A new report released by the US Department of Energy last week on behalf of the Northeastern Educational Research Association (NERA) discusses the macroeconomic impacts of Liquid Natural Gas (LNG) exports from the United States. If there was one thing to be gathered from NERA’s findings, it’s that the potential of LNG exportation is very strong and the industry is on the verge of sizable expansion if the government approves.
Directly quoting the report, “Across all [export] scenarios, the US was projected to gain new economic benefits from allowing LNG exports. Moreover, for every one of the market scenarios examined, net economic benefits increased as the level of LNG exports increased. In particular, scenarios with unlimited exports always had higher net economic benefits than corresponding cases with limited exports.”
As expected, the news came as a breath of fresh air to the natural gas industry. Facing the potential of another winter season with progressively above-average temperatures and below-average LNG demand domestically, this report alters the mentality of the industry on a fundamental level. If they can receive the praise of the Obama administration to export globally, there would be a great onset of development within the natural gas industry.
Here’s the simplest way to break down how LNG exportation can instantly benefit the US. At this time, natural gas is priced anywhere from $3.50-$4 per million BTU. Early estimates have shown the price should remain below $4 per million BTU for 2013 as well. But in comparison, the price for LNG in Europe for 2012 is over $11, and Japan’s price has soared over $17. Unlike the oil industry, where prices are strictly regulated globally, the US would be able to charge as much as two to three times the amount in Europe and Japan than they would need to charge in the US. The substantial increase in price results in major profitability while also establishing reliance from these countries for future LNG demand. The projected outcome is a distinct competitive advantage for the United States, with the potential of netting up to an unprecedented $47 billion for the US Treasury and the natural gas sector by 2020, based on NERA estimates.
As of now, there are at least 10-15 different extrusion opportunities pending approval from President Obama. Yet there’s only one well, through Cheniere Energy in Louisiana, that actually works exclusively with natural gas for exportation.
However, it is widely believed that not all sides of the equation stand to benefit from flourishing LNG exports. Although the US Department of Energy, the natural gas industry and scores of energy analysts recognize the new report as a stepping stone toward massive economic prosperity, as the old adage goes, “If it looks too good to be true, it probably is.” The Energy Information Administration (EIA) believes the domestic natural gas price is expected to climb 3%-9% after 2013. Electricity prices could rise by 1%-3% for individual Americans and their businesses as well.
Although they do not address the residential effects of exporting LNG, NERA minimizes the potential ramifications of rising natural gas prices on the domestic economy. They stated that the industries using the most natural gas (most notably, the petrochemical industry) only represent .5% of the entire manufacturing sector. In addition, they state, “No sector analyzed in this study would experience reductions in employment more rapid than normal takeover.” They do admit, however, that “shifts in the number of workers across industries” could occur, referencing the thousands of new drilling jobs that would be created from granting permission to export.
When all is said and done, President Obama and government officials will have the final say on whether or not to permit this initiative. To this point, the initial response to the report by both has been relatively silent.
In the past however, Obama said that the results of the NERA study would play a large role in the decision of exporting natural gas in the future – after all, the report was released by the US Department of Energy. So, now that the report has finally been released, will the government agree to play ball? Or will the price increases for everyday US citizens cause Obama to balk once again? That’s the $47 billion question, and initial reports state that a decision will not be made until after the New Year.
Energy Curtailment Specialists, Inc.