By Rich Heidorn Jr.

Environmentalists and industrial gas consumers last week challenged a Department of Energy-funded study that concludes U.S. economic growth would be boosted by unlimited LNG exports — even if they double current natural gas prices.

More than a dozen comments were filed by the July 27 deadline in response to the June 7 study, performed by NERA Economic Consulting for the department’s Office of Fossil Energy. DOE said it plans to consider the study in responding to 25 pending applications for LNG exports to countries lacking free-trade agreements with the U.S.

Although there is a consensus that exporting too much domestic natural gas could expose U.S. consumers, industrial users and electric generators to much higher world prices, there is no agreement on what that tipping point is, or how soon the U.S. could get there. (See No Agreement on Tipping Point for LNG Exports.)

The NERA study — the fifth DOE has commissioned since 2012 examining the economics of LNG exports — suggests that policymakers should not worry about any price increases, finding “consistently positive relationships between LNG exports and measures of economic performance” such as gross domestic product and U.S. living standards.

The Natural Gas Act requires DOE to determine whether natural gas exports to countries without FTAs with the U.S. are in the “public interest.” Exports to countries with FTAs do not require such reviews.

The Industrial Energy Consumers of America (IECA) said the DOE study “confirms that excessive volumes of LNG exports to non-free-trade agreement countries is not in the public interest under the Natural Gas Act.”

The group, which represents 3,700 U.S. manufacturing facilities, said it is not opposed to LNG exports. “We are against excessive LNG exports which would result in U.S. prices being dictated by global demand like crude oil is today.”

IECA said the Supreme Court has defined “public interest” under the NGA as requiring “plentiful supplies … at reasonable prices.”

“The study’s most likely scenario assumes that LNG exports up to 30.7 Bcfd could increase prices 117% above today’s Henry Hub prices by 2040 and 44% above the [Energy Information Administration’s Annual Energy Outlook] 2018 price (which assumes only 14.5 Bcfd of LNG exports),” IECA said. “Such price hikes plainly threaten the plentiful supply of natural gas at reasonable prices for domestic consumers.”

Other Comments

The American Petroleum Institute said it agrees with the study’s conclusion of a “consistently positive relationship” between LNG exports and U.S. economic performance. “The study thereby confirms what multiple past studies have concluded, which is that U.S. LNG exports are a clear net benefit to the economy and are therefore in the public interest,” wrote Todd Snitchler, API’s director of market development.

The US LNG Association said the study should allow DOE “to grant approvals to all U.S. LNG export applications to non-FTA countries without the need for any further macroeconomic studies” for at least four years.

Environmental groups criticized the study for ignoring the costs of climate change and the growth of renewable energy.

“The study should be adjusted to give much greater emphasis to low demand scenarios that align with the Paris Climate Agreement,” said a coalition of more than 60 groups in the U.S., Canada and Europe, including Food & Water Watch, 350.org and the Center for Biological Diversity. “Even if minimal progress in international climate policy making was a robust assumption, the study fails to assess the real-world trends occurring with renewable energy and the threat they pose to gas demand. The study does not attempt to either account for substantial progress in renewable energy installations and cost reductions made in recent years or assess projections of substantial progress to come.” (See How Long a Bridge for Natural Gas?)

54 Scenarios

The DOE examined 54 scenarios based on four major sources of uncertainty affecting U.S. LNG exports: natural gas supply conditions in the U.S.; natural gas demand in the U.S.; and gas supply and demand in the rest of the world. None of the scenarios limited LNG export volumes.

It found a 68% probability that LNG exports will be between 9 and 30.7 Bcfd in 2040. DOE has approved 21.4 Bcfd of LNG exports to non-FTA countries. The DOE study said there is a 12% probability that exports will reach that level by 2030 and a 63% chance of hitting that level by 2040.

About 80% of the increase in LNG exports would be satisfied by increased U.S. natural gas production, “with positive effects on labor income, output and profits in the natural gas production sector,” the study said.

“The higher world prices that bring forth those supplies improve U.S. terms of trade, so that there is a wealth transfer to the U.S. from the rest of the world equal to the increase in prices received for LNG exports times the quantity exported. The transfers from natural gas related activity to the U.S. economy improve the average consumer’s ability to demand more goods and services leading to higher economic activity,” NERA said.

“These two factors more than make up for the dampening economic effects that are observed in these scenarios, including slightly slower output growth of some natural gas-intensive industries, costs of substituting other fuels for a small fraction of natural gas use in power generation, and infinitesimal reductions in natural gas use by households and other industries.

“Even the most extreme scenarios of high LNG exports that are outside the more likely probability range, which exhibit a combined probability of less than 3%, show higher overall economic performance in terms of GDP, household income and consumer welfare than lower export levels associated with the same domestic supply scenarios,” the study said. “It is also important to note that our analysis also shows that the chemicals subsectors that rely heavily on natural gas for energy and as a feedstock continue to exhibit robust growth even at higher LNG export levels and is only insignificantly slower than cases with lower LNG export levels.”

But IECA President Paul Cicio said the study “lacks credibility due to … the inability of the economic models to determine whether the oil and gas industry is consuming U.S. or imported goods to produce, transport and build LNG terminals, thereby overinflating economic growth and job projections due to LNG exports.”

IECA said the study’s conclusions conflict with that of a 2012 NERA study that acknowledged the difficulty of forecasting natural gas prices and that the new study uses proprietary NERA models that cannot be replicated by third parties.

Trump Administration Promoting Exports

The Trump administration has praised LNG exports as evidence of the nation’s “energy dominance.”

Last Thursday, Energy Secretary Rick Perry appeared at a ribbon cutting for Dominion Energy’s Cove Point LNG export facility in Maryland, the second in the U.S. Perry noted that the U.S. is exporting natural gas to 30 nations and last year became a net gas exporter for the first time in 60 years.

Also last week, DOE finalized rules to eliminate public interest reviews for “small-scale” LNG exports to non-FTA countries. The rules, effective Aug. 24, apply to applications to export no more than 51.75 Bcf/year.