DOE and Industry Expect the United States to Play a Large Role in the LNG Market over the Next 10 Years

		DOE and Industry Expect the United States to Become a Significant Exporter of LNG

According to DOE, due to advances in extraction technologies and  growing worldwide demand for natural gas, the United States is expected  to become a net exporter of natural gas in the next few years. The total  daily capacity of these five facilities is nearly 10-billion cubic feet (bcf) of  natural gas, which constitutes about 12.4 percent of expected U.S.  natural gas production  and approximately 18.1 percent of the world’s  expected LNG capacity in 2020. Customers of U.S. LNG Have Responsibility for Transporting LNG from Liquefaction Facilities

According to representatives from the liquefaction facilities we spoke with,  under current business models and contracts, the costs associated with  importing LNG (including, for example, feed gas, liquefaction services,  and transportation) are separate, and U.S. liquefaction facilities have no  responsibility for shipping LNG. About 100 or More LNG Carriers May Be Needed to Transport Expected U.S. LNG Exports in the Coming Years

Estimates of the number of LNG carriers necessary for transporting U.S.  LNG vary, but based on estimates of representatives from the five  liquefaction facilities with whom we spoke, about 100 or more LNG  carriers will be needed to transport U.S. exports once liquefaction  facilities are fully operational. Most U.S. liquefaction capacity has been contracted to customers in  Asia. As mentioned previously, currently operating LNG carriers are nearly all  foreign built and flagged. According to MARAD officials and a  shipbuilder representative, LNG carriers have not been built in the United  States since 1980, and no LNG carriers are currently registered under  U.S. flag. If the Proposed Requirement Does Not Reduce the Expected Demand for U.S. LNG, It Could Expand Employment for U.S. Mariners and Shipbuilders

		If Demand Is Not Reduced, Maritime Stakeholders Say the Proposed Requirement Could Expand Employment for U.S. Mariners, Though Time Would Be Needed for Training

While we cannot reliably estimate the total number of U.S. mariner jobs  that would be created due to the possibility that the proposed requirement  could reduce demand for U.S. LNG (discussed in the next section), Coast  Guard officials and representatives from four mariner unions estimated  that each U.S.-flagged LNG carrier would likely employ a crew of between  40 and 52 mariners, as discussed below. Based on these rates, we estimate it would take over 30 years to build  the 100-carrier fleet potentially needed for U.S. exports. However, representatives from the three U.S. shipyards  we spoke with estimated that U.S.-built carriers would cost about two to  three times as much as similar carriers built in Korean shipyards,  depending on factors such as volume. If LNG Customers Contract to Purchase U.S.-Built Carriers, Construction of Those LNG Carriers Could Provide Employment in U.S. Shipyards, according to Shipyard Representatives

Officials from the two U.S. shipyards with sufficient dock space stated that  hiring of U.S. shipyard workers would depend on the number of LNG  carriers ordered and would rely in part on foreign workers. Increasing or stabilizing jobs in the shipbuilding industry for a period of  time, if it occurred, could have additional benefits for military readiness. This decreased competitiveness  may in turn reduce demand for U.S LNG. The extent of this reduction is  unclear. Several stakeholders told us that implementation of the proposed  requirement and associated increases in transportation costs could  prompt customers to attempt to modify, renegotiate, or terminate their  liquefaction contracts. Appendix I: Objectives, Scope, and Methodology

The Howard Coble Coast Guard and Maritime Transportation Act of  2014  includes a provision for GAO to report on the number of positions  that would be created in the United States maritime industry each year in  2015 through 2025 if liquefied natural gas (LNG) exported from the United  States were required to be carried: (1) before December 31, 2018, on  vessels documented under the laws of the United States; and (2) after  such date, on vessels documented under the laws of the United States  and constructed in the U.S. This report discusses: (1) current industry and  Department of Energy (DOE) expectations for the market for U.S. exports  of LNG, and how that market is expected to operate, (2) stakeholders’  views on how the proposed requirement to use U.S.-flagged-and-built  carriers for LNG exports could affect jobs in the maritime, shipbuilding,  and other related sectors, and (3) potential effects of the proposed  requirement on the market for U.S. LNG and the broader U.S. economy,  including the market for U.S. LNG and other industries.
Why GAO Did This Study

More than 30 companies have received approval from DOE for large-scale exports of U.S. LNG—natural gas cooled for transportation—beginning in 2015 or 2016 via specialized LNG carriers.
Congress is considering whether to propose legislative language that would require U.S. LNG be exported via U.S.-built-and-flagged carriers with the goal of supporting U.S. shipbuilders and mariners. Congress included a provision in statute for GAO to review the number of vessel-construction and operating jobs that would be created in the U. S. maritime industry each year in 2015 through 2025 if exported LNG were required to be carried (1) before December 31, 2018, on vessels documented under the laws of the United States and (2) after such date, on vessels documented under the laws of and constructed in the United States. This report discusses (1) DOE and industry expectations for the market for U.S. LNG exports and (2) how the proposed requirement could affect jobs in the U.S. maritime industry and the broader U.S. economy.
GAO reviewed and analyzed economic forecasts of the LNG market and interviewed relevant stakeholders including officials from DOD, DOE, the Department of Transportation, Coast Guard, and the U.S. Trade Representative; representatives of mariner groups, three U.S. shipyards that expressed interest in this market, the five U.S. liquefaction facilities that are under construction, and economic-research firms that have studied the LNG market.

What GAO Found

According to Department of Energy (DOE) and industry expectations, in the next few years the United States is expected to change from a net importer of natural gas to a net exporter, with those exports destined for different regions of the world, especially Asia. Five large-scale U.S. liquefaction facilities—necessary for conversion of natural gas to liquefied natural gas (LNG) (see fig. below)—are under construction with a projected capacity to export more than 12 percent of U.S. natural gas production in 2020. According to representatives from these five facilities, their liquefaction capacity has already been sold mainly through 20-year contracts and their customers are responsible for transporting the LNG to export markets. Based on estimates from these liquefaction facilities, transport of the full capacity of these liquefaction facilities will require about 100 or more LNG carriers. Currently operating LNG carriers are nearly all foreign built and operated. LNG carriers have not been built in the United States since before 1980, and no LNG carriers are currently registered under the U.S. flag.
The proposed requirement to transport exports of LNG via U.S.-built-and-flagged carriers could expand employment for U.S. mariners and shipbuilders if it does not reduce the expected demand for U.S. LNG. According to representatives of U.S. mariner groups, between 4,000 and 5,200 mariners would be needed to operate the estimated 100 LNG carriers needed to transport the five U.S. facilities' full capacity of LNG once the five are fully operational. Based on the current capacity of U.S. shipyards we spoke with, building 100 carriers would likely take over 30 years, with employment in U.S. shipyards increasing somewhat or becoming more stable, according to shipyard representatives. Department of Defense (DOD) officials also indicated that any policy or requirement that increases and stabilizes jobs in the U.S. maritime industry could support military readiness. However, according to industry representatives, U.S. carriers would cost about two to three times as much as similar carriers built in Korean shipyards and would be more expensive to operate. Based on GAO analysis, these costs would increase the cost of transporting LNG from the United States, decrease the competitiveness of U.S. LNG in the world market, and may, in turn, reduce demand for U.S. LNG. The extent of these effects depends on customers' circumstances and business decisions. For example, several stakeholders told us implementing the proposed requirement may prompt customers to attempt to modify, renegotiate, or terminate their existing contracts for liquefaction. Additionally, limited availability of U.S. carriers in the early years of construction may decrease the amount of LNG that could be exported from the United States for a period of time, leading customers to seek alternate sources. Further, a reduction in the level of expected U.S. LNG exports could impact the broader U.S. economy, including potential job and profit losses in the oil and gas sector.