Sen. Lisa MurkowskiLisa MurkowskiThe most important question in 2017: how do we get to yes? Writing in Mike Pence won’t do any good in these states GOP senators avoid Trump questions on rigged election MORE (R-Alaska), chairwoman of the Senate Energy and Natural Resources Committee, has included liquefied natural gas (LNG) export legislation in a broader energy package that the Senate is expected to consider shortly. This is welcome news. It is time to put the export of LNG, which is natural gas cooled to its liquid form and loaded onto tankers for regasification at its destination, on a similar regulatory footing as oil.
But don't just take my word for it.
The U.S. Department of Energy recently released a report, "The Macroeconomic Impact of Increasing LNG Exports," that was conducted by Oxford Economics and Rice University. According to the report, "the overall macroeconomic impacts of LNG imports are marginally positive, a result that is robust to alternative assumptions for the U.S. natural gas market." It then projected additional growth of 0.3 to 0.7 to the national gross domestic project (GDP) under a high-export scenario.
This is good news, for sure. But even better is the information buried in the report that discusses the positive environmental impacts and national economic and security benefits that would occur under a high-export scenario. On these points, I would argue that the Department of Energy underestimates the value of robust LNG exports.
First, the authors calculate that under the various scenarios, on average, prices will rise by approximately 4.5 percent, or 25 cents, for natural gas in the United States and drop an average of 7.5 percent, or $1.30, for LNG in Asia. Since Europe is dependent on Russian gas, North Sea production and LNG imports, there is no predicted change in its prices. But these calculations do not factor in Asia's dependency on Russian gas and the potential disruption to gas supplies.
Further, the report, which was written before the U.N. climate meetings in Paris, presciently notes that a primary driver in support of U.S. LNG imports to Asia, in particular China, India and South Korea, is a forced shift from coal to natural gas or LNG to help the region achieve its climate goals. But the report does not calculate for the economic benefits of cushioning this transition.
Regarding global economic stability and security, the high-export scenario outlined in the report is most likely to occur if there is a major disruption in the gas supply to Asia; for example, if Russia does not follow through on its commitments to supply China, India and others through natural gas pipelines now in the planning stage or, even worse, if Russia decides to shut off supply in a geopolitical power play. As has been reinforced in recent days and to anyone with a 401(k) account, economic disruptions in China pose serious problems for the U.S. and the global economy. The alternative to economic turmoil and the key to moderating Sino-Russian tensions will be U.S. LNG.
Reflected in the report is concern that individual industries will be impacted. For the most part, the impacts are relatively small. However, it should be noted that industry also stands to benefit — most notably, the chemical industry, which suffered considerably in the early years of the century when the cost of natural gas doubled. In a footnote, the report states that not included in its modeling is the positive benefit of the coproduction natural gas liquids (NGL), a critical feedstock for the industry, and the potential for a cost savings even greater than the one that has occurred during the recent gas production surge.
Finally, it should be noted that any high-export LNG case will require extraordinary events and is not easily identified. To put this scenario in perspective, Qatar, the world's largest LNG exporter, only exports 4 bcf (billion cubic feet) per day and has a world market share of roughly 30 percent.
Still, even with a scenario that is seemingly unlikely to be reached, all indications from the Department of Energy's report support lawmakers' inclusion of the LNG streamlining provisions in the Senate energy bill, and an acknowledgment that as in the case of oil, the scarcities of the 1970s have been replaced by today's overabundance of natural gas.
Maddox has held several senior positions at the Department of Energy and is a consultant to the Livingston Group.