The Department of Energy released a study Wednesday that found exporting natural gas would have a net benefit the U.S. economy, causing losses in labor and investment income but creating larger increases in income for natural gas producers, shareholders, and property owners.
The study may clear the way for the DOE to grant licenses to 15 proposed LNG export terminals, including two projects in Oregon: Jordan Cove LNG in Coos Bay and LNG Development Company, near Astoria.
Investors would like to take inexpensive U.S. natural gas, liquefy it, and ship it to markets in Asia and Europe where prices are higher. The Department of Energy has held off approving proposed exports to countries that haven’t entered free-trade agreements with the U.S. The DOE has said it needed to conduct an economic review first. Along with the study, the DOE announced a timeline for public comment and said it will begin reviewing the 15 export applications in its queue next year.
Here are six things you should know about the economics of exporting liquefied natural gas, based on the new study:
The DOE is accepting public comments until 4:30 EST, January 24, 2013. Electronic Filing by email: LNGStudy@hq.doe.gov Regular Mail U.S. Department of Energy (FE-34) Office of Natural Gas Regulatory Activities Office of Fossil Energy P.O. Box 44375
Exports would raise energy and electricity costs and depress real wages and the return on capitol in most industries. But those losses would be more than offset by export revenues to gas producers, gains for gas company shareholders, and increases in natural gas income or rents for some households and land owners. Here’s how the report puts it:
Like other trade measures, LNG exports will cause shifts in industrial output and employment and in sources of income. Overall, both total labor compensation and income from investment are projected to decline and income to owners of natural gas resources will increase. Different socio-economic groups depend on different sources of income, though through retirement savings an increasingly large number of workers share in the benefits of higher income to natural resource companies whose shares they own. Nevertheless, impacts will not be positive for all groups in the economy. Households with income solely from wages or government transfers, in particular, might not participate in these benefits.
In part, the report explains, because while unlimited exports would have a greater impact on domestic prices, price increases would also make exports more valuable, creating a net gain for the economy.
The largest natural gas price increases predicted after 5 years of exports would range from 22 cents to $1.11 per thousand cubic feet. Put another way, LNG export isn’t expected to raise the baseline price of natural gas higher than the price it reached in 2005.
Interestingly, the report used an old analysis that was performed for a proposed cap and trade bill to identify the sectors that would be hardest hit by LNG exports. The study identifies a slice of industries that use a lot of energy and are also vulnerable to competition from overseas. They include cement, aluminum, glass, and fertilizer manufacturing, and newsprint and pulp board mills.
An analysis in the report suggested that liquifying and exporting natural gas from the U.S. is unlikely to be profitable under current market conditions.
That analysis is based on reference cases that might not accurately capture some aspects of the U.S. and global gas markets. The analysis found that major changes in supply or demand — like a decision in Japan to decommission nuclear power plants — could make exports from the U.S. profitable.
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