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With 25 LNG Export Projects in Queue, DOE Looking for More Input on Impact to Markets, Economy

How much natural gas can and should be exported from the United States is the focus of a new study by the Department of Energy (DOE), which examines a range of scenarios to determine what different export levels may have on natural gas markets and the U.S. economy.

The DOE’s Office of Fossil Energy (FE) is taking comments through July 27 on its fifth liquefied natural gas (LNG) economic study, “Macroeconomic Outcomes of Market Determined Levels of U.S. LNG Exports.”

The 144-page analysis, completed by NERA Economic Consulting for DOE, is to be used to inform decisions on applications seeking authorization to export LNG to worldwide destinations, i.e. to countries with which the United States does not have a free trade agreement (FTA).

DOE currently lists 25 pending non-FTA export projects in the works.

The 25 identified LNG export projects have cumulative volumes equivalent to 21.35 Bcf/d, according to DOE. Because of the volume of LNG requested to export in the pending applications, “DOE/FE determined that a new macroeconomic study was warranted…

“Like the four prior studies, the 2018 LNG export study examines the impacts of varying levels of LNG exports on domestic energy markets. The 2018 LNG Export Study also assesses the likelihood of different levels of ‘unconstrained’ LNG exports (defined as market determined levels of exports), and analyzes the outcomes of different LNG export levels on the U.S. natural gas markets and the U.S. economy as a whole, over the 2020 to 2050 time period.”

The latest study differs from DOE’s four previous macroeconomic studies in that it:

  • Includes a larger number of scenarios (54) to capture a wider range of uncertainty in four natural gas market conditions than examined in the previous studies;
  • Includes LNG exports in all 54 scenarios that are market-determined levels, including the three alternative baseline scenarios that are based on the Energy Information Administration (EIA) Annual Energy Outlook (AEO) 2017 projections;
  • Examines unconstrained LNG export volumes beyond the levels examined in the previous studies;
  • Examines the likelihood of those market-determined LNG export volumes; and
  • Provides macroeconomic projections associated with several of the scenarios lying within the more likely range.

NERA used its Global Natural Gas Model to estimate market-determined levels of U.S. LNG exports under different domestic and international natural gas market conditions. Using its NewERA macroeconomic model of the U.S. economy, NERA also provided macroeconomic projections from 2020-2040 based on those different market conditions and levels of LNG exports.

“Possible future export levels in the scenarios evaluated include very unlikely extremes,” said researchers, “from zero in cases in which the U.S. ‘shale revolution’ ends abruptly, and global demand is limited to levels that exceed the total export capacity for which LNG export authorization applications have currently been filed at DOE/FE.”

In the entire range of scenarios studied, researchers found that overall, “U.S. economic output is higher whenever global markets call for higher levels of LNG exports, assuming that exports are allowed to be determined by market demand.”

Using the 54 different scenarios constructed for the study, NERA determined that the most likely range of LNG exports in 2040 would be 8.7-30.7 Bcf/d, which translates into 3.2-11.2 Tcf/year.

Four major sources of “uncertainty” could affect U.S. LNG exports, according to researchers: domestic gas supply and gas demand conditions, and global gas supply and demand conditions. All scenarios impose no constraints on LNG export volumes.

Three different cases for U.S. gas supply were based on the Energy Information Administration (EIA) Annual Energy Outlook (AEO) for 2017. The AEO also was used as a basis for the central U.S. demand case.

For the high U.S. demand case, gross domestic product (GDP) growth was assumed to achieve a compound annual rate of 3.7% between 2020 and 2040, and for the low demand case, an aggressive national renewables mandate in line with California’s stringent renewable portfolio standard target was assumed.

On the international side, the study defined three gas demand cases, including EIA’s International Energy Outlook for 2017 and two based on the International Energy Agency’s World Energy Outlook.

“In EIA’s projections, the principal determinant of natural gas prices in the United States is the U.S. natural gas resource and by extension, the technology that enables it to be developed,” NERA noted.

The low supply scenarios “only support significant exports when international gas needs are high. Therefore, the combined probability of prices in the resulting range of $10 to $13/MMBtu in 2040 is only 3%.”

Under the reference case supply assumptions, “prices are much lower and in a more narrow range when international LNG demand varies...These central cases have a combined probability of 47% and prices range from $5 to about $6.50/MMBtu in 2040,” NERA researchers said.

“The very low prices are achieved when U.S. supply is high, and these cases have a combined probability of 22%. Depending on the level of LNG exports, these prices range from $3 to $4/MMBtu in 2040.”

Under the Natural Gas Act, applications seeking to export gas to non-FTA countries have to be in the public’s interest. DOE reviews, among other things, economic impacts, international impacts, security of natural gas supply and environmental impacts. Before granting a non-FTA export application, DOE also considers the cumulative impacts of the total volume of all final non-FTA export authorizations.

To date, DOE has issued 29 final long-term authorizations to export LNG and compressed natural gas to non-FTA countries with cumulative volumes totaling 21.35 Bcf/d, or around 7.79 Tcf/year.

The department has commissioned four previous studies to examine the effects of LNG exports on the domestic economy and energy markets.

The first study, “Effect of Increased Natural Gas Exports on Domestic Energy Markets,” was done by EIA and published in January 2012. “Macroeconomic Impacts of LNG Exports from the United States” by NERA was published in December 2012. The third study, “Effect of Increased Levels of Liquefied Natural Gas Exports on U.S. Energy Markets,” was completed by EIA and published in October 2014. And the fourth study, “The Macroeconomic Impact of Increasing U.S. LNG Exports,” published in October 2015, was done jointly by the Center for Energy Studies at Rice University's Baker Institute and Oxford Economics.

Comments on the latest study by NERA may be submitted using the online form. Comments also may be delivered via mail (one original and three copies) to the U.S. Department of Energy (FE-34), Office of Regulation and International Engagement, Office of Fossil Energy, P.O. Box 44375, Washington, DC 20026-4375.

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