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DOE Study: LNG Exports Will Boost U.S. Economy

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Big news in a just-released study conducted for the U.S. Energy Department, which finds that allowing U.S. liquid natural gas exports would help the economy – and increasingly so as LNG exports grow. NERA Economic Consulting analyzed 16 different export scenarios, incorporating different assumptions about U.S. natural gas supply and demand and different export levels:

“Across all these scenarios, the U.S. was projected to gain net economic benefits from allowing LNG exports. Moreover, for every one of the market scenarios examined, net economic benefits increased as the level of LNG exports increased. In particular, scenarios with unlimited exports always had higher net economic benefits than corresponding cases with limited exports.”

Other key details:

  • Economic benefits consistently increase as the volume of natural gas exports increases. Even though domestic natural gas prices are affected by exports, the value of those exports also increase so that there’s a net gain for the overall economy.
  • Net benefits to the economy would be highest if the U.S. is able to produce large quantities of natural gas from shale at low cost, if world demand increases rapidly and if LNG supplies from other regions are limited.
  • Natural gas price changes attributable to LNG exports stay in a relatively narrow range across all scenarios studied.
  • LNG exports aren’t likely to affect overall U.S. employment. NERA projects some shifts in workers – to industries associated with natural gas production from other industries – but that in no scenario is the employment shift out of any industry to be larger than normal rates of turnover of employees in those industries.

This is good news and so timely as lawmakers consider LNG export policy. Currently, the Energy Department has a number of applications for export project licenses on hold while various issues are weighed.

The NERA study should help bring needed clarity – that the ongoing U.S. shale natural gas revolution, advanced by breakthroughs in hydraulic fracturing and horizontal drilling, can provide an even broader lift to our economy, if the right policies are put in place. API Upstream and Industry Operations Group Director Erik Milito:

“Today’s DOE report highlights the game-changing benefits of exporting energy. This is a big opportunity for the administration to bolster job creation and economic growth and to address the backlog of LNG export applications. The U.S. is at a historical turning point with energy due to the nation’s abundant natural gas resources. With the right policies, exports can help grow the country’s economy, help reverse our trade deficit and help bring back millions of U.S. jobs in engineering, manufacturing, construction and facility operations.”

Natural gas from shale is a big reason why America is energy rich. The U.S. Energy Information Administration’s just-released Annual Energy Outlook 2013 Reference case projects that the United States will become a larger exporter of natural gas than it forecast last year, with production outpacing domestic consumption by 2020.

Again, if policies allow, we could see big benefits for the U.S. in terms of energy, jobs and a boost for our country’s trade balance sheet and overall economy – thanks to fracking and shale gas development.

Mark Green's picture

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Discussions

Erim Foster's picture
Erim Foster on Dec 6, 2012 8:21 pm GMT

Not to be pedantic, but this all remains to be seen.

Paul Ebert's picture
Paul Ebert on Dec 7, 2012 8:43 pm GMT

"Expansion of LNG exports has two major effects on income:  it raises energy costs and, in the 

process, depresses both real wages and the return on capital in all other industries, but it also 

creates two additional sources of income.  First, additional income comes in the form of higher 

export revenues and wealth transfers from incremental LNG exports at higher prices paid by 

overseas purchasers.  Second, U.S. households also benefit from higher natural gas resource 

income or rents."

Sounds like the government, the gas companies and (probably to a significantly lesser extent) those with wells on their land benefit and everyone else (99.9%?  99.6%?) loses.  It would seem to me that the economic models used must assume that there are no deleterious effects from excessive concentration of wealth.

John Miller's picture
John Miller on Dec 8, 2012 2:45 am GMT

Mark, the NERA report does a reasonably thorough job of evaluating the overall ‘free market’ impacts of possible LNG exports.  This proposal has its typical supporters and opposers.  The Oil & Gas industry supports removing an existing market constraint (supply > demand).  Environmentalists reflexively oppose all form of domestic fossil fuels production, apparently even when it has obvious environment benefits such as replacing coal with cleaner, lower carbon NG.  New opposition to LNG exports includes the Chemical Industry and NG alternative fueled vehicle supporters.  The Chemical Industry has benefited from low NG prices and apparently has business plans/strategies to expand manufacturing operations around recent historic low NG market costs.  Directionally increasing market prices for NG is not in the best interests of NG vehicle advocates.

A couple things to consider before supporting unlimited LNG exports:  The EIA surprisingly assumes that the EPA has called a truce in their war on coal.  The recent AEO 2013 projection shows that U.S. coal and NG consumption increasing by 10% and 15% respectively 2013-2040.  This is somewhat surprising based on recent and future likely EPA regulatory actions to severely restrict coal plant emissions; soon to possibly include carbon.  The AEO 2013 also limits (non-hydro) renewable energy growth to about 70% 2013-2040.  If both these projections prove accurate, NGL exports could be very attractive to the economy overall.  However, if the EPA’s coal war is still on and picks up momentum, the U.S. will likely see very large amounts of existing coal power generation capacity shutdown within the next 10+ years.  This action, of course requires power generation fuel switching to the only currently available alternative to coal baseload capacity, NG.  Politically popular wind/solar cannot displace coal baseload power generation capacity until industrial scale power storage becomes an economic reliability.

Based on the current Administration’s past behavior towards actions that support free markets (Obama routinely appears to favor Keynesian tax or borrow-and-spend political actions over free markets), I would give the probability of the current Administration supporting the export of LNG less than 50%.  We still are waiting on approval of the Keystone XL pipeline project into Canada, which greatly benefits U.S. energy security and both Trade partner's economies, but, the Administration has yet to figure this advantage out.

John Miller

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