UNITED STATES OF AMERICA DEPARTMENT OF ENERGY OFFICE OF FOSSIL ENERGY _______________________________________ ) BEAR HEAD LNG CORPORATION and ) BEAR HEAD LNG (USA), LLC ) FE DOCKET NO. 15-33-LNG _______________________________________ ) OPINION AND ORDER GRANTING LONG-TERM, MULTI-CONTRACT AUTHORIZATION TO EXPORT U.S.-SOURCED NATURAL GAS BY PIPELINE TO CANADA FOR LIQUEFACTION AND RE-EXPORT IN THE FORM OF LIQUEFIED NATURAL GAS TO NON-FREE TRADE AGREEMENT COUNTRIES DOE/FE ORDER NO. 3770 FEBRUARY 5, 2016 TABLE OF CONTENTS I. INTRODUCTION ................................................................................................................. 1 II. SUMMARY OF FINDINGS AND CONCLUSIONS ........................................................ 11 III. PUBLIC INTEREST STANDARD .................................................................................... 11 IV. DESCRIPTION OF REQUEST .......................................................................................... 14 A. Description of Applicants ............................................................................................. 14 B. Liquefaction Project ...................................................................................................... 15 C. M&N Pipeline ............................................................................................................... 16 D. Procedural History ........................................................................................................ 18 E. Source of Natural Gas ................................................................................................... 20 F. Business Model ............................................................................................................. 21 G. Environmental Review .................................................................................................. 21 V. 2012 LNG EXPORT STUDY ............................................................................................. 22 A. EIA Study, Effect of Increased Natural Gas Exports on Domestic Energy Markets ... 23 1. Methodology .......................................................................................................... 23 2. Scope of EIA Study ............................................................................................... 25 3. Natural Gas Markets .............................................................................................. 26 4. Results of EIA Study ............................................................................................. 27 5. Wellhead Price Increases ....................................................................................... 28 6. Increased Natural Gas Production and Supply ...................................................... 29 7. Decreased Natural Gas Consumption .................................................................... 29 8. Increased End-User Natural Gas and Electricity Delivered Prices ....................... 30 9. Impact on Natural Gas Producer Revenues ........................................................... 31 10. Impacts Beyond the Natural Gas Industry ............................................................. 31 B. NERA Study, Macroeconomic Impacts of LNG Exports from the United States ......... 32 1. Overview of NERA’s Findings ............................................................................. 33 2. Overview of NERA’s Methodology ...................................................................... 35 3. Scope of the NERA Study ..................................................................................... 36 4. NERA’s Global Natural Gas Model ...................................................................... 38 5. The NewERA Macroeconomic Model .................................................................... 39 6. Relationship to the EIA Study ............................................................................... 40 7. Key Assumptions and Parameters of the NERA Study ......................................... 41 8. Results of the NERA Study ................................................................................... 42 VI. APPLICANT’S PUBLIC INTEREST ANALYSIS ........................................................... 48 A. Domestic U.S. Need for the Natural Gas to be Exported.............................................. 48 1. Supply of Natural Gas the United States ............................................................... 49 2. U.S. Natural Gas Demand ..................................................................................... 50 3. U.S. Price Impacts ................................................................................................. 51 4. Regional Supply..................................................................................................... 52 5. Regional Demand .................................................................................................. 53 6. Regional Price Impacts .......................................................................................... 54 7. Supply/Demand Balance ....................................................................................... 54 B. Other Public Interest Considerations ............................................................................ 57 i 1. Benefits to the U.S. Economy ............................................................................... 57 2. International Considerations .................................................................................. 59 VII. CURRENT PROCEEDING BEFORE DOE/FE ................................................................ 60 A. Motion to Intervene of Northeast Energy Solutions, Inc. ............................................. 60 B. Motion to Intervene of Saint John Gas Marketing Company ....................................... 62 VIII. COMMENTS ON THE 2012 LNG EXPORT STUDY AND DOE/FE ANALYSIS ........ 63 A. Data Inputs and Estimates of Natural Gas Demand ...................................................... 64 1. Comments .............................................................................................................. 64 2. DOE/FE Analysis .................................................................................................. 67 B. Distributional Impacts ................................................................................................... 74 1. GDP Versus Welfare ............................................................................................. 74 2. Sectoral Impacts..................................................................................................... 75 3. Household and Distributional Impacts .................................................................. 81 4. Regional Impacts ................................................................................................... 84 C. Estimates of Domestic Natural Gas Supplies ............................................................... 85 1. Comments .............................................................................................................. 85 2. DOE/FE Analysis .................................................................................................. 87 D. Modeling the LNG Export Business ............................................................................. 93 1. Comments .............................................................................................................. 93 2. DOE/FE Analysis .................................................................................................. 96 E. Cost of Environmental Externalities ........................................................................... 102 1. Comments ............................................................................................................ 102 2. DOE/FE Analysis ................................................................................................ 103 F. Prices and Volatility .................................................................................................... 103 1. Natural Gas Price Volatility ................................................................................ 103 2. Linking the Domestic Price of Natural Gas to World Prices............................... 106 G. Integrity of the 2012 LNG Export Study .................................................................... 108 1. Comments ............................................................................................................ 108 2. DOE/FE Analysis ................................................................................................ 109 H. Peer Review ................................................................................................................ 109 1. Comments ............................................................................................................ 109 2. DOE/FE Analysis ................................................................................................ 110 I. Procedural Arguments ................................................................................................. 112 1. Comments ............................................................................................................ 112 2. DOE/FE Analysis ................................................................................................ 114 IX. DOE/FE ADDENDUM TO ENVIRONMENTAL REVIEW DOCUMENTS CONCERNING EXPORTS OF NATURAL GAS FROM THE UNITED STATES......................................