The People of America's Oil and Natural Gas Indusry

Energy, Exports and Economic Progress

Mark Green

Mark Green
Posted October 1, 2014

Earlier this month’s Nick Cunningham wrote this piece explaining that the debate over exporting U.S. liquefied natural gas (LNG) has been won – citing the openness of the Obama administration and leading Democrats to exports. Cunningham writes:

In fact the Obama administration and Congressional Democrats have received little blowback for the LNG projects that have received approval. And with tacit or overt support from Democrats, the LNG issue has largely been won by export supporters.

Still, some export opponents try to gain traction despite the findings of a number of studies (NERA, ICF, Brookings) that project broad economic benefits to the United States from LNG exports, with minimal effect on domestic prices. Earlier this year NERA updated its 2012 study:

LNG exports provide net economic benefits in all the scenarios investigated, and the greater the level of exports, the greater the benefits. The market for LNG exports is self-limiting, in that little or no natural gas will be exported if the price of natural gas in the US increases much above current expectations. High levels of exports can be expected only if natural gas is plentiful and inexpensive enough to produce so that prices remain below current levels, even with high levels of exports. (Emphasis added)

The issue of domestic prices is important because export opponents have been using an apples-to-oranges argument trying to scare up unfounded concern about the domestic effects of exports, citing conditions in Australia’s natural gas market.

A separate ICF study provides rebuttal. The study found that market constraints in eastern Australia simply don’t apply in the United States, where our infrastructure and resources are far more widespread – ready to ramp up production and turn exports into an engine of job creation, with minimal impact on domestic prices. The report:

… the large movements seen in eastern Australian long-term contract prices are not expected to occur in this country. Instead, it is expected that U.S. gas supplies will grow along with new demands from U.S. liquefaction plants and that the U.S. gas market is expected to experience only modest price increases and losses of non-LNG loads.

Key details include:

  • The domestic market in eastern Australia is small compared to the size of any one LNG project and to all projects in aggregate. In contrast, the U.S. LNG projects individually and in total are a much smaller part of the U.S. natural gas market.
  • Regional markets in Australia are not adequately interconnected to each other by pipeline and so demand increases can have big price effects. In the United States, the markets are strongly interconnected through the extensive gas pipeline network and the impacts of demand increases can be spread out over a much larger market area.
  • In addition, the U.S. trades natural gas through pipelines with Canada and Mexico making the effective market size even larger.
  • Supply sources in eastern Australia for the LNG projects are new coalbed methane (CBM) development projects, which have not all performed as well as expected. More wells and higher capital costs will be needed to achieve target production rates at CBM sites. The United States has a much more diverse set of supply options and recent well productivity tends to be at or above expectations.
  • Australia has a relatively small population base with low levels of unemployment, especially in construction and high skilled sectors. This has led to cost increases in LNG export projects (both upstream and downstream segments and in both western and eastern Australia) and has slowed development of new gas supplies. The United States has a much larger labor market and greater ability to meet incremental demands for labor, equipment, and materials with manageable cost increases.

Mr. Cunningham’s analysis notwithstanding, U.S. policymakers need to keep their eye on the ball. The global LNG market is forming even as Washington slow-walks approvals for LNG export projects to non-free trade agreement countries. To harness the economic and other benefits of America’s natural gas wealth, the federal government should quickly approve pending LNG export projects to ensure that the U.S., the world’s No. 1 natural gas producer, is a major player in the emerging global market. Erik Milito, API’s director of upstream and industry operations, from earlier this year:

“We have this international competition and could potentially lose out. Time is of the essence on LNG approvals because these $10-, $15-, $20-billion investments could go to another place in the world where there are 60 other projects moving forward. … Our point here is let’s let the market figure it out. The more the government has a process where these decisions are delayed, the more the government is actually helping to drive investment outside the United States because we’re creating a disadvantage for the companies that aren’t getting through the process.”


Mark Green joined API after a career in newspaper journalism, including 16 years as national editorial writer for The Oklahoman in the paper’s Washington bureau. Mark also was a reporter, copy editor and sports editor. He earned his journalism degree from the University of Oklahoma and master’s in journalism and public affairs from American University. He and his wife Pamela live in Occoquan, Va., where they enjoy their four grandchildren.