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Crumbling Myths about Liquefied Natural Gas Export from the USA. Part 1: Economic Myth.

In the wake of the crisis in Ukraine, the natural gas export rush has occupied the world. In this article, I will discuss two myths related to new possibilities of liquefied natural gas (LNG) supply to Eastern European states from the USA. The first part is devoted to dispelling the economic fable. 


From Central and Eastern Europe to the North America, Asia and the Gulf States, governments and companies are moving ahead with projects to export U.S. natural gas. Polish and Lithuanian authorities, strong allies of the United States, have repeatedly travelled to Washington in order to convince the Department of Energy to approve export applications of natural gas to NATO allies. However, under current U.S. laws, the Department of Energy must prioritize a public interest before issuing a license to export U.S. natural gas to the countries which do not have a free-trade agreement with the United States. Over the past three and a half years, the Energy Department has only approved seven applications to export natural gas, while 24 other applications are still pending with some remaining in the approval process for more than two years. Despite the need for natural gas, Poland and Lithuania do not have power to push forward the application process.

At the same time, new infrastructure is necessary in order to deliver required gas supplies. In relation to this, Lithuania and Poland are expected to finalize LNG import terminals by the end of this year. Lithuania is presently holding negotiations with potential suppliers. A five-year contract for an annual supply of 540 million cubic meters of natural gas will be signed with the supplier which offers the best terms and conditions. When fully functional, Klaipėda LNG terminal will reach 2-3 bn. m³ annual capacity . For Lithuania, which is currently importing 100% of natural gas from Russia, the LNG terminal at full capacity would fulfill the national demand for gas and also provide an opportunity to share this resource with Baltic neighbors, namely Latvia and Estonia. In Poland, the Świnoujście LNG terminal is expected to have an annual capacity of 5 bn. m³. Depending on the increase of demand for gas, it will be possible to increase the capacity up to 7.5 bn. m3. In 2012, the annual gas consumption reached 15 bn. m³ in this country.

A demonopolized and more competitive energy sector for Lithuania and Poland will decrease the gas prices for consumers, increase foreign investments and further boost European economies, which are still recovering after the most recent financial crisis. Lithuanian and Polish success has not gone unnoticed by other Central and Eastern European countries, some of  which are already planning to build LNG import terminals. Recently, Polish Prime Minister, Donald Tusk, laid out a vision of the single Central and Eastern European energy alliance.

Economic Myth

It is clear that approval of LNG export would strengthen America’s foreign policy and help its allies. Despite this, critics of natural gas export line up their arguments against shipping energy from the United States.

The major issue in the debate about exporting natural gas is the impact of exports on domestic prices of this resource. Opponents argue that exporting natural gas overseas will cause a raise in the price. Shale gas production has risen by over 50% in the past 5 years, contributing to the decrease in natural gas prices from $11/ million cubic feet in 2008 to the current price of approximately $ 3.70 / mil. c. f. However, according to most analyses, LNG export will cause domestic natural gas to increase up to $4.50/ mil. c. f. in 2020 and over the next 5-10 years to remain around $5.00/mil. c. f. Despite this price shift forecast, there are more economic benefits LNG exportation approval has to offer.

First of all, macroeconomics analysis by ICF International evidences that expanded LNG exports would trigger heavy gains in domestic employment, GDP and federal tax receipts. The net effects on U.S employment are anticipated to be positive, with net job growth being between 73,100 to 452,300 jobs on average in the period from 2016 to 2035, including all economic multiplier effects. The net effect on America’s GDP is expected to be positive at $15.6 – $73.6 bn. per year between the 2016 and 2035 . The U.S. energy revolution has already produced growth in population and income. The Bureau of Economic Analysis indicates that the northwestern corner of North Dakota –the center of the US energy revolution – saw a 10.7 percent rise in the number of residents, the largest jump in the United States, compared with the America’s average of less than 1%. For a still recovering U.S. job market, employment gains should be a convincing argument. New analysis of Bureau of Labor and Statistics data indicates that recent jobs in the U.S. are mainly created by low-wage industries which in past four years created over 39% of vacancies. Meanwhile, LNG terminals would create highly paid manufacturing jobs, which include specific areas like refining petrochemicals and chemicals. Not to mention an increased demand for engineers.

Clearly, the concerns expressed by opponents of LNG export stem from the fear that exporting significant amounts of natural gas overseas will cause an increase in the gas price, which could pose a legitimate burden for industries that use natural gas as a feedstock. However, the sheer vastness of natural gas resources in the U.S.  makes the chances of that scenario happening obscure.  By 2018, potential domestic production will increase significantly more than domestic demand. Therefore, LNG exports to Lithuania and Poland can fill the gap between the swiftly growing American natural gas production capacity and the slower increase in domestic demand for gas. Opening new markets for the U.S. natural gas can help stabilize the price at a minor increase above its current level, while creating thousands of jobs and generating billions of dollars in royalty payments for the United States, and of course collecting more state and regional taxes.

Part two of this article will be published within the week…