LNG:

Long-awaited DOE study sees big wins from exports, but losers, too

Incorrect link updated.

Exporting liquefied natural gas would create economic benefits for the United States -- and the greater the exports, the greater the benefits, according to a long-awaited study commissioned by the Department of Energy.

"The U.S. was projected to gain net economic benefits from allowing LNG exports," finds the study by NERA Economic Consulting. "Moreover, for every one of the market scenarios examined, net economic benefits increased as the level of LNG exports increased," it says.

The results point to the possibility that DOE will take a hands-off approach to LNG exports, granting permits to most or all of the 15 proposed projects with pending applications to export LNG to countries with which the United States does not have a free-trade agreement.

It also could assuage the concerns of some that exporting U.S. natural gas would tie it to a global market price linked to oil. "The U.S. natural gas price does not become linked to oil prices in any of the cases examined," the study states, despite upward price pressure of up to 33 cents per million cubic feet of LNG in the near term and between 22 cents and $1.11 after five years.

The third-party assessment is meant to help DOE gauge whether LNG export projects to countries with which the United States lacks free-trade agreements are consistent with "the public good." Supporting that notion, the study says export revenues and the transfer of wealth from overseas that would take place with exports result in "an increase in U.S. households' real income and welfare."

But the assessment does highlight some losers from LNG exports, namely energy-intensive manufacturing and anyone who doesn't own a piece of the natural gas industry pie.

The industries hardest hit by export-related price increases, according to the study, are those with high energy expenses and extensive exposure to foreign competition. Those industries account for 0.5 percent of overall employment and would be expected to lay off workers in some export cases, though the study says expected employment loss would be no greater than normal worker turnover rates.

The study projects that as natural gas prices go up, real wages will go down. "Overall, both total labor compensation and income from investment are projected to decline, and income to owners of natural gas resources will increase," the study says. While those owning shares in natural gas-linked companies would benefit from the higher profits those companies would win with new LNG exports, "households with income solely from wages or government transfers, in particular, might not participate in these benefits," it finds.

The new assessment leans on scenarios laid out in a study published in January by the Energy Information Administration, considering a range of global market conditions, domestic natural gas production costs and export levels. Those scenarios become the inputs in two models, one reflecting how global price levels link to U.S. exports and the other gauging U.S. macroeconomic impacts from those export levels.

DOE officials have said the study will play an important role in guiding their decisionmaking on LNG exports, though Chris Smith, the deputy assistant secretary for oil and natural gas in DOE's Office of Fossil Energy, which handles LNG exports, also recently stressed that DOE was not "outsourcing" its decisionmaking to the study authors.

Political fallout

The study's ringing endorsement of net economic and aggregate consumer benefits led some to call on DOE to move quickly through the queue of LNG projects awaiting approval.

Alaska Sen. Lisa Murkowski (R), an export booster who hopes to see a new shipping terminal built in her state to carry natural gas to booming Asian markets, praised the study as comprehensive and transparent. "The conclusions in this report on the benefits to the economy should inform the DOE approval process regarding exports," Murkowski said. "This is a really good report, and it really does provide guidance as we move forward."

While Alaska's ability to export LNG across the Pacific Ocean to high-demand countries like Japan and China hinges in part on DOE's use of the report's findings, the agency did not factor that state's production into its modeling.

In a footnote to its Federal Register notice about the report, DOE noted: "The LNG Export Study did not consider the impact of exports of Alaska natural gas production. Because there is no natural gas pipeline interconnection between Alaska and the lower-48 states, the macroeconomic consequences of exporting LNG from Alaska are likely to be discrete and separate from those of exporting from the lower-48 states," it said.

Murkowski will continue as ranking member of the Senate Energy and Natural Resources Committee next year, but her slated Democratic colleague on the dias, incoming Chairman Ron Wyden (D-Ore.) is a staunch opponent of new LNG export terminals -- especially those proposed in his state.

LNG exports will be a key early focus of committee hearings, Wyden said, the specifics of which he plans to discuss with Murkowski. "Both of us feel very strongly about examining this thoroughly," he told reporters.

Wyden said he was still waiting on a response to a letter he sent to Energy Secretary Steven Chu in October asking for an explanation of the criteria DOE will use to evaluate LNG export applications (E&ENews PM, Oct. 23).

While he said he remains concerned about possible job losses in the manufacturing sector spurred by LNG exports, Wyden said it is too early to say whether Congress should get involved until he hears back from DOE.

"I think it's important [to get] this right and looking for the kind of sweet spot where you can balance the various interests," he said.

Ammo for all

Critics immediately pointed to shortfalls in the study's methodology.

The Sierra Club, which has intervened in numerous LNG export project proposals at the state and federal levels and in the courts, said the study committed the same mistake as earlier analysis in failing to assess the upstream impacts of increased hydraulic fracturing that would occur as a result of increased foreign demand.

"The law requires the Department of Energy to determine if more natural gas exports are in the public interest -- so it is baffling that this report omits the serious threats increased fracking and gas production pose to our water, our air, and the health of our families," the group said in a statement attributed to Executive Director Michael Brune. "Even if we consider what's actually included in this analysis, increased gas exports are expected to result in higher gas prices and lower wages for American families, meaning we pay the price here while the companies shipping gas overseas rake in the profits."

George Biltz, the vice president for energy with Dow Chemical Co., said the contractor made a huge mistake in using EIA's 2011 Annual Energy Outlook data in the report when the latest data, for 2013, were released yesterday (EnergyWire, Dec. 6).

"I would just say that the results they're coming up with are flawed in that they're using two-year-old data in an industry that's rapidly evolving," Biltz said. "It's an industry that was only [just appearing] on everyone's radar screen two years ago, and it's very dynamic."

Biltz cited a roundup by Dow of $80 billion in proposed new factories and other investments that it describes as part of a "manufacturing renaissance" linked in part to low natural gas prices. Those proposed projects -- largely chemical production plants but also investments in new fertilizer, steel and other plants -- are not reflected as projected new demand in the export study but could add 6 billion cubic feet per day of natural gas demand, he said.

"Their whole scenario has to be not just building up what LNG demand might be, but building up what other demand might be," Biltz said. "They also call manufacturing a 'modest user' of natural gas, [but] manufacturing is the largest user of natural gas" when both energy and feedstock use is taken into account, he said.

Paul Cicio, president of Industrial Energy Consumers of America, agreed that the use of 2011 data was a major flaw in the study.

In a statement, he said the study fails to account for an expected boom in natural gas demand for industrial and power uses, in part thanks to the fuel's cleaner greenhouse gas emissions profile.

Cicio also called out the potential for new natural gas drilling rules to drive down production and tax code changes to stymie drilling investments, saying those factors were not adequately taken into account.

"Most importantly, the report does not compare the economic benefits of exporting natural gas versus using it as a domestic jobs creator," Cicio said. "There is no question that if we use these resources domestically, it will maximize economic growth and job creation for this country. The best solution to our abundant supply is greater use domestically, and Congress should carefully look at the barriers to that end."

A review of the study by Clearview Energy Partners, an investment advisory firm, sees ammunition for both sides. The top-line study results support free trade in LNG, the review notes, but in calling out both winners and losers, it will fuel arguments both for and against broad exports.

"We are certainly believers in classical economic theory and free trade, and we are quick to appreciate 'net economic benefits' in the bloodless aggregate, but it's hard to ignore the prospect that LNG export opponents might find political value in some of the less-positive, more-localized impacts," Clearview said.

Click here to read the new study.

Reporter Nick Juliano contributed.

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