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Economic pros of unconstrained US LNG exports outweigh downside, DOE study finds

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Economic pros of unconstrained US LNG exports outweigh downside, DOE study finds

The domestic economic benefits of letting U.S. LNG export volumes flow unconstrained by anything but global demand would in the long term outweigh negatives including higher gas prices, a U.S. Department of Energy study found.

The study, prepared by NERA Economic Consulting for the DOE's Office of Fossil Energy, examined potential future export levels under various domestic and international gas market conditions and calculated that U.S. LNG exports would range between 8.7 Bcf/d and 30.7 Bcf/d in 2040. Looking at the macroeconomic implications of those exports in 2020-2040, NERA concluded that under all scenarios, "overall U.S. economic output is higher whenever global markets call for higher levels of LNG exports, assuming that exports are allowed to be determined by market demand."

The study acknowledged that increasing natural gas exports will produce the unwanted side effects that consumer groups like the Industrial Energy Consumers of America have highlighted in their opposition to growing LNG exports, noting that exporting gas will raise domestic prices and grow costs for U.S. households and gas-intensive industries.

NERA, however, emphasized that increasing U.S. shale production's positive correlation to labor income and profits, combined with the higher prices global customers are paying for U.S. LNG, eclipse the downside. "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 by households and other industries," they said. "Overall, consumers will pay lower prices for imported goods because of the wealth transfers that increase the value of the dollar."

The study measured economic benefits in terms of both gross domestic product and consumer welfare.

The American Petroleum Institute welcomed those conclusions as evidence that U.S. LNG exports are a net positive for American consumers. "This report ... should finally put to rest any doubt that increased U.S. LNG exports will benefit American consumer with affordable energy and American workers with increased production and help make our air cleaner," Todd Snitchler, the group's market development director, said in a June 13 statement.

Industrial Energy Consumers of America President Paul Cicio said in an email that while his group is still reviewing the 2018 study, previous versions "showed that almost all of the economic benefit went to the natural gas production and exporting companies," as opposed to consumers.

The study is the fifth commissioned by DOE since 2012 on the domestic economic effects of U.S. LNG exports. Unlike past studies, the 2018 iteration did not posit a ceiling on exports. The previous version, published in 2015, only considered circumstances under which the U.S. would export 12 Bcf/d or 20 Bcf/d in 2040 and concluded that the overall macroeconomic impacts of higher LNG exports were "marginally positive."