Daily Update: LNG Exports Put US Economy on a Path to Growth

Today is Wednesday, December 18, 2024, and here’s your curated selection of essential intelligence on financial markets and the global economy from S&P Global. Subscribe to be notified of each new Daily Update. 

Liquified natural gas was never meant to be a US export. Many LNG ports were built when the US was a net importer of natural gas. However, during the shale revolution of the 2010s, horizontal drilling and hydraulic fracking significantly increased US natural gas production, and import hubs were converted into export hubs along the US Gulf Coast and elsewhere. Over the past decade, the US has transformed into the world’s leading natural gas exporter, adding money, jobs and growth to the US economy. Customers worldwide have come to trust the US as a stable and reliable energy provider. US LNG has replaced almost half of the Russian gas supply lost in Europe following Russia’s invasion of Ukraine.

A group at S&P Global has conducted an impact study for the growing US LNG industry, led by S&P Global Vice Chairman and Pulitzer Prize-winning author Daniel Yergin. The study, “Major New US Industry at a Crossroads: A US LNG Impact Study – Phase 1,” was published Dec. 17.

Since 2016, the US LNG industry has contributed $408 billion to US GDP, supporting an average of 273,000 direct, indirect and induced US jobs. LNG generates more revenue than US corn and soybean exports, roughly double that of US movie and TV-related exports, and more than half that of US semiconductor exports. And the industry is poised for further growth. By 2040, US LNG will contribute $1.3 trillion to GDP and support an average of 495,000 direct, indirect and induced US jobs. The industry is projected to provide $2.5 trillion in revenue for US businesses, over $900 billion in expenditures, $165 billion in tax revenue and $250 in annual income per household.

In January 2024, the Biden administration announced a pause on reviewing applications to export LNG to non-free trade agreement countries. The government expressed concern that exporting LNG could encourage further fossil fuel use and increase emissions of methane, a much more powerful greenhouse gas than carbon dioxide.

However, the authors of the impact study question this pause on economic and environmental grounds. From an environmental standpoint, they emphasize that natural gas burns more cleanly and with fewer carbon emissions than coal. The increased use of natural gas in the US has directly contributed to the decline in coal usage, which has precipitated a reduction in US carbon emissions over the past 20 years.

From an economic perspective, pausing the development of the US LNG industry risks more than $250 billion in GDP growth and endangers a further 100,000 direct, indirect and induced US jobs. The loss of US LNG to the market would create a global energy gap. According to the study’s authors, 85% of the resulting global energy gap would be replaced by fossil fuels from non-US sources, led by alternative LNG and coal.

For US consumers, LNG exports do not materially increase prices for domestic use due to the vast reserves of natural gas in the US. The US gas market is about 50% larger than the global LNG market. As a result, even though the US is the world's largest LNG exporter, those exports represent only approximately 12% of domestic US natural gas production.

Today is Wednesday, December 18, 2024, and here is today’s essential intelligence.

Written by Nathan Hunt.

Sustainability

Solar-Plus-Storage 101 – Hybridizing Market Dynamics and 10-Year Projections

Solar-plus-storage systems are fast becoming the preferred solution to address the primary interrelated challenges posed by the rapidly advancing renewable energy revolution — namely, intermittency and inconsistencies between maximum generation and peak load. These flexible systems not only help smooth out energy supply and demand dynamics, thereby bolstering reliability, but they also offer photovoltaic plants additional revenue streams in the form of capacity payments and arbitrage.

—Read the article from S&P Global Market Intelligence

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Economy

PMI Survey Response Rates: Survey Response Rates Continue to Average 73%, in Line with Pre-Pandemic Averages

S&P Global currently produces PMI surveys in some 40 countries worldwide, comprising 70 individual survey panels. Each panel covers either manufacturing, services, construction or — in a smaller number of cases — the whole economy. For each survey, the panel is carefully designed to accurately represent the true structure of the actual economy (or sector) according to official data. Companies are invited to participate in the surveys with this recruitment process closely monitored in order to ensure accurate mapping of the survey according to the official (government) data relating to sub-sector and company size contributions to economic output (as measured by gross value added).

—Read the article from S&P Global Market Intelligence

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Capital Markets

Ukrainian Banks Tested by Tax Hike, Capital Changes

A higher bank profit tax could hamper lending and strain capital adequacy ratios in some Ukrainian banks as the sector adopts a new, EU-compliant capital structure. In November, Ukraine's president signed a law introducing a 50% tax rate on banks' profits generated in 2024, increasing it from 25%. This comes just after the country's banks switched to a new, three-tier capital structure aligned with EU standards, which prompted a 50 billion hryvnia drop in regulatory capital across the sector.

—Read the article from S&P Global Market Intelligence

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Global Trade

New Tariffs on Canada, Mexico Could Add Pressure to US Business, Consumer Costs

President-elect Donald Trump's proposed 25% tariffs on all US imports from Canada and Mexico could reshape trade dynamics in North America and increase costs in key industries, potentially squeezing businesses and consumers. Trump's tariff threats this year have placed every nation and import in the administration's crosshairs. However, Mexico and Canada account for nearly 30% of all US imports and are leading suppliers of automotive goods, oil and gas, metals, plastics and lumber. Tariffs would drive up costs for these key imports and for the finished goods that rely on these products as inputs, such as new housing, consumer durables, furniture and machinery, according to experts.

—Read the article from S&P Global Market Intelligence

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Energy & Commodities

Indonesia, China and India: Asia's Energy Trio Keeps Coal Burning

When China's coal imports declined for the first time in 2014 since the 2008 recession, an International Energy Agency report questioned whether Chinese coal consumption had peaked in 2013 and said, "the golden age of coal in China seems to be over." In the same year, Indonesia's coal exports fell for the first time since the onset of strong Indonesian export growth in the 1990s. This led to several forecasters and industry observers raising concerns over export feasibility amid Chinese decline, rising domestic demand and increasing regulatory constraints.

—Read the article from S&P Global Commodity Insights

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Technology & Innovation

Listen: MediaTalk | Season 2 | Ep. 42: Shifting Sports Rights, Cable Write-Downs Defined 2024

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Events & Webinars

Webinar: Navigating the New NAIC Bond Definition Framework (Jan. 14, 2025)

The NAIC's Principles Based Bond Definition (PBBD) changes, set to take effect on January 1, 2025, represent the most significant changes to insurer investment schedules in decades. Bonds will now be categorized into two major groups: asset-backed securities and issuer credit obligations. Certain securities may not qualify as "asset-backed" under the new guidelines, resulting in higher capital charges related to Schedule BA reporting. Both insurers and the asset managers that service the industry are actively working to understand and adapt to these changes.

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