Domestic energy companies here in the United States have been calling liquefied natural gas the “future” to appease the world’s insatiable demand for energy. And they say that for good reason—we have a lot of it. Thanks to large shale natural gas and oil reserves the nation aggressively exploits, the U.S. is expected to be the world’s largest producer of petroleum and natural gas hydrocarbons in 2013, beating out perennial leaders Saudi Arabia and Russia.
According to the United States Energy Information Administration:
“Since 2008, U.S. petroleum production has increased 7 quadrillion Btu, with dramatic growth in Texas and North Dakota. Natural gas production has increased by 3 quadrillion Btu over the same period, with much of this growth coming from the eastern United States. Russia and Saudi Arabia each increased their combined hydrocarbon output by about 1 quadrillion Btu over the past five years.”
Thanks to this increase, domestic spot natural gas prices have diverged from the rest of the globe. The states now enjoy some of the cheapest natural gas in the world, as illustrated by this chart from Timera Energy:
Doing some simple math, the motivation for liquefied natural gas is clear. Producers are itching to build as much LNG export infrastructure as quickly as possible to take advantage of global price discrepancies.
Will Exporting Natural Gas Raise Domestic Prices?
My home state of Oregon has emerged as an LNG battleground, pitting concerned citizens and environmentalists against the energy industry. With prices in U.S. dollars four times greater in East Asia compared to the U.S., the stakes are high. LNG export terminals along the Oregon Coast will generate tremendous profits for the energy industry—if they can get them built. Last month, county commissioners in Clatsop County Oregon unanimously rejected a proposal to build a LNG facility and pipeline along the coast. Local citizens are unconvinced that the proposed economic benefits of these facilities outlined by Oregon LNG outweigh the potential environmental and socioeconomic consequences.
Frankly, they have a point. And it is not just environmental.
Similar to how rising oil prices can hurt the economy, exporting will likely increase natural gas prices in the U.S. and serve as a tax on Americans who consume it in their respective homes and businesses. Exporting will benefit the lucky few who own land rich in gas shale or those who work/own one of the energy companies that handle it.
Hedge against Rising Prices
The cynic in me believes that energy companies will win out. Oregon LNG is appealing to the federal government to build on the Oregon Coast, arguing the local government does not have the authority to decide. Regardless of the outcome in Oregon, other proposed LNG facilities will likely drain North America of its natural gas in the years ahead. Time will tell if prices rise as the country looks to export more shale gas.
- Asian LNG Prices Rise Sharply (blogs.wsj.com)
- Two Solid Investments in the LNG Game (fool.com)
- Panama Canal’s LNG Surprise to Redefine Trade in Fuel: Freight – Bloomberg (bloomberg.com)