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LNG Export Study Redux: 'More the Better,' Even More So

An update of a study supporting the case for exports of liquefied natural gas (LNG) has found that the "more the better" argument is even more true when fresh, more optimistic data on U.S. gas production are considered, and that the manufacturing and chemicals sectors have nothing to fear from LNG exports.

"Our analysis suggests that there is no support for the concern that LNG exports, even in the unlimited export cases [of the study], will obstruct a chemicals or manufacturing renaissance by moving the United States so far up the global supply curve that competitors in natural gas-importing regions will have lower costs," NERA Economic Consulting said in "Updated Macroeconomic Impacts of LNG Exports from the United States."

Thestudy was funded by LNG export terminal developer Cheniere Energy Inc. and updates a previous study NERA conducted on behalf of the U.S. Department of Energy, which was released in December 2012 (see Daily GPI, Dec. 6, 2012). The previous study was blasted by manufacturing and chemical interests, which argued that liquefying and exporting domestic gas would raise prices at home and make their U.S. output globally uncompetitive (see Daily GPI, Dec. 10, 2012).

The earlier NERA analysis has also been criticized for relying on the Energy Information Administration's Annual (EIA) Energy Outlook 2011, which was released in 2010 (see Daily GPI Jan. 11, 2013). The update, however, uses EIA's Annual Energy Outlook 2013 and International Energy Outlook 2013, which provide the most recent relevant data and available forecasts, according to NERA.

"This current study indicates greater LNG export potential at lower prices than previously estimated," the study found. "This reflects EIA's more optimistic views on U.S. natural gas supply, as well as its projections of more rapid growth in domestic natural gas demand. The current NERA study results indicate that LNG exports would be greater and average wellhead prices would be lower in most years than estimated in the [earlier] NERA study..."

The new study also takes into account the cumulative impacts of additional export license approvals, impacts on U.S. chemical industry competitiveness and the impacts of LNG exports on domestic employment.

"LNG exports provide net economic benefits in all the scenarios investigated, and the greater the level of exports, the greater the benefits," said project director David Montgomery, NERA senior vice president. The study found that the market for LNG exports is self-limiting, in that little or no natural gas will be exported if the price of natural gas in the U.S. increases much above current expectations. High levels of exports can be expected only if natural gas is plentiful and inexpensive enough to produce so that prices remain below current levels, even with high levels of exports."

The study found that the United States is projected to remain one of the lowest-cost producers of chemicals in the world, even with the highest levels of LNG exports considered.

In fact, chemical interests that rely on natural gas liquids (NGL) feedstocks, particularly ethane, will benefit from greater production of NGLs that comes with export-stimulated increases in natural gas production, NERA said. However, the consultancy did allow that sectors of the chemical industry that rely on natural gas for heat and power would grow "slightly more slowly in all [export] scenarios" considered by the study.

Under the study's reference case, increases in gross domestic product (GDP) resulting from LNG export activity "could range from $1.5 billion in 2018 to $36 billion in 2038...Every scenario with LNG exports shows improvement in GDP over the No Export cases, with GDP improvements being well correlated with increases in LNG exports."

For its longer-term forecasts of impacts on jobs creation, the NERA study uses the same assumption as the most recent Congressional Budget Office budget and economic outlook: that the economy will return to effective full employment by 2018. The investment required by 2018 to build export facilities and increase natural gas production will speed the predicted return to full employment and is forecast to put up to 45,000 currently unemployed workers back to work during this period, NERA said.

The spotlight on LNG exports has become more focused amid the political crisis in Ukraine. Over the last week the ambassadors of four central European countries to the United States urged Congress to expedite LNG exports to its allies on the continent, in hopes of reducing their dependence on Russia for natural gas (see Daily GPI, March 10).

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