FocusNatgas helps US more in manufacturing than LNG exports - study

15 May 2013 22:45  [Source: ICIS news]

HOUSTON (ICIS)--The US economy would benefit more from using natural gas in domestic manufacturing than in exporting it as LNG, a consultancy firm said on Wednesday.

Charles River Associates (CRA) presented its study during a conference call to explain the importance of natural gas-intensive manufacturing to the US economy and the impact LNG exports could have on the growth of other major demand sectors, such as electricity generation and natural gas vehicles (NGVs).

Commissioned by Dow Chemical, the study challenged the US Department of Energy’s (DOE) studies that analysed the effects of LNG exports on the US.

“This is not an anti-LNG study,” said Ken Ditzel, a CRA principal who led the study. “We find that LNG exports do benefit the US economy. We do find, however, that there’s a lot more benefits to using that gas through domestic manufacturing as opposed to exporting LNG.”

In its study, CRA compared the economic impacts of 5 billion cubic feet (bcf)/day of incremental natural gas consumed by recently announcement investments in the gas-intensive manufacturing sector with 5 bcf/day of LNG exports equivalent to two large terminals.

Relative to LNG exports, CRA’s analysis found that the gas-intensive manufacturing sector annually contributes at least twice as much to GDP, more than eight times the permanent jobs and four or five times the construction jobs.

Manufacturing jobs are also more distributed across the US than those from LNG terminals, and the trade balance also benefits more from manufacturing, with approximately three times the deficit reduction compared with LNG exports.

Using third-party forecasts, CRA projected that global LNG demand is expected to increase 4-6% annually through 2030, which could create a global supply shortage of 20-35 bcf/day.

“US exports would likely play a major role in filling the gap, which in turn, could lead to a tripling of natural gas prices from current levels by 2030,” the firm said.

Also, the manufacturing industry is highly sensitive to natural gas prices, and a significant portion of the sector is exposed to impacts from projected price increases.

“At this level of exports, how will manufacturing and other major drivers of future natural gas demand stack up against LNG exports and to what degree might they be impacted?” Ditzel said.

CRA said manufacturing demand is expected to increase by at least 4.8 bcf/day, and electricity generation and NGVs also represent a sizable growth in domestic natural gas demand that could compete with LNG exports.

Historically, natural gas demand has an annual growth of about 0.2%. However, the combination of manufacturing, electricity generation, NGVs and LNG exports could raise that demand to an annual growth of by 2.7-3.3%.

CRA forecasts suggest that the three drivers could raise natural gas prices to $7.20/MMBtu by 2030. Factoring in LNG exports, prices could reach $8.80-10.30/MMBtu.

Manufacturing, electricity and NGV demand growth cannot co-exist with high LNG exports absent higher natural gas prices, the firm said.

“There’s going to be trade-offs, and trade-offs are required to accommodate future demand,” Ditzel said. “We’re going to see demand destruction resulting from these high prices, and the question comes: which segment of the economy is going to feed that demand destruction first?”

He added that CRA believes LNG exports are competitive at higher domestic gas prices, which would keep it “in the running”.

“The unintended consequences of high LNG exports could be lower benefits in GDP, employment and trade balance due to reductions in the manufacturing renaissance, a low-cost electricity economy and NGV deployment,” the firm concluded.

LNG exports has been a hot topic of debate in the chemicals industry, a business that relies on natural gas for about 85% of its feedstock requirements.

The DOE has issued two studies, a report conducted by the Energy Information Agency (EIA) in January 2012 and an analysis by NERA Economic Consulting in December 2012.

Dow spoke out against the report, saying it failed to consider the importance of manufacturing on the US economy.

Since then, several chemical producers have formed a coalition to campaign for the restriction of LNG exports.

However, ExxonMobil said restricting LNG exports could hurt the US economy.

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By: Tracy Dang
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