Economic and Environmental Effects of Natural Gas Exports, with Brian C. Prest

Notable Quotes

• Methane emissions vary by location of production: “[The Marcellus Basin in Appalachia and the Permian Basin] have very different reputations and data on the leak rates for methane … [A study found that] Appalachia has some of the lowest leak rates (under 1 percent), whereas the Permian Basin, particularly the New Mexico side of the Permian Basin, has very high leak rates (as high as 9.6 percent). Those are very different estimates, and those can be determinative in terms of whether LNG exports are more carbon intensive than coal. And so, it’s important to know the economics of the situation. If we start exporting gas, what is the source of supply that ramps up to meet that gas-export demand?” (12:02)
• Methane emissions associated with the production of gas come at a high cost: “If you want to take the 1.3 million tons of methane emissions annually [that are associated with US exports of crude oil] and put that into economic terms, in terms of environmental damage, we can apply our updated estimate of the social cost of methane, which is in the ballpark of $1,900 per ton. You can do the math: 1.3 million tons of methane times $1,900 per ton gets you annual climate damages on the order of $2.5 billion a year over the past decade.” (19:23)
• The federal government has limited control over oil and gas production: “We in the United States don’t have a national oil company like many other countries do. And so, these are decisions made by private companies based on economics—oil prices, steel prices, and so on. Those are not things that the federal government has direct control over.” (26:12)

Top of the Stack

• “Where Does the Marginal Methane Molecule Come From? Implications of LNG Exports for US Natural Gas Supply and Methane Emissions” by Brian C. Prest
• “The Greenhouse Gas Footprint of Liquefied Natural Gas (LNG) Exported From the United States” by Robert W. Howarth
• Not the End of the World: How We Can Be the First Generation to Build a Sustainable Planet by Hannah Ritchie

The Full Transcript

Daniel Raimi: Hello, and welcome to Resources Radio, a weekly podcast from Resources for the Future (RFF). I'm your host, Daniel Raimi. Today, we talk with RFF Fellow Brian Prest. Brian is out with a brand new study looking at the fascinating and growing topic of liquefied natural gas (LNG) exports coming from the United States.

This is a really complicated topic, and Brian's study looks at the effects of increasing LNG exports on a variety of outcomes, both at home and abroad. The study looks at how LNG exports affect domestic prices, both of natural gas and oil, and the effect of LNG exports on global greenhouse gas emissions. The study digs deep into how natural gas production from different parts of the United States has different methane emissions, which has a substantial effect on the ultimate outcome of the greenhouse gas impacts of LNG exports. We'll talk about all these issues, as well as how the Trump administration's policies might be affecting trends in domestic oil and gas production and exports. Stay with us.

Brian Prest, my friend and colleague from RFF. Welcome back to the podcast.

Brian C. Prest: Thank you. It's great to be here.

Daniel Raimi: Brian, you've been on the show before, so we're going to skip our usual introduction question and dive right into the meat, because we've got a lot to talk about. As most of our listeners know, the United States has become the world's largest exporter of liquefied natural gas, or LNG. We're going to talk all about LNG today and a paper you've recently published on the topic. But before we get into that, can you just tell us briefly what LNG is and how it’s used in countries that import it?

Brian C. Prest: Sure, happy to. Liquefied natural gas is what it sounds like: It's natural gas that's been converted into its liquid form. That makes it more compact and easier to ship internationally. The United States has, as you said, become a big exporter of LNG to places like Europe, Japan, and South Korea, where it's used for anything that you would use natural gas for—think cooking, heating, power generation, and so on.

Daniel Raimi: Why do you need to liquefy it? What benefit do you get from liquefying it?

Brian C. Prest: Typically, natural gas is transported by pipeline, because, as its name indicates, it's a gas. But shipping a gas, which is high volume, overseas, is difficult. The liquefaction process, as it’s called, essentially supercools the gas to the point where it turns into a liquid form, which can be then loaded on ships in a compact fashion that allows it to be sent overseas.

Daniel Raimi: So, you can fit more gas into a given area if it's liquefied?

Brian C. Prest: Right.

Daniel Raimi: Than if it's in its gaseous form.

Brian C. Prest: Right.

Daniel Raimi: How much LNG is the United States exporting today, and how much might we be exporting in the future? As folks know, the Biden administration put a pause on the permitting of new facilities. The Trump administration is eager to do more LNG exports. Where are we and where might we be going?

Brian C. Prest: Just as a benchmark, the United States produces about 100 billion cubic feet of natural gas per day. That means that each 1 billion cubic feet per day is about 1 percent of US production.

With that context, since about 10 years ago, we went from being an importer of gas to being a large exporter of LNG, on the order of about 12 billion cubic feet per day. That’s about 12 percent of all US production being exported. That's quite a rapid rise. Beyond that, there's a lot more LNG export capacity that is either under consideration, already under construction, or has already reached a final investment decision. That amounts to about 24 billion cubic feet per day—so about a quarter of all US production today. Beyond that, the US Department of Energy (DOE) has approved a cumulative total of more than 40 billion cubic feet per day of export capacity, beyond anything that might be approved in the future. That's approaching something on the order of all of today's levels of US production of exports.

Daniel Raimi: It's worth noting that today's level of US production is higher than it's ever been, right? We're producing more natural gas than we ever have and more natural gas than any other country in the world, so we're talking about very significant volumes.

Brian C. Prest: That's right.

Daniel Raimi: When we think about the climate implications of all of these LNG exports, there's a lot of factors to think about, right? People argue a lot about natural gas versus coal; people talk about methane emissions—those are two important factors, but there's more to the story than that. When we think about what it means for the climate when the United States exports all this LNG, what are the most important things we should be thinking about?

Brian C. Prest: I think you hit on the two most important factors. There's a lot going on. The first one is the substitution patterns. If we start exporting a lot of LNG overseas, what is it substituting for? Is it fueling total energy demand globally, or is it substituting for other fuels, whether it's coal, nuclear, or renewables that could have higher or lower carbon intensities? Then, it's not entirely clear, ex ante, what the climate impact of that would be. There's been a lot of analysis of those substitution patterns and what we might expect.

You also hit on a second piece, which is methane emissions, the focus of my recent paper. Methane is the primary component of natural gas. It's also a highly potent greenhouse gas in its own right, and it leaks from the supply chain—sometimes intentionally, but mostly unintentionally. If we're thinking about how that varies across space, even within the United States, different parts of the country produce gas with higher or lower leak rates, and that can matter quite a bit in terms of the life-cycle carbon intensity of the LNG. There's a recent study by Robert Howarth that suggested that under certain conditions, the upstream methane leaks of natural gas in the United States could contribute somewhere between 20 percent and 40 percent of the LNG's life-cycle carbon footprint.

Daniel Raimi: I'm going to ask you to come back to that estimate in just a second, but let me go back for one moment and ask you more about this substitution question. When a country imports LNG, talk us through each of the potential substitutions and what their climate impact would be. Let's leave methane out of it, for the moment. If we're just thinking about the carbon dioxide emissions part, talk us through each one of those potential outcomes.

Brian C. Prest: Sure. If a country is importing LNG—let's suppose it's being used in power plants to generate electricity—it could be substituting for coal, for example, which has a higher carbon intensity than the natural gas it's replacing, which would mean a net reduction in greenhouse gas emissions. It also could fuel more electric power generation, which would be an increase in carbon emissions. It could also outcompete zero-carbon sources, such as wind, solar, nuclear, and so on, which would mean an increase in carbon emissions. So, the substitution patterns are probably going to vary by the structure and the nature of the markets that LNG is being exported to, which means that there are a lot of different potential margins that could be relevant here. It makes it a very thorny question.

Daniel Raimi: You've talked through the potential impacts of LNG substituting other fuels in the power sector. How much do we know about it substituting for other fuels in other sectors, like home heating or industrial manufacturing, and what might be the greenhouse gas implications of that type of substitution?

Brian C. Prest: I think it's a similar story. It's still a thorny question, but let's take the home-heating case as an example. If the gas exports are leading to more space heating in general, that would presumably mean an increase in emissions. If it's substituting for other gas that has, say, a higher carbon footprint, that could be a reduction in emissions. But if it's also discouraging, say, the adoption of heat pumps which have a lower emissions profile, that would be an increase in emissions. Again, it's nuanced and a thorny question that’s hard to get a good handle on.

Daniel Raimi: There’s lots of fodder for researchers like us to do studies in the future.

You mentioned a paper by Robert Howarth a few moments ago. Can you talk us through what some studies have found in the literature about the climate impacts of increased LNG exports? Is that study an outlier? Is it consistent with what other studies find? What does the literature tell us?

Brian C. Prest: That study is a bit of an outlier. Its conclusion rubs against some of the conventional wisdom. In particular, the conclusion of the paper says that under a broad set of conditions, the life-cycle carbon footprint of LNG exports is higher than that of coal. If that's the case, then all the questions about substitution are moot because, in some sense, it’s the highest carbon thing out there. And so, even by substituting for coal, it's still increasing emissions. There are a number of assumptions in that study, which are controversial, but one of them is the question about the methane leak rate. The leak rate used in that paper is about 3 percent. Under those conditions, depending on what global warming potential you use, the upstream methane emissions gives you about 20 percent to 40 percent of the life-cycle carbon footprint of LNG. Getting a handle on whether that 2.8 percent number is a good number is really important to understanding the carbon impact of LNG.

Daniel Raimi: As you mentioned, Robert Howarth isn't the only person who's been studying this issue. The Department of Energy issued a report shortly before the end of the Biden administration on the impacts of LNG exports. What did that study tell us?

Brian C. Prest: That study found that LNG exports writ large would increase emissions, although by a modest amount. Again, there's a lot of nuance in the substitution analysis underlined in the DOE study, but one thing I would like to call out from that study is that their methane leak rate was a fairly low number. It was less than 0.6 percent, and that was based on a national average based on US Environmental Protection Agency inventories that are well-known to understate methane leaks observed in practice in the field. And so, that's one factor, among many, leading to their estimates of presumably small impacts.

Daniel Raimi: You're being very diplomatic, but I think I'm hearing you say that the DOE number is probably too low and the Howarth number is probably too high. Am I right?

Brian C. Prest: I think that's right.

Daniel Raimi: As I mentioned in the introduction, you've done this really fascinating new study that looks at methane emissions from natural gas production in different parts of the United States. You also talked us through how natural gas coming from those different parts of the United States, if it's exported as LNG, may differ in their climate impacts from those different natural gas sources. Can you talk us through the basics of your study and then tell us about some of your key findings?

Brian C. Prest: I'm happy to. Stepping back a little bit, I already mentioned that there's a lot of heterogeneity—or regional variation, I should say—in the leak rates of methane across different places in the United States. As a benchmark, about half of all US gas supply comes from just two regions. That's Appalachia—the Marcellus Basin—and the Permian Basin.

Those two basins have very different reputations and data on the leak rates for methane. There was a paper published in Nature last year—Sherwin et al., 2024—that looked at nearly 1 million empirical observations—think aerial flyover measurements of methane leaks across six basins in the United States, including Appalachia and the Permian Basin—and found that Appalachia had some of the lowest leak rates (under 1 percent), whereas the Permian Basin, particularly the New Mexico side of the Permian Basin, had very high leak rates (as high as 9.6 percent). Those are very different estimates, and those can be determinative in terms of whether LNG exports are more carbon intensive than coal. And so, it’s important to know the economics of the situation. If we start exporting gas, what is the source of supply that ramps up to meet that gas-export demand?

We already talked about the Howarth paper and the DOE studies. The Howarth paper essentially used a number consistent with the Permian Basin—so, on the higher end. The DOE study used a relatively low number, not specific to any particular basin. But neither of those really acknowledges the economics of the situation, which is that the source of supply that ramps up in response to an increase in demand is going to be driven by economics. Which sources of supply are more price responsive, or, as we say in economics, more price elastic? Which ones have a relatively higher supply elasticity? That's what I dig into in this paper: to think about what sources of supply are likely to ramp up and what the methane emissions associated with them are.

Daniel Raimi: Great. What did you find?

Brian C. Prest: Thinking about it in terms of the two major contributors to gas supply helps with the intuition, although there's a lot more going on under the hood in the modeling. The sources of supply that are likely to ramp up to meet increased gas export demand are relatively low methane in terms of lower leak rates. If you think about Appalachia, it’s largely a “dry gas” play, meaning they're drilling wells for the gas, not for any oil. Drilling there tracks the price of gas, so if we see an increase in the price of gas driven by higher gas demand, that's going to disproportionately drive production from Appalachia, which has low leak rates.

By contrast, in the Permian Basin, the gas is what we call associated gas, which means it comes up with the oil. But by and large, the main reason companies are drilling wells in the Permian Basin is for the oil. And so, drilling predominantly tracks the price of oil, and an increase in gas prices does not do much for activity in the Permian Basin.

Despite the fact that the Permian Basin does have high leak rates, using a methane leak rate consistent with that, as the Howarth paper does, is not really recognizing the economics for this. It's likely to come from the gas plays, not from the oil plays. And so the central number is that while the nationwide average leak rate is in the ballpark of 3 percent, which is consistent with the Howarth paper, the effective leak rate—the weighted-average leak rate from the marginal sources of gas supply—is lower. The central number here is 1.7 percent. That number just so happens to be about halfway between the Howarth number of 2.8 percent and the number used by DOE of less than 0.6 percent.

There's an interesting corollary result, which is that … I don't just think about gas-export demand, I also think about oil-export demand. The United States has started to export a lot of crude oil ever since the 2015 ban on crude oil exports was lifted. There, we see a very different dynamic—an increase in oil demand puts upward pressure on US crude oil prices, and that's going to lead to more drilling in the parts of the country where they're drilling for oil. That takes you to the Permian Basin.

That doesn't do much for places like Appalachia, where there is not really any oil coproduction. They're drilling for gas. And so, if anything, you actually might see a reduction in drilling activity in Appalachia in response to higher oil exports. Why is that?

The logic is as follows: Higher oil exports put upward pressure on crude oil prices. That means more drilling in the Permian Basin. That brings up the gas that comes up with the oil. That puts more gas on the market, which puts downward pressure on US gas prices, and that makes the economics of drilling in Pennsylvania worse.

The result of all of that is that increased oil exports actually caused the Permian Basin, which has high leak rates, to crowd out gas production from Appalachia, which has low leak rates. The effective leak rate is actually quite high in that case. The gas coming online, in response to oil-export demand, has a leak rate of more than 9 percent in my model. To make a long story short, gas exports bring on lower-leak-rate gas, whereas oil exports bring on higher-leak-rate gas—potentially very high.

Daniel Raimi: Have you done any work to try to quantify the aggregate emissions effect of the oil exports that you're talking about or the LNG exports? Obviously the leak rates vary a lot. We know that Permian Basin gas is very leaky, and that that's not good for climate. But when you add up all the numbers, how significant might these issues actually be at a global scale? Can you give us a sense of how big those numbers are when you add them up?

Brian C. Prest: Sure. I did a back-of-the-envelope calculation in the paper based on the results we've already talked about, thinking about the increase in crude oil exports that we've seen over the past 10 years, ever since the oil export ban was repealed. Over that time period, on average, from 2015 to present, the United States has exported something like 2 million barrels of crude oil a day, over and above what was done before the 2015 ban was lifted. Using the leak rates from my paper, that comes out to driving about 1.3 million tons of methane emissions annually, on average, over that period. That owes to the high leak rate caused by oil-export demand. Now, how does that compare to LNG-export demand? Well, that amount of methane emissions is equivalent to what my results suggest would be driven by a 20 billion cubic foot per day increase in gas exports.

Daniel Raimi: So: big?

Brian C. Prest: Big. Much more than we are currently exporting and on the order of magnitude of what is currently under consideration for additional export capacity to be built.

Daniel Raimi: Brian, you also lead our Social Cost of Carbon Initiative. You've developed estimates of the social cost of methane. Of course, listeners to the show will know the social cost of carbon is the damage caused by each additional ton of carbon dioxide that's released to the atmosphere to society over time. When we think about this in terms of social costs, what are the magnitudes?

Brian C. Prest: If you want to take the 1.3 million tons of methane emissions annually and put that into economic terms, in terms of environmental damage, we can apply our updated estimate of the social cost of methane, which is in the ballpark of $1,900 per ton of methane. You can do the math: 1.3 million tons of methane times $1,900 per ton gets you annual climate damages on the order of $2.5 billion a year over the past decade.

Daniel Raimi: I remember in 2015, when the crude oil export ban was lifted, there were a couple of studies, including at least one done by some of our colleagues here at RFF, that estimated the climate impacts of lifting the ban. If I remember correctly, most of those studies found pretty negligible climate impacts of lifting the crude oil export ban at the time. Do you know if they took this issue of methane emissions into account, particularly accounting for the high level of methane emissions rates from the Permian Basin?

Brian C. Prest: That's a good question. I'd have to go back and look at the studies to say with a greater deal of confidence. My sense is that was not something that was really on people's radar. A lot of the evidence about really high leak rates, especially in the Permian Basin, has largely come to light since 2015 from studies published in Nature and elsewhere in 2018, 2019, all the way through 2024. I don't think that was the focus of that study. My recollection is that the study was primarily focused on the potential impacts on gasoline prices in the United States.

Daniel Raimi: Right. We will have to circle back with our colleagues and ask them about that, but my recollection is the same—that might've been a blind spot in 2015.

Brian, you just mentioned prices. Everybody cares about gasoline prices. People don't know as much about electricity prices, but they're also very important. Did you look at the effect of LNG exports on prices?

Brian C. Prest: Yes, I did. That was another key focus of this. I was looking at trying to estimate how much increased gas demand might increase domestic gas prices. For context, gas prices in other countries are often two to three times higher or more than what they are in the United States, largely because the markets are not fully integrated. With expanded gas export capacity, we might see a greater linking between US prices and those overseas, which would mean upward pressure on US gas prices, which is what drives additional gas production in the United States from increased exports. My central estimates here were that each billion-cubic-foot-per-day increase in gas-export demand is expected to drive, approximately, a 2.5 percent increase in domestic gas prices.

Roughly speaking, we've essentially gone from 0 to 12—so, 12 times 2.5 percent gets you something like a 30 percent increase in domestic gas prices. But, as I already indicated, a secondary knock-on effect of increased gas demand for the United States is putting additional coproduced oil on the market, and that's going to put downward pressure on oil prices. And so, each 1-billion-cubic-foot-per-day increase in gas demand is expected to reduce crude oil prices by about half a percent.

Daniel Raimi: Really interesting. We've definitely got some kind of countervailing currents here. People should definitely read the study. They'll get all the details and they can look into the methods and really dig in.

Let me ask you now about some things happening outside of a model, in the real world. You talk about the high methane emissions rates in the Permian Basin. What do we know about what companies are doing to try to reduce those emissions? Are they trying to reduce those emissions? To what extent are government policies encouraging companies to reduce methane emissions?

Brian C. Prest: There's a lot of different drivers for what's affecting industry's efforts to capture those methane emissions. The first and very basic one is that methane is the primary component of natural gas. If it leaks into the atmosphere, you're losing your product. And so, each, say, thousand cubic feet of gas that is leaked into the atmosphere is another, say, $3 to $4 worth of product that they can't sell. There's some private incentive to capture the gas, but if we think about our social cost of methane numbers, the social costs are typically an order of magnitude larger; say, $30 per thousand cubic feet, not $3 per thousand cubic feet. So, the private incentive is not really aligned with the social incentive.

There was a fee on methane emissions passed as part of the Inflation Reduction Act, which technically went into effect last year. There may end up being pressure to get it repealed, but we'll see. In principle, the idea is that a methane fee is just like a carbon price. It's supposed to align the private and the social incentives to provide an incentive for companies to reduce their methane emissions.

The other main drivers are methane regulations that were passed over the past several years during the Biden administration. I suspect we'll see those potentially rolled back, which also might mitigate the incentive to capture those emissions.

Lastly, there has been increased certainty from European countries about importing high-carbon gas. They increasingly demanded that any imports meet certain carbon-intensity targets. Those may end up being loosened a bit, but I think it remains to be seen whether the progress that we've seen in some quarters for reducing methane emissions continues.

Daniel Raimi: My recollection is that there's also some private-sector coalitions made up, primarily, of large international oil companies that have committed to achieving certain low methane emissions rates. I don't know if we have data on those efforts, but I know that's something that's out there, as well.

Brian C. Prest: I don't have a sense of how much effort is still behind those initiatives or whether they've just been continuing …

Daniel Raimi: Business as usual?

Brian C. Prest: Yeah.

Daniel Raimi: An interesting question to look into.

Brian, last question before we go to our Top of the Stack segment, which is about federal policy. As listeners of this podcast know, the Trump administration’s catchphrase is that they want to unleash energy dominance from the United States. They're eager to expand oil and gas production at home. They're eager to expand exports. How much control does any federal administration have over actually making that happen in the real world?

Brian C. Prest: The short version is that the federal government has less control over US oil and gas production than most people might intuit. The vast majority of oil and gas development in the United States is on private, state, or Tribal land. We in the United States don't have a national oil company like many other countries do. And so, these are decisions made by private companies based on economics—oil prices, steel prices, and so on. Those are not things that the federal government has direct control over. One thing that the federal government does have direct control over is leasing on federal lands. But even there, less than a quarter of US oil production comes from federal lands and waters, and approximately one-tenth of US gas supply is from those sources.

So, despite the fact that we've seen strong growth on federal, state, and private lands, even during the Biden administration when there's been less interest, those shares have held relatively constant. One reason for that is that projects on federal land tend to take many years to develop, so even if we saw a large increase in oil and gas leasing on federal lands and waters, we wouldn't necessarily expect oil or gas production to start flowing from those for five years or more. I think that's the reason we haven't really seen much of a move in oil prices or gas prices since the election.

Daniel Raimi: Right.

Thank you, Brian. This has been a super fascinating conversation. It's a topic that's dear to my heart, as you know, and your work on these topics is always so great. I really appreciate you coming on the show and sharing it with us. Listeners can check out the paper in a link that we'll have in the show notes so that people can dig into all the details.

Before we let you go, I'd love to ask you the question we ask all of our guests, which is to recommend something that you think is great. It can be related to the environment or not. We're not very picky. What's at the top of your literal or your metaphorical reading stack?

Brian C. Prest: I would recommend a book called Not the End of the World by Hannah Ritchie. I think Hannah Ritchie is better known for the Our World in Data website, which is a great resource, but this book first came out last year. It offers, I think, an optimistic and nuanced take on a host of environmental issues—not just climate, but a bunch of different topics. So, I'd certainly recommend that.

Daniel Raimi: That sounds great. She's fantastic.

One more time, Brian Prest from Resources for the Future. Thanks so much for coming on to the podcast. It's great to have you.

Brian C. Prest: Thanks. It’s great to be back.

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