While US policymakers, legislators and others are focused on whether the fundamentals of US gas market would change significantly if large volumes of LNG are exported, there are emerging questions about the federal government's ability to analyze such shifts.
According to key officials interviewed by Platts, the economic modeling tool that the Energy Information Administration uses to make long-term, global supply and demand projections is not capable of accounting for the changes that would come from large-scale LNG exports.
Further, EIA will not be able to remedy those deficiencies with its modeling tool if the push to slash government spending continues, officials said.
EIA, the statistical arm of the Department of Energy, has long used a tool called the National Energy Modeling System to create its Annual Energy Outlook, a widely read report that offers long-term forecasts on things such as commodity prices, supply and demand. And since EIA created the modeling tool in 1992, it has continually updated it to reflect changes in the US energy landscape, such as the shale drilling boom that started taking root about five years ago.
With the US currently awash in low-priced shale gas, some US companies are eager to export LNG to higher-priced foreign markets. But in a recent interview, a top EIA official said his agency cannot make needed upgrades to its tool for modeling the global market effects of increased US LNG exports because of Washington's zeal to slash federal spending.
EIA 'STUCK' WITH CURRENT MODELING SYSTEMS
John Conti, EIA's assistant administrator for energy analysis, said the agency's LNG modeling efforts have been hurt by general budget cuts, as well as the mandatory, across-the-board spending cuts, known as a sequester, that took effect in March after Congress and the White House failed to reach a long-term budget deal.
"When we go through things like sequester, and we go through [budget cuts], one of the first areas where things get reduced is any effort to enhance, or any effort to do new work," Conti said. "So you are stuck with what you have, and figuring out what you won't be doing, more so than what you can do."
One of things that may not be updated soon is EIA's tool for modeling international energy markets. And with the global gas markets possibly set for a shakeup when US LNG exports begin in 2015 or 2016, it will be difficult to model the impact of those exports without a full understanding of international demand for LNG, Conti and other EIA officials said.
"Given the changes that have occurred worldwide with respect to LNG, we've had to rethink what the connections are, and to be honest, that is difficult," said Michael Schaal, the director of EIA's Office of Petroleum, Natural Gas and Biofuels Analysis.
Schaal said that while EIA's modeling of international crude oil and its impact on the economy is robust, the current model does not analyze the gas trade with the same level of clarity.
"To directly address the issue for us, given the number of commodities that are now internationally traded and for which the US is energy interdependent, means significantly expanding our modeling on the international scale, in order to better represent that. And that is a significant undertaking," Schaal said.
Schaal, like Conti, cited budget issues as the main hurdle to making the needed upgrades. "Quite frankly, that is a level of funding that apparently we don't see in our future," he said.
EIA Administrator Adam Sieminski has warned for months that his agency's economic modeling system is not able to assess the impacts of the many LNG export applications that are currently pending before DOE. DOE is legally required to approve applications to export LNG to countries that have free-trade agreements with the US, but the agency can reject or limit exports to non-FTA countries it determines they are not in the "national interest."
It is that second category of applications that EIA is especially interested in assessing with its current modeling tool.
The NEMS model now uses a fairly "simplistic" representation of LNG exports, limited to potentially moving gas out of the Gulf Coast, the East Coast and the West Coast, Conti said.
The model contains modules representing various aspects of the energy economy, such as oil and gas supply, commercial demand, transportation demand, and international energy, among others. Those all feed into a central "integrating module" that provides the final analysis.
WHITE HOUSE SEEK MORE FUNDING FOR FISCAL 2014
The structure has been advantageous over the years, allowing EIA programmers and analysts to account for major shifts in the domestic and global energy markets, Conti said. This has included biofuels mandates, automotive fuel-efficiency standards and changes in electricity production as renewables and natural gas make inroads.
Overall, NEMS is making progress. The most recent AEO contained a new module that specifically looks at the liquid fuels market.
But to assess impact of LNG exports requires both a tweaking of the natural gas module and an overhaul of the international module. And that is a major change, with no means to pay for it.
The fiscal 2014 budget request that President Barack Obama sent to Congress earlier this month seeks $4.6 million for EIA's energy modeling and analysis, up from $2.7 million in 2012. If approved, the request would pay for upgrades to assessments of international gas markets and the development of an international gas model that can be used with NEMS.
But EIA has received an 8.2% budget cut in the current fiscal year under the sequester. Moreover, the uptick in EIA funding that Obama asked for will likely encounter opposition in Congress, especially in the Republican-controlled House.
"Access to data is a seven-digit answer that is not in our budget," said Conti, explaining that for now at least, EIA has neither the time not the money to collect key information. "Any way you look at it, it is an expensive proposition for us at EIA."
