Macroeconomic Impacts of LNG Exports from the United States – Review

Macroeconomic Impacts of LNG Exports from the United States – Review

Macroeconomic Impacts of LNG Exports from the United States report done by NERA for the EIA brings to mind my saying- It is better to know what questions to ask than to have all the answers.  There are many wise sayings that are very similar.  One missing from that list is “It is better to ask some of the questions than to know all of the answers.” James Thurber.

There are several issues I could comment on in the report, but many are already discussed by the several commentators .  A good acquaintance of mine, Carlton Buford, does a fine job highlighting his concerns with point 4 resonating with my response.  However, as I discussed above, the report should have asked a bigger question beyond energy markets impact.

I will agree with the overall conclusions of the report – exporting LNG will benefit the country to some extent.   However, this should never have been the goal or the premise of the report. NERA cannot be faulted in terms of answering the question. However, as a consultants, there is somewhat a responsibility to address the clients’ real concerns.

I directly addressed this issue with another consultant’s report done on renewables about green jobs, where I discussed with the author about not addressing net jobs.  The author told me they did not do it, because they were not asked to. In both of these reports, someone at the consulting companies should have brought up the real issue to each of these clients.  A true consultant will make sure their client is asking the right question before setting out and answering the question asked.  The real concern for LNG is whether exporting LNG is the BEST option for the country in terms of maximizing the economic potential for the US.  This question is not just an economic study to impact the energy markets, but it should be about getting the US back onto the path of economic prosperity.

Even if natural gas prices were to minimally changed, as the report indicated, the next question should be:” Will the US be better benefited from consuming its own resources knowing it is a net consumer of most products?”.  This question was not addressed in the report.   It is the crucial benchmark of deciding to export.   It does not take a massive model to understand the holistic value of using your own resource.  If you know you will have to consume products which are made from the natural resources that you have available; could you not economically increase the internal value of your system by using the resource to produce what you plan to consume?  Perhaps if the outside system can more effectively produce a good above and beyond the cost of shipping both the goods and resources to make it –the outside system could be a better option economically.

This then leads to the question:” why can they produce/manufactures goods we need with our resources more effectively? labor policies, subsidies, etc.. “. Is there a better way for us to produce and manufacture products in this country versus outsourcing?  In addition, simple economics typically do not cover the social economic issues at hand.  As I mentioned in my previous blog – Energy Independence Misguided Focus – the value of manufacturing a good goes beyond the simple economics of making the product.  Manufacturing offers a level of social economic stability while still giving people the opportunity to aspire if they so wish.  We need to make sure we take this into account.  Many countries do value being able to keep their people at work.   They know social unrest is likely when mass amounts of people sit around.  I will further address this issue in my next blog.

The report fails to address the root of the issue which the leaders of this country should be asking and thinking about – how best to maximize the US economic well-being using the resources available.   I will contend we should do what we can to offer incentives to use our resource locally first and foremost.   If our ineptness to do the right thing by restructuring our society to allow for manufacturing continues, I would then support the exportation of LNG through a strategic approach.  First, there is an obvious US outlet for LNG.   Right now Puerto Rico – one of the poorest regions in the US – has to purchase LNG at oil related prices.  This brings to mind the technical concerns of LNG vessel.  Will the LNG vessels be US flagged vessels – none so far?  If not given the Jones Act, the US territories could not even benefit from the liquefaction facilities.

The largest deficiency in the report, as many of the others have commentated, is not considering the chess move made by the largest exporter of LNG – Qatar.   This would be akin to forecasting oil markets with no consideration of Saudi Arabia – do we not remember the 70’s oil crisis or 1998 when Saudi Arabia showed the rest of OPEC what it meant to take market share?  The plain fact is the cost of natural gas in Qatar is likely below or near $0.50/mmbtu.   In the US, even with greater shale development, the cost will still be greater than $2/mmbtu.  Even if we subtract some value for liquids, development cost may approach $1/mmbtu, still twice as large as Qatar.  Who in their right mind can see grounds to compete with Qatar without some internal subsidy/incentive or it being a niche play?  Unless foreign money is financing the projects, I would be skeptical on the extent of LNG exports vs. the report’s conclusions in terms of the economic value to the US.

It is not an either/or issue in terms of export LNG versus using it domestically, but the report was done as if LNG exporting was the only issue.   Ultimately a portfolio option with more of the portfolio balance to what will add value is the best approach. If the goal is to maximize the US economy, domestic uses of resources should be the number one priority, LNG exports should be examined in the context of first supporting the US territories, and only after those issues are resolved we should examine the exportation of our resources.  I am optimistic that our consumption levels are high enough to support the use of all our domestic resources.  Plus, I anticipate that we can become a net exporter of products, keeping further margins in supplying products to the world.

As with everything I put out, this analysis was done given the current construct that exist today.  There are many levers that could change my mind to believe LNG exportation is the BEST path for this country; but at this time I believe it is best to maximize our natural gas resources first.   States in the US will also benefit from this message – e.g. Ohio.   I would not let your resources easily leave the boundaries of your system if you are to maximize your potential economic value.   Whoever advised the Houston Mayor, Anise Parker, was wrong in her response.  Houston could significantly gain more, if more industrial and manufacturing complexes were built near and around Houston than a few liquefaction facilities.  The same can be said for comments made by Senator Jake Corman and State Representative Matthew E. Baker.

In order to right the economic ship of the United States, we must find better ways to use our resources be it fossil, renewables, or human capital.   Perhaps beyond the scope of the Department of Energy, but the real issue at hand is to transform our economy back into a balance economy with a strong producing/manufacturing sector.  The DOE does have the capability to jump start the sector by continuing to signal there will be cost effective resources for some time to come and support the use of our resources domestically.  A strong and vibrate manufacturing sector will go a long way in creating a more stable and prosperous society.   It will not make everyone wealthy, but it will allow those who are willing and capable the pursuit of happiness.


We really need to apply some common sense when dealing with complicated issues.  Huge models allow one to bias and obfuscate the truth through manipulation of inputs and relationships.  Models do have value – being a modeler myself – but the models should never drive the outcome; they are there to enhance the understanding.   Ultimately, someone needs to be accountable for the decision and not use models as their excuse for making a decision.

Please do consider All Energy Consulting for your energy consulting needs.   We ALWAYS have our client’s best interest in mind.   We know the questions to ask and can help find the right answers to them.

Your Energy Analyst,

David K. Bellman


1 Comment

  1. I want to add some comments given some personal feedback on this blog. As I have stated before energy is a means to end. To have energy by itself is nothing.

    My only underlying theme is give a stimulus boost to using our resource before letting it go. I am a free market person but it’s just silly we spend more time and resource on short term gain items. We are not a free market therefore we cannot always make decisions as if it is. Have we forgotten the multiple bailouts over the past few years? The FED manages interest rates. We have a much larger government body who is fixated on spending. Therefore given this premise it would be best that the government spent it on long-term productive areas. In theory I would rather have limited government with not too much market interference, but that is unreal now. Therefore you need to strive for the government to appropiately spend the money that they are fixated to spend.

    And even if it was a free market as some has espoused. I don’t think we can export lng in any volume per cost and competition. In addition we know the market doesn’t always make good decisions. This market is making worse decision more often now. Largely because the free market does not exist when you have national/regional governmental bailouts. Hence my statement let some of it be foreign investment perhaps less likely for a bailout? (I hope)

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