Washington (Platts)--5Dec2012/537 pm EST/2237 GMT

US liquefied natural gas exports are projected to create net economic benefits that would ramp up with higher levels of exports, according to a long-awaited study commissioned by the US Department of Energy and released Wednesday.

In all cases, "benefits that come from export expansion more than outweigh the losses from reduced capital and wage income to US consumers, and hence LNG exports have net economic benefits in spite of higher domestic natural gas prices," according to the study, which was conducted by NERA Economic Consulting.

The study is the second of two LNG studies commissioned by DOE. The first study, conducted by the Energy Information Administration, found that LNG exports would increase domestic wellhead gas prices. The second study looked at the broader economic impacts of exports, with an emphasis on the energy and manufacturing sectors.

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The studies are crucial because they will help DOE decide whether to approve pending applications to export LNG.

DOE must quickly approve exports to countries that have free trade agreements with the US, but the department can limit or block exports to non-FTA countries if it finds they are not in the public interest. Companies have applied to export 23.71 Bcf/d of gas as LNG to non-FTA countries.

So far, DOE has only approved one facility, Cheniere Energy's 2.2 Bcf/d Sabine Pass project in Louisiana, to export LNG to non-FTA countries. The department has said that it will not approve additional non-FTA exports until it has received and reviewed the two studies and public comments on their findings.

DOE will accept public comment on the NERA study for 45 days after it appears in the Federal Register. Reply comments will be accepted for 30 days after that.

NET BENEFITS SEEN IN ALL STUDIED SCENARIOS

The NERA study released Wednesday looked at the impact of LNG exports on the US economy under a range of different assumptions about the level of exports, global market conditions and US production costs.

"Across all these scenarios, the US was projected to gain net economic benefits from allowing LNG exports," the study concluded.

"Moreover, for every one of the market scenarios examined, net economic benefits increased as the level of LNG exports increased. In particular, scenarios with unlimited exports always had higher net economic benefits than corresponding cases with limited exports."

Net benefits are highest if the US produces large quantities of shale gas at low cost, if world demand for gas increases rapidly and if LNG exports from other regions are limited, the study said.

However, if US gas production costs rise significantly, or if there are plenty of supplies from other regions, the US would not export LNG, the study said.

The global market will limit domestic price increases arising from LNG exports because importers will not buy US exports if wellhead prices rise above competing supplies, the study explained.

Forecast natural gas price increases after LNG exports begin would range from zero to $0.33/Mcf in 2010 dollars, according to the study. The largest price hikes after five or more years of exports could range from $0.22 to $1.11/Mcf, also in 2010 dollars.

"The higher end of the range is reached only under conditions of ample US supplies and low domestic natural gas prices, with smaller price increases when US supplies are more costly and domestic prices higher," it said.

However, LNG exports will not help all socioeconomic groups, the study said. "Overall, both total labor compensation and income from investment are projected to decline, and income to owners of natural gas resources will increase."

LNG exports will lead to shifts in employment, with gas production and export industries attracting workers away from other industries, the study said. "LNG exports are not likely to affect the overall level of employment in the US," it said.

"Serious competitive impacts are likely to be confined to narrow segments of industry," the study concluded.

--Kate Winston, catherine_winston@platts.com
--Edited by Lisa Miller, lisa_miller@platts.com

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