United States: Macroeconomic Impacts Of LNG Exports From The United States*

Last Updated: May 1 2013
Article by Sugandha D. Tuladhar

By W. David Montogmery1 and Sugandha D. Tuladhar2


The United States (U.S.) has witnessed a significant shift in natural gas production in the past five years. Optimism about shale gas potential and accelerated recovery has created a shale gas boom. The belief that U.S. would continue to be a net importer of natural gas in the foreseeable future has completely changed. U.S. shale gas production has increased rapidly due to advances in hydraulic fracturing and horizontal drilling techniques that have reduced production costs. The full-cycle cost of shale gas production dropped by about 40% to 50% relative to the cost of conventional natural gas extraction in 2011.5 As a result, the outlook for natural gas production is more optimistic now than ever before. According to the latest Annual Energy Outlook 2013 (AEO 2013), the Energy Information Administration (EIA) projects the U.S. natural gas production will increase by about 40% by 2040 from its current level of 27.4 trillion cubic feet (tcf), mainly because of expected increases in shale gas production over the next two decades. Shale gas is projected to account for more than 50% of total U.S. natural gas production by 2040.

The shale boom has moved natural gas to center stage in energy policy debates. The potential for such a large supply of natural gas has generated interest in converting current regasification plants to liquefaction plants or even building new liquefaction plants to allow them to export liquefied natural gas (LNG) to international markets. NERA Economic Consulting (NERA), at the request of the U.S. Department of Energy, Office of Fossil Energy (DOE), conducted an objective and independent study (NERA Study) to assess the potential macroeconomic impacts on the U.S. economy of LNG exports.

This article summarizes the NERA Study by providing a brief overview of the study objectives, framework for the analyses, and some key findings.

NERA Study Objective

The primary objective of the NERA Study was to evaluate the macroeconomic impacts of different levels of LNG exports based on a study conducted by the U.S. EIA.6 We addressed the same set of 16 scenarios for LNG exports analyzed by EIA. These scenarios incorporated different assumptions about the U.S. natural gas supply and demand outlook and LNG export levels. Our U.S. natural gas outlook included a Business As Usual (BAU) baseline that is consistent with the Reference case of the AEO 2011; a High shale estimated ultimate recovery (EUR); and a Low EUR case based on AEO 2011. We also simulated macroeconomic impacts of other feasible LNG export scenarios by characterizing different international gas market conditions.

Study Approach

To conduct this study, we used our forward-looking dynamic computable general equilibrium model (NewERA model) of the U.S. economy. The NewERA model can be used to analyze impacts of command and control regulations, market-based policies, and trade policies such as LNG export policies on regional economies and economic sectors. Different types of policies could impact a sector in a variety of ways. When evaluating policies that have impacts on the entire economy (such as LNG exports) that cause changes in export revenues as well as changes in the natural gas market, one needs to use economic tools that capture the effects as they ripple through all sectors of the economy and take into account the associated feedback effects. The NewERA modeling framework takes into account interactions among all parts of the U.S. economy as well as changes in terms of trade and export revenues. The NewERA model is based on a unique set of databases constructed by combining economic data from the IMPLAN 2008 database and energy data from EIA's AEO 2011.

Figure 1: Linkages between the Global Natural Gas Model and the NewERA model

The The NewERA model is linked to NERA's Global Natural Gas Model (GNGM) through LNG export volumes and net-back prices. GNGM is a partial-equilibrium model designed to estimate the amount of natural gas production, consumption, and trade by major world natural gas consuming and/or producing regions. The model includes 12 regions that are largely adapted from the EIA International Energy Outlook (IEO) regional definitions, with some modifications to address the LNG-intensive regions. The model's international natural gas consumption and production projections for these regions are calibrated to the EIA's AEO and IEO 2011 Reference cases. The model maximizes the sum of consumers' and producers' surplus less transportation costs, subject to mass balancing constraints and regasification, liquefaction, and pipeline capacity constraints.

The GNGM is able to estimate the levels of LNG exports and net-back prices to the U.S. under different international markets dynamics. These outputs are exogenously linked to the macroeconomic model which projects the macroeconomic impacts on the economy. Figure 1 shows the linkages between the two models.

Major Findings of the Macroeconomic Study

We found that the U.S. would only be able to market LNG successfully with higher global demand or lower U.S. costs of production than in the Reference cases. The market limits how high U.S. natural gas prices can rise under pressure of LNG exports because importers will not purchase U.S. LNG exports if the U.S. wellhead price plus processing and transport costs rises above the cost of competing supplies.

Macroeconomic impacts of LNG exports are positive in all cases

There were net economic benefits to the U.S. economy across all the scenarios that we examined in which the global market would take LNG exports from the U.S. 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. There was no "sweet spot," and no point where any "balance" was required to gain the greatest benefits.

In all of these cases, benefits that come from export expansion would more than outweigh the costs of faster increases in natural gas production and slower growth in natural gas demand, so that LNG exports have net economic benefits in spite of higher domestic natural gas prices. This is exactly the outcome that economic theory describes when barriers to trade are removed.

Net benefits to the U.S. would be highest if the U.S. becomes able to produce large quantities of natural gas from shale at low cost, if world demand for natural gas increases rapidly, and if LNG supplies from other regions are limited. If the promise of shale gas is not fulfilled and costs of producing natural gas in the U.S. rise substantially, or if there are ample supplies of LNG from other regions to satisfy world demand, the U.S. would not export LNG. Under these conditions, allowing exports of LNG would cause no change in natural gas prices and do no harm to the overall economy.There should be nothing surprising about the conclusion that the U.S. economy is better off with unrestricted trade in natural gas than with any restrictions because basic international trade economics principles makes this inescapable. This same conclusion is reached by other researchers have deep knowledge of the natural gas markets, despite many differences in details of the level of exports and price impacts.6

Impacts on the U.S. natural gas prices are moderate and will not rise to the Asian market prices

U.S. natural gas prices increase when the U.S. exports LNG. But the global market limits how high U.S. natural gas prices can rise under pressure of LNG exports because importers will not purchase U.S. exports if delivered prices from the U.S. rise above the cost of competing supplies. In particular, the U.S. natural gas price does not become linked to oil prices in any of the cases examined.

Natural gas price changes attributable to LNG exports remain in a relatively narrow range across the entire range of scenarios. Natural gas price increases at the time LNG exports could begin range from zero to $0.33 (2010$/Mcf). The largest price increases that would be observed after 5 more years of potentially growing exports could range from $0.22 to $1.11 (2010$/Mcf). The higher end of the range is reached only under conditions of ample U.S. supplies and low domestic natural gas prices, with smaller price increases when U.S. supplies are more costly and domestic prices higher.

In addition, U.S. natural gas prices will not rise to levels seen in the Asian markets, or even to the net-back price based on current Asian market prices. Our analyses show that there will always be a difference of $6 to $8 between the Asian prices and the U.S. prices, since that represents the cost of inland transportation, liquefying, shipping, and regasifying natural gas to get it from the U.S. to Japan or Korea. Even with no binding export limits, the U.S. natural gas price will still be below the import price in the Asian markets since Asian buyers have no incentive to buy natural gas in the U.S. if it is not cheaper than their prevailing domestic price by that amount.

Serious competitive impacts are likely to be confined to narrow segments of industry

Economists who analyze how changes in energy costs affect energy-intensive, trade-exposed industries have reached a consensus that only narrowly-defined segments of manufacturing are at risk from higher energy costs. These sectors have relatively small employment and value added compared to manufacturing as a whole, so that even large impacts on these narrow segments translate into negligible impacts on manufacturing and the overall U.S. economy. The only chemical sector that is held out as evidence of widespread harm from higher natural gas prices is the nitrogenous fertilizer industry, which employs an insignificant amount of labor. This subsector of chemicals is not typical of the chemicals sector as a whole; it is a unique outlier based on turning cheap natural gas into cheap fertilizer with low profit margins and little significance for the overall economy. Our analysis suggests that future output in these sectors would fall short of baseline levels by less than 1%.

Thus, the rationalizations offered for prohibiting or limiting LNG exports – that overall energy prices will increase or that certain narrow sectors need to be protected – do not stand up to economic analysis. Consistent with basic free trade principles, the range of aggregate macroeconomic results from this study suggests that LNG exports have net benefits to the U.S. economy as a whole and that trade restrictions would harm both the U.S. economy and its trading partners.


* This article is based on the study: W. David Montgomery, Robert Baron, Paul Bernstein, Sugandha D Tuladhar, Shirley Xiong, and Mei Yuan, "Macroeconomic Impacts of LNG Exports from the United States," NERA Economic Consulting, Washington DC, December 3, 2012. http://www.fossil.energy.gov/programs/gasregulation/reports/nera_lng_report.pdf

1 Senior Vice President, W.David.Montgomery@NERA.com, Tel: 1-202-466-9294

2 Corresponding author: Senior Consultant, Sugandha.Tuladhar@NERA.com, Tel: 1-202-466-9206

3 IHS Global Insight (2011): The Economic and Employment Contributions of Shale Gas in the United States prepared for America's Natural Gas Alliance. December 2011.

4 Effect of Increased Natural Gas Exports on Domestic Energy Markets, U.S. Energy Information Administration, January 2012. http://www.eia.gov/analysis/requests/fe/pdf/fe_lng.pdf

5 Charles Ebinger, Kevin Passy, and Govinda Avasaral "Liquid Markets: Assessing the Case for U.S. Exports of Liquefied Natural Gas," Energy Security Initiative at Brookings, The Brookings Institute, May 2012, Policy Brief 12-01.

Kenneth B. Medlock III, PH.D., "U.S. LNG Exports: Truth and Consequence," James A. Baker III Institute for Public Policy, Rice University, August 10, 2012.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.