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Study: positive results of LNG exports
Office of Fossil Energy commissioned study on macroeconomic outcomes for use in 25 proceedings for export to non-free trade nations Kristen Nelson Petroleum News
The U.S. Department of Energy’s Office of Fossil Energy commissioned a study, “Macroeconomic Outcomes of Market Determined Levels of U.S. LNG Exports,” to inform Office of Fossil Energy decisions on applications to export liquefied natural gas from Lower 48 states to countries with which the U.S. does not have a free trade agreement. The study was noticed in the Federal Register June 12 to enter it into the administrative record of the 25 pending non-FTA export proceedings. Comments are due July 27.
The Federal Register notice said evaluations of the public interest under section 3(a) of the Natural Gas Act require DOE to review factors including economic impacts and DOE/FE has said it considers cumulative impacts of the total volume of all final non-FTA export authorizations.
DOE/FE has issued 29 final long-term authorizations to export LNG and compressed natural gas to non-FTA countries; a cumulative volume totaling 21.35 billion cubic feet per day, some 7.79 trillion cubic feet per year.
There have been four earlier LNG export studies, and with one early exception the 29 authorizations were issued based, in part, on one or more of those earlier studies, the first of which was published in January 2012.
The most recent studies, in 2014 and 2015, examined domestic macroeconomic impacts of increasing LNG exports at levels from 12 bcf per day to 20 bcf per day.
The 2018 study was performed by NERA Economic Consulting. It examines probability and macroeconomic impact of various U.S. LNG scenarios and will allow DOE/FE to evaluate cumulative impacts of each additional non-FTA application and assess the likelihood of different levels of LNG exports.
The 2018 study develops 54 scenarios with varying assumptions for domestic and international supply and demand conditions and examines the likelihood of conditions leading to various export scenarios, the first DOE macroeconomic study to consider the issue.
2018 study NERA said in the study that a wide range of scenarios for future export were developed and examined, along with the likelihood of different levels of unconstrained exports - market determined levels of exports - and the outcomes of different export levels on U.S. natural gas markets and the U.S. economy from 2020 to 2040.
It said the 2018 study differs from other studies in that it includes a large number of scenarios, 54; includes market determined export levels in all scenarios; examines unconstrained LNG exports beyond levels examined in previous studies; imposes no constraints on LNG export volumes; examines the likelihood of those market determined volumes; and provides macroeconomic projection associated with several of the scenarios which lie in the more likely range.
“As a result,” NERA said, “the 2018 Study analyzes the robustness of unlimited market level determined LNG exports by examining different scenarios that reflect a wide range of natural gas market conditions, where robustness is measured using key macroeconomic metrics such as GDP, aggregate household income, and consumer welfare.”
Market driven NERA said that throughout the range of scenarios, from zero exports on up, “we find that overall U.S. economic output is higher whenever global markets call for higher levels of LNG exports, assuming that exports are allowed to be determined by market demand.”
The report said the likely range of exports in 2040 is between 8.7 bcf and 30.7 bcf per day, some 3.2 tcf to 11.2 tcf per year.
Four major sources of uncertainty that affect LNG export levels were identified in the study, NERA said: U.S. natural gas supplies; U.S. natural gas demand; natural gas availability in the rest of the world; and natural gas demand in the rest of the world.
The report notes that in projections by the Energy Information Administration, “the principle determinant of natural gas prices in the United States is the U.S. natural gas resource and by extension, the technology that enables it to be developed.”
Domestic economic growth is greater with high U.S. oil and gas supply, the report says and consumer welfare - present value measure of standard of living over 2020 to 2040 - “is also higher when there is greater domestic oil and gas supply” and “is higher, the higher the level of LNG exports.”
The report cites a number of reasons for the positive relationships between LNG exports and economic performance.
Some 80 percent of the increase in U.S. LNG exports comes from increased production, “with positive effects on labor income, output, and profits in the natural gas production sector.”
And higher world prices that bring forth the increased U.S. supplies improve U.S. terms of trade, “so that there is a wealth transfer to the U.S. from the rest of the world equal to the increase in prices received for LNG exports times the quantity exported,” improving the average consumer’s ability to demand goods and services and increasing overall economic activity.
Those factors, the report says, more than make up for some downsides such as “slightly slower output growth of some natural gas intensive industries, costs of substituting other fuels for a small fraction of natural gas use in power generation, and infinitesimal reductions in natural gas use by households and other industries.”
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