, export
revenues, natural gas production, natural gas consumption, Henry Hub
prices, U.S. LNG destinations, and North American pipeline trade.\228\
DOE/FE believes the incorporation of this extensive information about
the data, assumptions, and models used in the 2018 Study satisfies the
requirements of the DQA and the corresponding DOE guidelines. In short,
DOE has ``disclose[d] the specific data sources that have been used and
the specific quantitative methods and assumptions that have been
employed.'' \229\
---------------------------------------------------------------------------
\226\ Id. at 84-96 (Appx. B).
\227\ Id. at 97-106 (Appx. C).
\228\ Id. at 111 (Appx. E, with attached spreadsheet).
\229\ DOE Guidelines, 67 FR 62452.
---------------------------------------------------------------------------
We note that IECA has not provided any evidence to support its
claim that ``[t]hird party economists have concluded that the results
of the study are not reproducible.'' \230\ The public comment
procedures followed by DOE/FE in this proceeding (as with its prior LNG
export studies) allow IECA and other commenters to provide differing
analyses about LNG exports--including third-party economic projections
using EIA data--should they choose to do so. IECA elected not to submit
any rebuttal studies, projections, or other evidence to counter the
conclusions of the 2018 Study.
---------------------------------------------------------------------------
\230\ Comment of IECA at 4.
---------------------------------------------------------------------------
Next, even if the 2018 Study were ``influential'' under the DQA as
IECA claims, the DOE Guidelines ``do not direct that all disseminated
original and supporting data be subjected to the reproducibility
requirement applicable to influential information.'' \231\ The DOE
Guidelines acknowledge that certain types of data are not practicably
subject to replication due to ``confidentiality, privacy, trade secret,
security, and intellectual property constraints,'' among others.\232\
We further note that, in the DOE Guidelines, DOE declined to ``adopt a
general prohibition against use of . . . `third party proprietary
models.' '' \233\ DOE reasoned that such a prohibition was not required
by the OMB Guidelines and ``would be too restrictive.'' \234\
---------------------------------------------------------------------------
\231\ DOE Guidelines, 67 FR 62446, 62452.
\232\ Id. at 62452.
\233\ Id. at 62448.
\234\ Id.
---------------------------------------------------------------------------
Consistent with the DOE Guidelines, DOE/FE finds that, although
NERA's proprietary GNGM and NewERA models are intellectual
property subject to trade secret and confidentiality constraints, the
incorporation of the information about the data, assumptions, and
models used in the 2018 Study satisfies the DQA and DOE's guidelines.
For all of these reasons, we disagree with IECA's position that the
2018 Study fails to meet the reproducibility standard of the DOE
Guidelines.\235\
---------------------------------------------------------------------------
\235\ We note that ``[t]he DOE Guidelines do not purport to
impose legally binding substantive policies on DOE Elements.'' Id.
at 62449. Additionally, ``neither section 515 [the DQA] nor the OMB
Guidelines nor DOE's Guidelines create private rights or contemplate
judicial oversight of its directives through judicial review.'' Id.
at 62450.
---------------------------------------------------------------------------
ii. Objectivity
IECA acknowledges that the 2018 Study involved peer review by a
panel of experts, but it attempts to discredit the Study by suggesting
that the peer reviewers are financially self-interested in the outcome
of the Study--specifically, in promoting the ``export of substantial
volumes of LNG.'' \236\ On this basis, IECA argues that the 2018 Study
fails to meet the ``objectivity'' and ``integrity'' standards of the
DOE Guidelines for this reason.\237\ As explained below, however, IECA
provides no evidence to support these allegations of bias, other than
pointing to the professional affiliations of the peer review panel.
---------------------------------------------------------------------------
\236\ Comment of IECA at 5; see also Comment of Evans Schaaf
Family at 1 (stating that the 2018 Study's probabilities are
``problematic'' because ``they are coming entirely from industry
leaders who would likely have something to gain in developing LNG as
a global commodity'').
\237\ Comment of IECA at 5.
---------------------------------------------------------------------------
NERA explained the peer review process for the 2018 Study as
follows:
Nine experts on international LNG supply and demand, listed in
the acknowledgement, agreed to review and comment on the proposed
forecast assumptions and propose
[[Page 67271]]
modifications to the probabilities assigned to each case. The
reviewers were provided with a brief written report describing the
proposed probabilities and assumptions. KeyLogic Systems, Inc.
gathered the individual reviewer's responses and provided them to
the study team for consideration.\238\
---------------------------------------------------------------------------
\238\ 2018 LNG Export Study at 41.
Each of these experts' names and institutional affiliations are
identified in the Study.\239\ Their invitation to participate as peer
reviewers came directly from DOE/FE, consistent with standard protocols
for peer review. In the Study (and as discussed above), NERA identified
both the probability assumptions and any changes made to those
assumptions based on input from the peer reviewers.\240\
---------------------------------------------------------------------------
\239\ Id. at 1 (Acknowledgment).
\240\ See id. 42-44.
---------------------------------------------------------------------------
IECA alleges that eight of the nine peer reviewers ``have or will
receive financial benefits from the oil and natural gas industries.''
IECA expressly omits John Staub of EIA from this allegation--presumably
because he works for the U.S. Government, whereas the other eight peer
reviewers work for entities including universities, independent
research firms, and consulting firms.\241\
---------------------------------------------------------------------------
\241\ See id. at 1 (identifying the peer reviewers, besides John
Staub of EIA, as: Kevin Book (ClearView Energy Partners, LLC); Dr.
Fereidun Fesharaki (Facts Global Energy); Dr. Hillard G. Huntington
(Stanford University, Dep't. of Management Science and Engineering);
Vello A. Kuuskraa (Advanced Resources International, Inc.); Majed
Limam and Mike Reimers (Poten and Partner's Americas LNG & Natural
Gas Consulting); and Dr. Scott Tinker (University of Texas, Bureau
of Economic Geology)).
---------------------------------------------------------------------------
IECA suggests that the peer reviewers' input to the 2018 Study is
self-interested and lacking objectivity, such that NERA's modifications
to the Study based upon the peer reviewers' feedback are likewise
tainted. However, IECA fails to demonstrate how the professional
affiliations of the peer reviewers create bias or how that alleged bias
impacted the design or results of the 2018 Study.
IECA also does not acknowledge that NERA selected the peer
reviewers because they are ``experts on the topic of global LNG supply
and demand.'' \242\ This is consistent with the DOE Guidelines, which
note that, under OMB policy, peer reviewers should ``be selected
primarily on the basis of necessary technical expertise.'' \243\ In the
Study, NERA explained its determination that these peer reviewers would
assist in providing the ``broadest possible perspective on the
potential range of natural gas supply and demand outcomes during the
review period.'' \244\ The participation of the peer reviewers thus
enhanced, rather than undermined, both the objectivity and the
integrity of the Study.
---------------------------------------------------------------------------
\242\ Id. at 1, 42.
\243\ DOE Guidelines, 67 FR 62352 (citation omitted).
\244\ 2018 LNG Export Study at 24.
---------------------------------------------------------------------------
Finally, although IECA invokes the ``integrity'' standard under the
DOE Guidelines, that standard pertains to ensuring that ``information
has been secured and protected from unauthorized access or revision.''
\245\ IECA has not presented any argument or evidence to suggest that
the security of the 2018 Study was compromised, and therefore we
decline to address this point.
---------------------------------------------------------------------------
\245\ DOE Guidelines, 67 FR 62451.
---------------------------------------------------------------------------
2. Reliance on NERA's Analysis
a. Comments
John Young does not expressly oppose the 2018 Study, but he
questions DOE's reliance on NERA's work in the 2018 Study for reasons
independent of the Data Quality Act. Mr. Young asks whether DOE has
examined NERA's ``track record in retrospect''--and, specifically,
whether DOE has attempted to square NERA's ``optimism'' for U.S. LNG
exports given that some proposed LNG projects have not yet moved
forward or achieved revenue flow. He urges DOE to hire Synapse Energy
Economics (Synapse) as a third party contractor to critique the 2018
Study. According to Mr. Young, Synapse has published critiques of LNG
exports and natural gas projects, which he suggests would allow Synapse
to critique the 2018 Study.
b. DOE/FE Response
In response, DOE/FE notes that the scenarios evaluated by NERA were
based on four different uncertainties affecting natural gas markets,
with three different cases for U.S. natural gas supply based on EIA's
AEO 2017. As explained above, NERA enlisted external peer review of the
Study's scenario design and probability assignments, and made
modifications based on feedback from the peer reviewers. NERA also made
clear that ``[its] findings . . . may contain projections based on
current data and historical trends,'' and that ``[a]ny such predictions
are subject to inherent risks and uncertainties.'' \246\ Additionally,
consistent with its past practice, DOE/FE has made the 2018 Study
available for public comment. Commenters were free to submit a third-
party critique of the 2018 Study by Synapse or other firms, although
none did.
---------------------------------------------------------------------------
\246\ Id. at 1-2.
---------------------------------------------------------------------------
J. Potential Impact on DOE/FE's Regulatory Process
1. Pending Non-FTA Applications
a. Comments
The Evans Schaaf Family states that, ``given the 68% probability
[in the 2018 Study] that U.S. LNG exports will be between 9.0 and 30.7
Bcf/d in 2040,'' DOE ``has an obligation to look closely at individual
proposed projects, including where the gas is sourced, to determine
whether or not projects are consistent with the public interest . . .
.'' \247\ In the Family's view, the 2018 Study implies that FE
``[should] approve all 55.04 Bcf/d LNG export projects for non-FTA
export.'' \248\ The Family disagrees with this implication, and urges
DOE against assuming that ``all LNG projects are equal.'' \249\
---------------------------------------------------------------------------
\247\ Comment of Evans Schaaf Family at 8.
\248\ Id.
\249\ Id.
---------------------------------------------------------------------------
Other commenters argue that, given the results of the 2018 Study
and DOE's prior macroeconomic studies, DOE/FE should proceed
expeditiously in reviewing and approving all pending applications to
export LNG to non-FTA countries. API asserts that any unnecessary delay
in approving non-FTA applications will put U.S. projects at ``a
competitive disadvantage in the global race to construct LNG
facilities,'' such that the United States will miss out on the economic
and foreign policy gains associated with market-determined levels of
U.S. LNG exports.\250\ JCEP states that DOE/FE should promptly approve
the pending applications following the completion of the environmental
review for each facility.\251\ CLNG similarly contends that, on the
basis of the 2018 Study and DOE's LNG export regulatory program to
date, ``DOE is fully armed to approve the remaining applications for
export and should do so without delay.'' \252\ LNG Allies states that
DOE can now ``safely shift its policy perspective to grant approvals to
all . . . export applications to non-FTA countries without the need for
any further macroeconomic studies (at least for the next four to five
years).'' \253\ Citing the 2018 Study, NextDecade asserts that ``DOE
should continue approving export applications so that regulatory
barriers do not distort the proper functioning of the marketplace.''
\254\ Finally, JCEP maintains that any opponent of LNG exports would
need to make an
[[Page 67272]]
``overwhelming showing'' that an individual export proposal is
inconsistent with the public interest, so as to overcome both the
presumption in favor of exports codified in section 3(a) of the NGA and
the findings of the 2018 LNG Export Study.\255\
---------------------------------------------------------------------------
\250\ Comment of API at 2.
\251\ Comment of JCEP at 5-6.
\252\ Comment of CLNG at 2; see also id. at 6.
\253\ Comment of LNG Allies at 2.
\254\ Comment of NextDecade Corp. at 4.
\255\ Comment of JCEP at 6.
---------------------------------------------------------------------------
b. DOE/FE Response
As mentioned above, the 2018 Study found a ``positive correlation
between GDP and LNG exports for the more likely scenarios in 2040.''
\256\ Under the NGA section 3(a), DOE examines each pending non-FTA
application to determine whether the proposed exports are in the public
interest.
---------------------------------------------------------------------------
\256\ 2018 LNG Export Study at 67.
---------------------------------------------------------------------------
As discussed in prior non-FTA orders, DOE/FE reviews a substantial
administrative record for each application proceeding under NGA section
3(a). That record typically includes (but is not limited to) the
following: The application; any motions to intervene, protests, and/or
comments submitted in response to the notice of application; DOE's
environmental studies (i.e., the Addendum \257\ and the Life Cycle
Greenhouse Gas Report); \258\ public comments received on DOE/FE's
various analyses; any final environmental document for the export
facility issued by FERC or the U.S. Maritime Administration (MARAD)
under NEPA (such as a final environmental impact statement or
environmental assessment); \259\ and any order by FERC or MARAD
granting or denying authorization for the applicant to site, construct,
and operate the export facility. Accordingly, DOE/FE does not prejudge
any of the pending non-FTA applications on the basis of the 2018 LNG
Export Study alone. For the reasons discussed herein, the 2018 LNG
Export provides significant supporting evidence in DOE/FE's public
interest analysis under NGA section 3(a), but the 2018 Study is one of
many considerations in DOE/FE's decision-making. Consistent with its
past practice, DOE/FE will evaluate each pending non-FTA application as
required under the NGA and NEPA, based on the administrative record
compiled in each individual proceeding.
---------------------------------------------------------------------------
\257\ Addendum to Environmental Review Documents Concerning
Exports of Natural Gas From the United States, 79 FR 48132 (Aug. 15,
2014). The Addendum and related documents are available at: https://www.energy.gov/sites/prod/files/2014/08/f18/Addendum.pdf.
\258\ Life Cycle Greenhouse Gas Perspective on Exporting
Liquefied Natural Gas from the United States, 79 FR 32260 (June 4,
2014). The Life Cycle Greenhouse Gas Report is available at: http://energy.gov/fe/life-cycle-greenhouse-gas-perspective-exporting-liquefied-natural-gas-united-states.
\259\ Typically, the Federal agency responsible for permitting
the export facility--usually either FERC or MARAD--serves as the
lead agency in the NEPA review process, and DOE serves as a
cooperating agency. Where no other Federal agency is responsible for
permitting the export facility, DOE serves as the lead agency in the
NEPA review process.
---------------------------------------------------------------------------
2. Extended Term of Non-FTA Authorizations
a. Comments
LNG Allies and Cheniere assert that the design of the 2018 Study
will allow for greater flexibility for DOE/FE's regulatory process
going forward. They point out that, whereas DOE's prior studies had a
horizon of 20 years, the 2018 Study extends 30 years into the future
(i.e., through December 31, 2050). Therefore, Cheniere asserts, ``[t]he
findings establish an evidentiary basis for DOE/FE to make public
interest determinations and [issue] export authorizations for 30-year
terms.'' \260\ On this basis, these commenters urge DOE/FE to: (i)
Grant new non-FTA authorizations for a term of 30 years, and (ii)
initiate a consolidated proceeding to add an additional 10-year term to
the existing 20-year LNG export authorizations for both FTA and non-FTA
countries. They assert that the LNG industry would receive substantial
benefits from extended 30-year authorizations--particularly since, for
foreign buyers deciding between U.S. LNG and alternative long-term
sources, longer authorization periods may prove decisive.
---------------------------------------------------------------------------
\260\ Comment of Cheniere at 2.
---------------------------------------------------------------------------
b. DOE/FE Response
A request to extend the term for existing or future non-FTA
authorizations goes beyond the scope of this proceeding. If, in the
future, DOE/FE decides to propose an extended export term for existing
or future non-FTA orders, DOE/FE will commence a new docket proceeding
and publish notice of the proposal in the Federal Register. Insofar as
any authorization holder wishes to request a longer export term for an
existing FTA authorization, it is free to do so at any time under NGA
section 3(c).\261\
---------------------------------------------------------------------------
\261\ 15 U.S.C. 717b(c) (requiring DOE to grant applications for
FTA authorizations, including applications to amend such
authorizations, ``without modification or delay'').
---------------------------------------------------------------------------
3. Policy Recommendations
a. Comments
IECA recommends that DOE/FE implement two policy changes to ensure
that the U.S. economy benefits from LNG exports. First, IECA states
that DOE/FE should ensure that price levels for U.S. LNG are not
dictated by global demand, as is currently happening with prices for
U.S. crude oil (in IECA's view). IECA states that DOE's policy should
be ``to export LNG volumes to levels where demand in China, Japan,
South Korea, India, and the EU [European Union] will not determine
[U.S.] prices.'' \262\ According to IECA, such a policy is especially
important during the winter heating season because the largest LNG
importing countries have winter at the same time as the United States--
potentially resulting in global price spikes for heating and
electricity.\263\
---------------------------------------------------------------------------
\262\ Comment of IECA at 1 (defining ``subsidize'' as ``a
foreign government and/or foreign government related entities that
in whole or part, are either owned, controlled or regulated by such
government entities, provide natural gas to their industrial and or
electric generating sectors at prices that are below the market or
purchased costs.'').
\263\ Id.
---------------------------------------------------------------------------
Second, IECA asks DOE/FE to ``issue an order that would specify
that it is unlawful for U.S. LNG exports to be shipped to countries
that subsidize natural gas to their manufacturing industry.'' \264\ As
discussed above, IECA argues that allowing exports of U.S. LNG to
``subsidizing'' countries damages the competitiveness of U.S.
manufacturing and threatens U.S. jobs.
---------------------------------------------------------------------------
\264\ Id. at 7.
---------------------------------------------------------------------------
b. DOE/FE Response
The policy recommendations offered by IECA go beyond the scope of
this proceeding. DOE/FE takes no position on the proposed policy
recommendations at this time.
VII. Discussion and Conclusions
DOE/FE commissioned the 2018 LNG Export Study and invited the
submission of responsive comments on the Study. DOE/FE has analyzed
this material and determined that the 2018 Study provides substantial
support for the pending non-FTA applications identified in this docket,
as well as future non-FTA applications within the export volumes
considered by the 2018 Study (0.1 to 52.8 Bcf/d of natural gas).
Specifically, the conclusion of the 2018 LNG Export Study is that the
United States will experience net economic benefits from issuance of
authorizations to export domestically produced LNG. Other key findings
of the 2018 Study include:
``Increasing U.S. LNG exports under any given set of
assumptions about U.S. natural gas resources and their production leads
to only small increases in U.S. natural gas prices.'' \265\
---------------------------------------------------------------------------
\265\ 2018 LNG Export Study at 55.
---------------------------------------------------------------------------
[[Page 67273]]
``Increased exports of natural gas will improve the U.S.
balance of trade and result in a wealth transfer into the United
States.'' \266\
---------------------------------------------------------------------------
\266\ Id. at 64.
---------------------------------------------------------------------------
``Overall [U.S.] GDP improves as LNG exports increase for
all scenarios with the same U.S. natural gas supply condition.\267\
---------------------------------------------------------------------------
\267\ Id. at 67.
---------------------------------------------------------------------------
``There is no support for the concern that LNG exports
would come at the expense of domestic natural gas consumption.'' \268\
---------------------------------------------------------------------------
\268\ Id. at 77.
---------------------------------------------------------------------------
``[A] large share of the increase in LNG exports is
supported by an increase in domestic natural gas production.'' \269\
---------------------------------------------------------------------------
\269\ Id. at 77.
---------------------------------------------------------------------------
``Natural gas intensive [industries] continue to grow
robustly at higher levels of LNG exports, albeit at slightly lower
rates of increase than they would at lower levels.'' \270\
---------------------------------------------------------------------------
\270\ Id. at 70.
We have evaluated the public comments submitted in response to the 2018
Study. None of the eight comments opposing the 2018 Study have provided
sufficient evidence to rebut or otherwise undermine these findings.
Specifically, the opposing comments criticize aspects of the
models, assumptions, and design of the 2018 Study. As discussed above,
however, EIA's most recent projections in AEO 2018 continue to show
market conditions that will accommodate increased exports of natural
gas. When compared to prior AEO Reference cases (including AEO 2017's
Reference case used in the 2018 Study), the AEO 2018 Reference case
projects increases in domestic natural gas production--well in excess
of what is required to meet projected increases in domestic
consumption. Accordingly, DOE/FE finds that the 2018 LNG Export Study
is fundamentally sound and supports the proposition that exports of LNG
from the lower-48 states, in volumes up to and including 52.8 Bcf/d of
natural gas, will not be inconsistent with the public interest.\271\
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\271\ 2018 LNG Export Study at 63 & Appx F.
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As stated above, DOE will consider each application as required
under the NGA and NEPA based on the administrative record compiled in
each individual proceeding.
Signed in Washington, DC, on December 20, 2018.
Steven E. Winberg,
Assistant Secretary, Office of Fossil Energy.
[FR Doc. 2018-28238 Filed 12-27-18; 8:45 am]
BILLING CODE 6450-01-P