The United States economy will benefit overall should the Department of Energy (DOE) decide to approve 15 applications from U.S. companies seeking to export liquefied natural gas (LNG) to countries that do not have free-trade agreements (FTAs) with the United States.

That’s the view held by NERA Economic Consulting, which was retained by the DOE to conduct the second part of a two-party investigation intended to inform DOE decisions on LNG exports from the lower-48 states to non-FTA countries.

Federal law generally requires approval of natural gas exports to countries that have an FTA with the U.S.  For countries that do not have an FTA, the DOE is required to grant applications for export authorizations unless the DOE finds that the proposed exports will not be consistent with the public interest.  Public interest factors that are considered include economic, energy security, and environmental impacts.

Macroeconomics

In January 2012, DOE’s Energy Information Administration (EIA) issued the first of two reports, which comprised scenarios of how increased natural gas exports could affect discreet domestic energy markets.  In contrast, the NERA study takes the macroeconomic view, or the effect increased LNG imports might have on the U.S. economy in general.

NERA’s conclusions include:

• Across all market scenarios used in the study, the U.S. was projected to experience net economic benefits from allowing LNG exports.  Moreover, for every one of the scenarios, net economic benefits increased as the level of LNG exports increased.
• In all scenarios, benefits that come from export expansion more than outweigh the losses from reduced capital and wage income to U.S. consumers; hence, LNG exports have net economic benefits in spite of higher domestic natural gas prices.
• Net benefits to the U.S. would be highest if the U.S. produces 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. If the promise of shale gas is not fulfilled and costs of producing gas in the U.S. rise substantially, or if there are ample supplies of LNG from other regions to satisfy world demand, the U.S. would not export LNG.
• 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 under pressure of LNG exports because importers will not purchase U.S. exports if U.S. wellhead prices rise above the cost of competing supplies.  The U.S. natural gas price does not become linked to oil prices in any of the cases examined.
• LNG exports will cause shifts in industrial output and employment and in sources of income.  Overall, both total labor compensation and income from investment are projected to decline, and income to owners of natural gas resources will increase.  Impacts will not be positive for all groups in the economy.  For example, households with income solely from wages or government transfers might not have access to these benefits.
• Certain energy-intensive industries, which account for about one-half of 1 percent of total U.S. employment, are expected to experience serious competitive impacts.
• In no scenario is the shift in employment out of any industry projected to be larger than normal rates of turnover of employees in those industries.

The DOE states that it does not at this time take a position on these findings.  The Department is accepting public comment on the NERA report until January 24, 2013.

Click here to read the report and related information.