DOE report: US economy would benefit from exporting LNG

The US is projected to gain net economic benefits from allowing liquefied natural gas (LNG) exports, according to a report published on 5 December 2012 by the US Department of Energy (DOE). Moreover, for every market scenario examined, the report states that net economic benefits increased as the level of LNG exports increased, and, in particular, scenarios with unlimited exports always had higher net economic benefits than corresponding cases with limited exports.

At the request of the DOE’s Office of Fossil Energy, NERA Economic Consulting assessed the potential macroeconomic impact of LNG exports using its energy-economy model. The report contains an analysis of the impact of LNG exports on the US economy under a wide range of assumptions about levels of exports, global market conditions and the cost of producing natural gas in the US.

The report found that benefits that come from export expansion more than outweigh the losses from reduced capital and wage income to US consumers, and hence LNG exports have net economic benefits in spite of higher domestic natural gas prices.

According to the report, net benefits to the US would be highest if the US becomes able to produce large quantities of gas from shales 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 US rise substantially, or if there are ample supplies of LNG from other regions to satisfy world demand, the US would not export LNG. Under these conditions, allowing exports of LNG would cause no change in natural gas prices and do no harm to the overall economy.

Further, the report forecasts that US natural gas prices will increase when the US exports LNG. However, the global market limits how high US natural gas prices can rise under pressure of LNG exports because importers will not purchase US exports if US wellhead price rises above the cost of competing supplies. In particular, the US natural gas price does not become linked to oil prices in any of the cases examined.

Click here to read the full report.