Issues concerning Cargo Preference for Imported Liquefied Natural Gas

PAD-78-69: Published: May 23, 1978. Publicly Released: May 23, 1978.

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Several issues concerning cargo preference for imported liquefied natural gas (LNG) were analyzed. There is no explicit statutory basis that provides the Department of Energy (DOE) with the authority to require cargo preference. Court decisions which held that the Natural Gas Act requires consideration of the public interest did not deal with the question of whether such a consideration would permit establishment of a cargo preference policy for LNG. DOE would have the burden of proof that such a policy was in the public interest and would have to consider the higher costs involved. The cost of cargo preference was estimated on the basis of a hypothetical 100 percent use of U.S. flag ships. Such a requirement for future LNG import projects should raise the shipping cost by 11 to 16 cents per 1,000 cubic feet of gas. The annual cost could range between $220 million and $630 million and the increase in the price of gas to consumers could range from .6 percent to 3.3 percent. If subsidies were used instead of cargo preference, costs would be about the same, but taxpayers would bear the cost of subsidies while consumers would bear the cost of cargo preference.

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