As the Biden administration temporarily pauses approvals for building new export facilities that transport liquefied natural gas, we’ve assembled a primer on the national and global implications of the US increasing exports of this important fuel.
In January this year, the Biden administration announced that the US Department of Energy would place a “temporary pause” on approving new liquefied natural gas (LNG) export facilities while it updated its process for determining whether such approvals were in the public interest. Importantly, the term “public interest” is not explicitly defined in the Natural Gas Act (the relevant law), but the consideration presumably would take into account economic, environmental, social, and geopolitical effects at various geographic scales. Technically, approvals are required only for those facilities that export LNG to nations with which the United States does not have a free trade agreement, though practically speaking, approval is required for any LNG export facility to be economically viable, because the United States does not have free trade agreements with most major LNG importers.
As the administration examines how to update this approval process (last updated in 2018), individuals from academia, industry, and environmental organizations have made a variety of claims, all of which deserve scrutiny. In this blog post, we’ll try to lay out a framework for evaluating the big points of contention: the environmental, economic, and geopolitical consequences of the United States’ newfound role as an LNG superpower.
A Little Background
“The Pause,” as it’s become known among energy nerds like us, comes amid a confluence of at least three major developments. First, the United States has become the world’s largest exporter of LNG, exporting about 12 billion cubic feet per day (bcf/d) in 2023, equivalent to 10.5 percent of domestic marketed production that year. This boom in LNG is primarily the result of the shale revolution, which unlocked an abundance of affordable natural gas and oil, setting off a cascade of economic and environmental effects that we’ve analyzed and written about at great length.
And LNG exports will continue to grow. Roughly 12 bcf/d of new capacity is currently under construction, and the Department of Energy has already authorized an additional 22 bcf/d. Not all authorized facilities will necessarily be built, but if they were, the cumulative total of 48.6 bcf/d would represent roughly 43 percent of US-marketed natural gas production in 2023. (However, total production very likely would increase as well, leading to a share that’s lower than 43 percent.)
Second, global demand for LNG has been growing strongly in recent years, turbocharged by Russia’s invasion of Ukraine. With piped natural gas from Russia constrained or halted entirely, European nations have looked to the seas for alternative supplies. At the same time, other markets, particularly in Asia, continue to expand.
And third, it’s election season. The Biden administration, seeking to burnish its credentials with environmentally minded voters, is using The Pause as an opportunity to highlight its climate policy accomplishments (which, to be fair, have been historic).
Tracing the Impacts, from Local to Global
Tracing the potential impacts of increased US LNG exports can be somewhat dizzying. The implications touch on a mix of geopolitical, environmental, and economic factors that—even when analyzed independently—are difficult to pinpoint with precision. Considerations include positive and negative impacts at the local, regional, and global scales, touching on famously hard-to-quantify metrics such as local air and water pollution, the social cost of carbon, and geopolitical leverage. As analysts inside and outside the US government seek to assess the benefits and drawbacks of expanded LNG exports, any broad review would need to consider local, national, and global impacts.
Figure 1 illustrates the chain of events that analysts can trace to understand this wide range of impacts, with market developments shown in light blue and their ultimate consequences shown in dark blue. New US LNG export facilities will, of course, have direct effects on local environments and economies where they are constructed. But the new facilities also will increase demand for domestic natural gas and boost global supply of natural gas. These changes in supply and demand will, in turn, set off a cascade of economic, environmental, and geopolitical factors that we expand on below.
Figure 1. Effects of Increased US LNG Exports
Notes: LNG = liquefied natural gas. NG = natural gas.
Local Environmental and Economic Considerations
Increased LNG exports are likely to affect local communities through a variety of channels. In the communities where liquefaction facilities are sited (primarily along the Gulf Coast), the construction and operation of new facilities will create construction jobs, operations and maintenance jobs, and new tax revenue. Worth remembering, however, is that not all jobs will directly benefit community members, particularly transient construction jobs.
At the same time, building and operating LNG facilities has local environmental consequences. These impacts include harmful air emissions from diesel-powered construction equipment, truck traffic, and occasional natural gas flaring that can take place once the LNG facility is up and running. These flares, especially if gases are not fully combusted, have been shown to produce harmful air emissions with meaningful local health consequences. Making these issues more pressing is the fact that some of the proposed (and existing) facilities would be located in communities that already are burdened by heavy loads of pollution.
But increased LNG exports also will have local economic and environmental consequences far from the terminals themselves. These impacts will occur through at least two channels.
Credit: Waterwind / Shutterstock
First, the additional natural gas required to feed new LNG terminals will induce additional drilling and production in parts of Texas, Louisiana, Pennsylvania, and elsewhere. New shale development produces a complex mix of local environmental harms and economic benefits. These impacts include increased local air pollution, traffic congestion and accidents, demand for public services, occasional water pollution, and other environmental stressors that researchers have found to have measurable health consequences. At the same time, shale gas development boosts local income, jobs, and tax revenue, leading most host communities to support the industry.
The second factor that will affect local communities is the effect of increased LNG exports on domestic prices, which in turn will affect the construction and operation of power plants, industrial facilities, and manufacturing plants, each of which have their own local economic and environmental trade-offs.
Environmental and Economic Considerations for the United States
A central question related to US LNG exports is whether, and to what extent, exports will increase domestic natural gas prices. Economics tells us plainly that, given available supply, adding new demand (in this case global demand from LNG export terminals) will raise prices compared to a counterfactual world without that new demand. At the very least, we can be confident that additional LNG exports won’t reduce domestic prices.
But how much could exports increase domestic LNG prices? For most of this year, benchmark (Henry Hub) prices have plumbed historic lows, averaging less than $2 per thousand cubic feet, even while the United States has exported historic volumes. These low gas prices have been caused in part by “associated gas” that is coproduced by oil wells, which are economically viable due to relatively high oil prices. Will natural gas prices begin to rise as LNG-induced demand grows further? To answer this question quantitatively, one would need to know the marginal cost of bringing new supplies online. A 2018 study commissioned by DOE found that higher LNG exports would increase domestic prices modestly, but that other factors, particularly the rate of technological progress in producing natural gas, would have much larger effects on domestic prices.
So, let’s assume for the moment that increasing LNG exports would increase the price of domestic natural gas relative to what the price would otherwise be, even if that increase in price is small. Higher natural gas prices in the United States will have at least two major implications for the entire nation.
The first is an aggregate demand effect. Because natural gas–fired power generators typically set the price for regional power markets, higher natural gas prices mean higher electricity prices, which will tend to discourage electricity usage. And for homeowners, businesses, and industries that rely on natural gas directly for heating or other uses, higher prices will encourage them to become more efficient or, in some cases, look for electric alternatives (such as electric water heaters, induction stoves, or electric heat pumps).
Credit: VladSV / Shutterstock
The cost of natural gas is particularly important for the industrial sector. From the mid-1990s through 2008, industrial natural gas consumption declined amid high and volatile natural gas prices. Since 2008, industrial demand for natural gas has risen steadily, thanks in part to consistently low prices. RFF research has shown that these lower natural gas prices boosted US manufacturing employment by 0.6 percent from 2007 to 2012, and by 1.8 percent in gas-intensive sectors. Higher prices associated with increased LNG exports would, in all likelihood, have the opposite effect.
At the same time, the economic benefits of increasing LNG exports would also be substantial, with those benefits concentrated in regions where production and exports occur. Weighing these two competing economic effects, the 2018 DOE-commissioned study noted above found that higher LNG exports resulted in slightly higher overall GDP. This is consistent with economic theory that increasing trade and expanding resource use tends to increase income.
The second national effect is fuel substitution, primarily in the power sector. Over the last 10 to 15 years, low natural gas prices reduced demand for coal but also made it more difficult for nuclear generators to compete. Higher natural gas prices will tend to have the opposite effect, making coal and nuclear plants, along with new renewables (in many cases with battery storage), more competitive. If higher natural gas prices boost coal more than nuclear energy and renewable energy sources, then coal-producing regions will benefit economically. However, air pollution from coal combustion, which is substantially greater than natural gas combustion, damages public health across broad swaths of the nation.
What about carbon dioxide, methane, and climate change, you ask? We turn to these and other global implications now.
Global Environmental and Economic Considerations
Before we get to climate change, let’s outline how US LNG functions in the context of global energy markets. The expansion of the global LNG market, and the major contribution to it from the United States, will tend to reduce global LNG prices relative to a counterfactual with less available LNG, leading to three main effects. First, US LNG could displace higher-cost (or geopolitically undesirable) natural gas from somewhere else. Second, US LNG could displace some other fuel source, such as coal or renewables in the power sector. Third, lower global LNG prices could lead to higher overall natural gas consumption. Let’s consider the economic and environmental implications of each of these.
If US LNG displaces natural gas from somewhere else, local environmental and economic effects are likely to be small in the communities where the gas is consumed (although the consumers presumably would benefit from the lower prices). But the climate effects could vary substantially, depending on how much methane is emitted across the relevant supply chains. (Carbon dioxide emissions from natural gas combustion generally differ little across sources.) If methane emissions from the US LNG supply chain are substantially higher (or lower) than the alternative source and supply chain, then climate impacts will increase (or decrease).
Evidence on global methane emissions from oil and gas supply chains suffer from considerable data limitations (which new programs and technologies are aiming to fix), but existing estimates suggest that US methane intensity (a measure of methane emissions per unit of oil and gas production) is on average near the middle of the pack—far lower than Algeria or Turkmenistan, but higher than Saudi Arabia, Norway, and others.
Second, if US LNG displaces other energy sources, then international communities that produce those other fuels will experience negative economic impacts but also may experience environmental benefits because of reduced extraction (e.g., coal mining). From a climate perspective, the net effects of US LNG will depend on the emissions of the fuel it displaces. If US LNG displaces nuclear or renewables, the climate impacts clearly would be negative.
Credit: OlegRi / Shutterstock
But if US LNG displaces coal or fuel oil in the power sector or elsewhere, resulting carbon dioxide emissions will be lower. Whether US LNG is “better” than coal or fuel oil from a climate perspective, therefore, depends on the methane emissions associated with the supply chain of each fuel type. One recent, and widely covered, working paper by Robert Howarth of Cornell assumes that methane emissions from US LNG are quite high, and that these emissions negate any climate benefits of switching from coal to natural gas. Other studies, including those conducted by the US Department of Energy, conclude the opposite. Two issues in dispute are differences in assumed tanker size and whether methane that boils off from the LNG tanks is either captured and used or vented.
As previous Common Resources blog posts have noted, Howarth’s work on methane and related topics relies on dubious assumptions, and this most recent paper follows in the same lineage. But regardless of what backward-looking analyses find, emerging regulations from the US Environmental Protection Agency on upstream methane emissions in the supply chain, following incentives for methane reduction in the Inflation Reduction Act and coupled with expected rules on methane emissions from the European Union, will almost certainly reduce US methane emissions from the LNG supply chain in the coming years.
The third way that higher US LNG exports would affect international economies and environments is by reducing global LNG prices, which—all else equal—will tend to increase natural gas consumption. This increase in consumption could take many forms and, again, the effects may be quite small. Lower global LNG prices could encourage more countries to build or expand re-gasification capacity and new demand centers, such as manufacturing facilities or power plants. Low LNG prices also could motivate existing gas-consuming facilities to run more often or expand, providing local (and perhaps regional) economic benefits but increasing greenhouse gas emissions and perhaps local pollution, as well.
Geopolitics
Last, but certainly not least, we need to think about the geopolitical leverage that LNG exports have bestowed on the United States and its allies. Arguably, Russia’s invasion of Ukraine sparked the most significant global energy upheaval since the oil crises of the 1970s and 1980s. The ability of the United States and other suppliers to redirect LNG flows to Europe undoubtedly is weakening Russia’s leverage as the country seeks to splinter European support for Ukraine.
To assess geopolitical benefits directly alongside economic and environmental issues, research is needed to quantify those benefits, which would facilitate comparison on an apples-to-apples basis with other impacts. RFF and others recently have estimated the national security costs associated with US oil reliance in dollar terms (allowing for easier comparison with environmental and economic impacts), but we are not aware of any work that seeks to do the same for the national security benefits of US LNG exports. In the absence of that type of quantitative economic assessment, policymakers will inevitably need to rely on qualitative judgements regarding the relative importance of different impacts, particularly to the degree that the impacts point in different directions.
Summing Up
If one thing is clear about the debate surrounding The Pause, it’s that better information would be valuable to improve the decisions made around future growth in US LNG exports. The current lack of information makes it difficult to definitively answer some of the most straightforward questions on the topic. For example, how much would a major expansion of US LNG exports increase domestic prices, and how large would the net direct and indirect economic effects be? Previous work has found that higher exports would slightly increase US GDP, consistent with economic theory, but how would those net gains (including both the gains and the losses) be distributed across regions and economic sectors?
Many more questions are difficult to answer with precision today. Would a large ramp-up in LNG exports be good or bad for the climate? For local and regional air quality? For local communities, including environmental justice communities? And how do those benefits and costs stack up to the considerable geopolitical benefits of LNG export growth?
In the months ahead, we hope to dive more deeply into many of these important topics to better understand how surging US LNG exports affect the United States as a whole, its local communities, and the global climate.
