The People of America's Oil and Natural Gas Indusry

Better Data for Better Decisions on LNG

Erik Milito

Erik Milito
Posted March 15, 2013

Opponents of a free market for natural gas have been trumpetinga new study which purports to show that LNG exports would be an economic negative for the United States. This flies in the face of analysis done by the Department of EnergyThe Brookings InstituteICF International and others which showed that to boost economic activity open markets are the way to go. So we took a look at the study to figure out why their conclusions are not consistent with other industry or government projections. We found some serious biases and inconsistent assumptions added up to a fatally flawed report. Here are a few specifics.

The employment impact analysis is flawed because it assumes no incremental natural gas production.

For some reason the report assumed no natural gas supply response and therefore there was no economic analysis of employment impacts of LNG exports. In reality:

a. The majority of the natural gas volume for LNG exports will be the result of increased domestic natural gas production not decreases in domestic consumption.

b. Reduction in natural gas consumption by the manufacturing sector will most likely be a very small fraction of the volume of LNG exports as established by the EIA, NERA and ICF studies.

c. The study acknowledges that: “Production will need to rise at the same levels as demand for the United States to maintain balance in this scenario.” It is inconsistent to not incorporate natural gas production increases into their employment analysis.

The job impact analysis ignores major employment implications of LNG exports such as:

a. Direct incremental employment in natural gas exploration and development

b. Purchases of manufacturing and other goods and services in the natural gas exploration and development supply chain.

c. Increased petrochemical output due to increases in supply of ethane and propane.

d. General increases of production for the entire economy due to higher incomes (LNG exports increases GDP)

Projected LNG export levels are unrealistic.

The reports “Likely” LNG export growth is about five times higher relative to EIA’s AEO 2013 Early Release Reference Case. The report projects that by 2035, 20 and 30 bcfd of LNG exports from the U.S. are achievable. No other studies published on this subject have ever come close to these volumes of LNG exports even as high scenarios. It is apparent that these unrealistically high LNG export volumes are the only way that the authors could achieve the high natural gas price response to drive the economic impacts they so desire.

Projected U.S. Natural Gas Consumption and LNG Exports Growth 2012-2030

Much as was the case in its employment analysis, the report’s natural gas price projection is seriously biased upward because it assumes no demand response.

Given assumed unrealistically high levels of LNG exports; assumed relatively low natural gas resource assessments; and assumed zero flexibility in natural gas demand, it is not surprising that the analysis projected high price impacts from LNG exports.. While not isolating the impact of LNG exports, the report projects that by 2030 natural gas prices more than double from current prices under the “likely” scenario and almost triples under the high scenario. However, a Brookings 2012 report summarized virtually all available government and industry studies found a natural gas price increase in the range of 2 to 11% for 6 Bcf/day of LNG exports.

The analysis lacks any consideration of other international suppliers of LNG who will be competing with the U.S. for these LNG importing markets.

That’s right, even though currently there is approximately 38.3 Bcf/day of planned or proposed LNG export capacity in Australia, Brazil, Canada, Equatorial Guinea, Indonesia, Malaysia, Mozambique, Nigeria and other countries; and even though many of these potential suppliers are closer to the growing Asian markets, the report does not take them in account. Further evidence suggesting that the assumed LNG export volumes in the report are totally unrealistic and will never be achieved.


The vast supplies of natural gas resources that are now available as a result of the shale gas revolution have fundamentally changed the energy equation, positioning the United States as an energy superpower that can provide ample, affordable supplies to the domestic market and provide for exports. Industry, government, and outside experts have studied this issue exhaustively and found across all, realistic scenarios, the United States stands to gain net economic benefits from allowing LNG exports.

And even the unrealistic scenario outlined by export opponents shows that LNG exports will not harm the competitiveness of U.S. petrochemical industry. In 2009, testifying before the Senate Energy and Natural Resources Committee, Dow Chemical Company Director of Energy Risk Management Edward Stone stated: “U.S. petrochemical competitiveness depends on a multitude of factors, such as the relative cost of energy…we believe that if… natural gas were available at a consistent $6-$8 dollar per MMBtu range, U.S. petrochemical facilities could be globally competitive.” If we convert 2009 dollars to the 2012 dollars used in the report we see price projections only nearing $8 per MMBtu in 2029.

So according to Dow Chemical, Dow should still be “globally competitive” even under the report’s improbable assumptions. More here on that point.


Erik Milito is the Director of Upstream and Industry Operations for API. Erik’s work covers regulatory and legislative matters related to domestic exploration and production, including access to domestic oil and natural gas resources both onshore and offshore. Prior to his current position, Erik served as managing counsel at API, covering a host of issues, including oil and gas leasing, royalty, environmental, fuels, transportation, safety, and civil justice reform.