Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



LNG Exports: Good or Bad for America?

The application of advanced drilling techniques such as horizontal drilling and hydraulic fracturing has boosted U.S. natural gas production to an all-time high. With the nation awash in relatively cheap gas, many commentators are urging federal regulators to approve more projects that would export liquefied natural gas, or LNG, to countries that don't have a free trade agreement with the United States.

So far, only a handful have received conditional approval from the Department of Energy, while only one project -- Cheniere Energy's (NYSEMKT: LNG  ) Sabine Pass terminal in Louisiana -- has been given the final go-ahead to begin construction. Federal regulators are currently assessing the macroeconomic impacts of LNG exports to determine whether to approve additional projects.

With that said, let's take a closer look at some of the pros and cons of allowing LNG exports in terms of their potential impact on domestic gas prices, the U.S. consumer, the manufacturing sector, and economic growth.

Inbound LNG tankers at Cheniere Energy's Sabine Pass LNG terminal in in Cameron Parish, La. Photo credit: Flickr/Roy Luck.

Potential negative impacts of LNG exports
The main opponents of LNG exports include a diverse array of industrial gas consumers, as well as manufacturers, petrochemical producers, and other energy-intensive businesses, who argue that allowing exports would boost domestic gas prices, driving up consumers' gas bills and eroding manufacturers' competitive advantage.

Along with consumers, U.S. manufacturers and chemical producers have been major beneficiaries of cheap and plentiful shale gas, which they use both for power generation and as a feedstock. If prices were to rise meaningfully, they could delay investments in building new plants and expanding capacity. Similarly, for consumers, higher gas prices would eat into their disposable income and force them to reduce spending on other goods and services.

According to a 2012 analysis by the U.S. Energy Information Administration, expanding LNG exports could boost U.S. consumers' gas bills by 3%-9% per year over the period 2015-2035 and electricity bills by 1%-3%, assuming 6 billion to 12 billion cubic feet per day of exports. This increase in gas prices could lower GDP by as much as $500 million per year, mainly because of lower output by manufacturers and energy-intensive businesses, according to estimates cited in a 2012 discussion paper by the Hamilton Project.

The benefits: job and GDP growth
On the other hand, proponents of LNG exports argue that the potential economic benefits would easily exceed the costs of higher domestic gas prices. According to estimates cited in the Hamilton Project discussion paper, exports have the potential to support as many as 60,000 jobs along the natural gas supply chain and increase U.S. GDP by as much as $4 billion per year.

Take Cheniere's proposed LNG export facility in Corpus Christi, Texas, for instance. This massive $12 billion project alone could support thousands of high-paying jobs once completed, in addition to the 225 positions it would create to operate the facility, according to Judy Hawley, chair of the Corpus Christi Port Commission.

In total, the project, which is still awaiting DOE approval, would employ some 1,800 workers during its five-year construction period and support some 8,000 permanent jobs annually, according to estimates cited by Hawley. And that's only counting the direct employment opportunities the facility could create; the economic impact would be much greater if one includes the entire supply chain.

For instance, consider the potential impact on Chart Industries (NASDAQ: GTLS  ) , which manufactures  and sells equipment to convert natural gas into a liquid. According to Matthew Klaben, Chart's vice president, just one average-sized export terminal like Cheniere's Corpus Christi facility would support hundreds of jobs at Chart's facilities in Texas, Oklahoma, Louisiana, and Wisconsin.

It would also support thousands of additional jobs across the country, mainly for manufacturing the various components needed for an LNG facility such as storage tanks, compressors, heat exchangers, pipes, valves, and other integral parts. Each LNG export project would therefore pump billions of dollars into the economy, Klaben added.

LNG exports: good or bad?
While both sides put forth convincing arguments, I think exports would be a net positive for the U.S. economy because of the self-limiting nature of the LNG export market, which should ensure that gas will only be exported in large quantities if it's cheap and plentiful enough to produce so that prices remain in check even with additional exports -- a key point highlighted in a recent report by NERA Economic Consulting. What do you think?

OPEC is absolutely terrified of this game-changer
As the debate over US LNG exports highlights, the domestic energy landscape is changing radically. Oil exports from America continue to rise as our country inches closer to energy independence. And there is one company front and center that is poised to make its investors rich. Warren Buffett has already committed to it, and you can too. Click here to learn about this company in The Motley Fool's special report: "OPEC's Worst Nightmare."

Read/Post Comments (1) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 18, 2014, at 7:45 PM, LNGWorker wrote:

    As a worker in the LNG business (mid-stream and now up-stream including emissions) with an interest in the US Shipping industry, your number of potential employment is very, very low.

    The US needs 90 new LNG flag ships (check out MARID) and the facilities to build them. Plus a new infrastructure to get LNG to the terminals.

    The Tax Revenue return alone for the US Government is probably larger than anyone can imagine.

    Lets remember, really horrible badly written US Tax law requires more Natural Gas to be vented into the air (in just Texas alone) than it would be able to run 1/4 of US Autos.

    If our broken political system would just get a clue, the poor could have heat, clean electricity prices could drop, hundreds of thousands of better jobs could be created, and huge un-tapped tax revenue could be found.

    But of course this will never happen. "You can count on Americans to do the right thing... after they have tried everything else" - Winston Churchill

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2962087, ~/Articles/ArticleHandler.aspx, 8/30/2015 4:11:47 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Arjun Sreekumar

Arjun is a value-oriented investor focusing primarily on the oil and gas sector, with an emphasis on E&Ps and integrated majors. He also occasionally writes about the US housing market and China’s economy.

Today's Market

updated 1 day ago Sponsored by:
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 1.21 0.06%
NASD 4,828.33 15.62 0.32%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/28/2015 3:59 PM
GTLS $24.36 Up +1.10 +4.73%
Chart Industries CAPS Rating: ****
LNG $63.48 Up +1.01 +1.62%
Cheniere Energy, I… CAPS Rating: ***