On LNG Exports, Let’s Stick to the Facts
Posted January 28, 2013
The campaign against the free trade of U.S. liquefied natural gas (LNG) generally goes down a few of tracks:
- Consumers will be hurt as “excessive” LNG exports stretch demand, making natural gas more expensive here at home.
- Blocking or restricting LNG exports will best fuel U.S. economic growth.
- The federal government needs to prevent “unrestricted” or “unlimited” LNG exports.
Fortunately, this doesn’t have to be one opinion against another. The U.S. Energy Department has a recent, comprehensive study on these issues in hand, in addition to reports and studies by other reputable organizations. The conclusions, based on scholarly research, should guide the federal decision on licensing the construction of LNG export facilities – more than a dozen of which are awaiting approval.
Let’s start with the consumer angle. Here’s a recent tweet from an organization opposed to the free trade of LNG: “It’s going to make some people very rich but it’s going to hurt a lot of other people.” The quote comes from another group that’s campaigning to end the use of natural gas use altogether. Another tweet: “Excessive exports would raise #natgas prices & hurt all consumers who rely on affordable natural gas in their homes.” Research says otherwise.
First, as we’ve discussed before, estimates of the United States’ natural gas resource base dwarf projections for total cumulative consumption and cumulative exports (2015-2035). It isn’t the picture of a looming U.S. natural gas shortage.
Meanwhile, a report by the Brookings Institute’s Energy Security Initiative said future demand from LNG exports would be anticipated by U.S. producers, who would increase production accordingly, “limiting price spikes.” The Baker Institute for Public Policy said, flatly: “The impact on U.S. domestic prices will not be large if exports are allowed.”
To the contrary, the Energy Department study conducted by NERA Economic Consulting found there are “consistent net economic benefits across all the scenarios examined” and the benefits “generally become larger as the amount of exports increases.” NERA zeros in on consumers:
All export scenarios are welfare-improving for U.S. consumers. The welfare improvement is the largest under the high export scenarios even though the price impacts are also the largest. Under these export scenarios, the U.S. consumers receive additional income from two sources. First, the LNG exports provide additional export revenues, and second, consumers who are owners of the liquefaction plants, receive take-or-pay tolling charges for the amount of LNG exports.
These additional sources of income for U.S. consumers outweigh the loss associated with higher energy prices. Consequently, consumers, in aggregate, are better off as a result of opening up LNG exports.
Let’s move to the larger economic argument – that the best way for natural gas to boost the U.S. economy is to lock it up here, to build a wall around the United States. NERA:
In all of the scenarios analyzed in this study, NERA found that the U.S. would experience net economic benefits from increased LNG exports…Across the scenarios, U.S. economic welfare consistently increases as the volume of natural gas exports increased. This includes scenarios in which there are unlimited exports. The reason for this is that even though domestic natural gas prices are pulled up by LNG exports, the value of those exports also rises so that there is a net gain for the U.S. economy measured by a broad metric of economic welfare or by more common measures such as real household income or real GDP...The net result is an increase in U.S. households’ real income and welfare.
Finally, the notion that action is needed to prevent “unlimited” or “unrestricted” LNG exports ignores economics. No law is necessary, because we’ve already got one: the law of supply and demand. The chart below shows that the level of planned and proposed facilities for natural gas liquefaction – the process to make natural gas exportable – far exceeds projected U.S. and global demand.
What this means is that not all proposed LNG export facilities will be built because global demand won’t support all of them. So, the idea of dangerous impacts from “unlimited” U.S. LNG exports is a distraction.
The real question is whether a number of proposed U.S. export projects – capable of generating thousands of well-paying jobs and stimulating our economy, directly and indirectly – could be abandoned because competing facilities elsewhere in the world were built first due to Washington dithering over licensing.
America has vast natural gas resources – large enough to handle domestic demand and to supply export markets. As a tradable commodity like wheat, computer components and other items, LNG should be allowed to find legitimate markets around the world, stimulating domestic production and economic growth while returning wealth to the U.S.
About The Author
Mark Green joined API after a career in newspaper journalism, including 16 years as national editorial writer for The Oklahoman in the paper’s Washington bureau. Previously, Mark was a reporter, copy editor and sports editor at an assortment of newspapers. He earned his journalism degree from the University of Oklahoma and master’s in journalism and public affairs from American University. He and his wife Pamela have two grown children and six grandchildren.
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