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Wednesday, December 5, 2012

U.S. DOE releases study on natgas exports

The U.S. Department of Energy has released a study that assessed the potential macroeconomic impact of liquefied natural gas (“LNG”) exports.  Macroeconomic Impacts of LNG Exports from the United States was performed by NERA Economic Consulting for DOE.   

NERA estimated expected levels of U.S. LNG exports under several scenarios for global natural gas supply and demand, and modeled the U.S. macroeconomic impacts resulting from those LNG exports. 

The key findings are:

  • The U.S. was projected to gain net economic benefits from allowing LNG exports; the 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”, the study said.
  • NERA said that benefits from export expansion more than outweigh the losses from reduced capital and wage income to U.S. consumers, despite higher domestic natural gas prices. 
  • U.S. natural gas prices increase when the U.S. exports LNG. But the global market limits how high U.S. natural gas prices can rise.  NERA said that natural gas price increases at the start of LNG exports range from zero to $0.33 (2010$/Mcf). The largest price increases that would be observed after 5 more years of potentially growing exports could range from $0.22 to $1.11 (2010$/Mcf).  
  • How increased LNG exports will affect different socioeconomic groups will depend on their income sources. Both total labor compensation and income from investment are projected to decline, and income to owners of natural gas resources will increase, according to NERA: 
“Different socioeconomic groups depend on different sources of income, though through retirement savings an increasingly large number of workers share in the benefits of higher income to natural resource companies whose shares they own.  Nevertheless, impacts will not be positive for all groups in the economy.  Households with income solely from wages or government transfers, in particular, might not participate in these benefits.” 

The way I read this, and perhaps to oversimplify, working class and low-income Americans’ wages especially would decline and both they and people who don’t own stock in gas companies and rely on Social Security income would face higher natural gas prices to heat their homes and cook. Is that a good deal for the nation?

  • NERA says that “serious competitive impacts are likely to be confined to narrow segments of industry.”  About 10% of U.S. manufacturing, they say, is energy intensive and faces serious exposure to foreign competition.  Employment in those industries is about one-half of one percent of total U.S. employment, according to NERA. 
  • LNG exports are not likely to affect the overall level of employment in the U.S. There will be some shifts in the number of workers across industries. 

Like any study, the question asked, the model used, and the assumptions fed into that model are all crucial.  Further, it is an economic study; it does not factor in climate costs and benefits of LNG exports; for example, the impacts of LNG exports on natural gas price levels and hence fuel switching and associated carbon dioxide emissions here and abroad.

I hope the study will be closely scrutinized, and that it will fuel serious debate about whether and at what level the U.S. will allow natural gas exports.

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