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Market-Driven LNG Exports Said an All-Around Plus

Exporting liquefied domestic natural gas to world markets would have its downsides, but they would be outweighed by economic and other benefits, according to an analysis by a senior fellow at the Council on Foreign Relations. The United States should approve export applications but let gas markets decide whether they actually exports actually occur, according to the analysis.

"The United States should approve applications to export LNG [liquefied natural gas] from the United States, several of which are currently pending, and more of which can be expected in the future," the Council on Foreign Relations' Michael Levi, senior fellow for energy and the environment and director of the council's program on energy security and climate change, wrote in a paper released last Wednesday by The Hamilton Project at the Brookings Institution. "This does not mean that the U.S. government should encourage exports per se; it should simply allow them to occur if properly regulated markets steer the economy in that direction."

Such a laissez fare attitude toward LNG exports is similar to one outlined by Brookings researchers earlier this year (see NGI, May 7). The researcher gave a preview of his paper to reporters during a recent conference call (see NGI, June 11).

Levi wrote that the direct economic gains from exporting LNG are significant but are smaller than many assume, particularly in the area of job creation as jobs eventually created in the gas industry could be offset by job losses elsewhere.

"Profits from greater gas production and export activities could reach several billion dollars each year, while losses to other gas-dependent industries would likely be at least an order of magnitude smaller," according to the paper. "Indeed, the resurgent petrochemicals industry, which many have assumed would suffer from gas exports, would be more likely to benefit instead from modest export volumes."

This finding of Levi's is contrary to the conventional wisdom among some petrochemical and other natural gas end-user interests that exports would drive up prices and smother a petrochemical and manufacturing renaissance that the country currently enjoys (see NGI, April 2).

Opposition to exports also comes from environmental interests, whose members claim that exports would drive up domestic gas production and in turn the use of hydraulic fracturing well stimulation and consequent air and water pollution. The Sierra Club has been carrying the torch for this argument (see NGI, May 21). Realizing the benefits of exporting LNG would require "appropriate environmental regulation of shale gas production," according to Levi.

However, he points out that natural gas when burned has the same consequences for the climate no matter where it's burned, the United States, Europe or Asia. "Exported natural gas is also likely to displace coal," he wrote. "Indeed, since allowing natural gas exports appears to primarily increase the volume of gas produced, rather than displace gas previously destined for domestic consumption, allowing natural gas exports could ultimately reduce global emissions."

Exports of U.S. gas in the form of LNG, if they do come to pass, could help to reshape the global gas market and shift power among current energy suppliers, Levi wrote. "Many analysts in both the United States and Asia have speculated that U.S. entry into the Asian LNG market as a major supplier (along with others) could help create the conditions for a move toward market pricing of natural gas, or at least to a lessening of individual producers' market power and, hence, political influence.

"...At a minimum, by diversifying the pricing of their imports it would partially insulate LNG importers from oil market fluctuations."

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