Doe Study On Lng Exports: Net Economic Benefits Will Result

"The Devil is in the Details"

The study, performed by NERA Economic Consulting , is an analysis of the impact of exports of LNG on the U.S. economy under a range of different assumptions. The assumptions were combined into a set of market scenarios ranging from relatively normal conditions to stress cases with high costs of producing natural gas in the U.S. and exceptionally large demand for U.S. LNG exports in world markets.

The key findings are:

  • The U.S. is 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 all of these cases, benefits that come from export expansion more than outweigh the losses from reduced capital and wage income to U.S. consumers.
  • Net benefits to the U.S. would be highest if the U.S. is able to produce large quantities of gas from shale at low cost, if world demand for natural gas increases rapidly, and if LNG supplies from other regions are limited.
  • U.S. natural gas prices may increase when the U.S. exports LNG, but the global market limits how high U.S. natural gas prices can rise under pressure of LNG exports because importers will not purchase U.S. exports if U.S. wellhead price rises above the cost of competing supplies.
  • Natural gas price changes attributable to LNG exports could range from zero to $0.33 (2010 $/Mcf). The largest price increases that would occur after 5 more years from potentially growing exports and could range from $0.22 to $1.11 (2010 $/Mcf).
The DOE announced that it will begin to act on the 15 existing applications to export LNG to Non-Free Trade Agreement nations on a case-by-case basis and that it expects to act first upon applications for which the applicants have commenced the pre-filing process at the Federal Energy Regulatory Commission as of December 5, 2012.

The DOE study is a highly positive first step. The next step also will be significant-- the public comment process, which will not conclude until February 25, 2013. This process can slow Federal approvals, especially if there is a court challenge. Additionally, DOE's case by case review of applications will lengthen the time line before constuction can commence . Balanced against these concerns is the real possibility that competiton from sellers outside the US will dominate the market of approximately 6Bcf/d before US export terminals become operational.