[author: Stephen Jones]
The boom in U.S. natural gas production from shale deposits has important implications for U.S. trade policy. The rapidly increasing supply of natural gas is resulting in lower prices for consumers and increasing the competitiveness of U.S. manufacturing. Lower domestic prices are causing gas producers to seek business in export markets, however, where prices are higher. There is growing tension between consumers’ desire for low prices and producers’ desire for increased profitability.
Under the Natural Gas Act of 1938, the Department of Energy (“DOE”) approves applications to export liquid natural gas (“LNG”) only if they are in the public interest. By statute, exports to countries with which the United States has a Free Trade Agreement are deemed to be in the public interest and are approved. Proposed non-FTA exports must be reviewed, however, and DOE has the authority to impose restrictions on such exports. Fifteen license applications to export liquid natural gas are currently pending before DOE. DOE’s authority to restrict exports raises significant issues regarding compliance with World Trade Organization (“WTO”) rules.
A recent study by NERA Consulting commissioned by DOE considered the macroeconomic impact of LNG exports and concluded that “benefits that come from export expansion more than outweigh the losses from reduced capital and wage income to U.S. consumers, and hence LNG exports have net economic benefits in spite of higher domestic natural gas prices.” In a Federal Register notice published on December 11, 2012 (77 Fed. Reg. 73,627), DOE stated that it will accept public comments on the NERA study for 45 days after the official notice was published, or until January 24, 2013. DOE will then accept reply comments for an additional 30 days, or until February 25, 2013.