As the supply of domestic natural gas continues to grow, many political and energy industry players are pushing for an increase in the nation's gas exports, but why now? For one, the U.S. simply has more natural gas than it knows what to do with. For example, as many as 800 wells along the Pennsylvania Marcellus Shale formation are idle, according to Justin Carlson as quoted by NPR's StateImpact.
With access to more gas than we have use for, the American consumer has been the primary beneficiary thanks to low prices, but the energy industry is trying to find ways to increase demand to meet the burgeoning supply. One of the proposed approaches is to increase the amount of gas the U.S. exports in the form of liquefied natural gas (LNG).
Those who support the increase point to the high international value of natural gas as being reason enough to ramp up operations, while critics are often skeptical about potential negative effects on domestic commodity pricing.
What's at stake?
There are two ramifications of the decision to export natural gas that may affect everyday Americans:
- The future of domestic natural gas prices.
- The impact on the nation's economy and gross domestic product (GDP).
According to a National Economic Research Associates (NERA) study commissioned by the U.S. Department of Energy (DOE), exporting natural gas would have a positive impact on macroeconomic conditions across the board. "There were net economic benefits to the U.S. economy across all the scenarios that we examined in which the global market would take LNG exports from the U.S."
While in general the report is staunchly in support of increasing LNG exports, it does admit that the domestic price of gas would be affected, feeding the flames of opposition. In short, according to the study, if the U.S. opts to increase LNG exports both the domestic price of gas and the nation's GDP will increase.
The players in the game
The case made for increasing LNG exports is clear cut and is supported primarily by those in the energy industry. That side claims that opening exports to more nations will create freer market conditions, which is the fundamental ideal of big business.
Conversely, opponents of the U.S. government agreeing to allow an increase in LNG exports point to five reasons expansion should be blocked.
- The domestic price of natural gas is likely to increase. The domestic market is shielded by its relative isolation, a condition transparent when comparing natural gas rates in the U.S. and the rest of the globe.
- Increasing costs for natural gas would presumably hamper economic recovery, which many claim is currently being assisted by low pricing.
- The infrastructure capable of exporting LNG is limited. Transforming existing LNG importing facilities to handle LNG exports will take significant investment.
- The amount of natural gas being harvested at this time in the U.S. is only now beginning to exceed domestic demand. This boom is only made possible through controversial drilling techniques – including fracking which many groups oppose – and an increase in exports would encourage these techniques to be used more broadly.
- Some doubt the extent of the natural gas reserves available, and question the value of exports over maintaining a strong domestic supply for years to come.
How we got here
Governmental control over natural gas has precedent in the United States. Unlike most commodities produced domestically, natural gas has traditionally had strict controls in place by the U.S. government. Beginning in 1938 with the passage of the Natural Gas Act, interstate distribution was tightly controlled, to the point that pipeline construction had to be directly approved by Congress. These initial legislative controls and those that followed directly contributed to the lack of infrastructure in place to support LNG exports today.
While the history of government control is reason enough for some big businesses to get involved with a push for free market policies, current market conditions are spurring gas companies to push for more aggressive action. Thanks largely to the fracking revolution's transformation of the U.S. energy industry, the domestic price of natural gas has plummeted. But domestic demand for natural gas is plateauing, and supply is still growing as the industry continues to develop more effective ways to use hydraulic fracturing technology. As a result, more industry representatives are looking to increase exports.
Where would we export gas to?
While domestic natural gas prices are exceptionally low, according to the U.S. Energy Information Administration (EIA), many of the world's nations are paying much higher rates. With the combination of excess supply and high international rates, the market conditions for gas exports are particularly lucrative.
The vast majority of facilities that can be adapted for the export of LNG in the U.S. are on the Gulf of Mexico, but there are a few on the Atlantic and Pacific coasts as well. As of the September 2013 LNG Monthly Report from the DOE, there have been no LNG tanker exports thus far in 2013. In terms of demand, Japan has the honor of being the largest LNG importer in the world, largely because it ended its nuclear generation programs after the Fukushima disaster of 2011.
In fact, the Energy and Commerce Subcommittee on Energy and Power was host to representatives of 10 nations asking the U.S. to ramp up LNG exports on October 10, 2013. Nations represented were Japan, the Czech Republic, Hungary, Haiti, India, Lithuania, Puerto Rico, Singapore, South Korea and Thailand. If the U.S. were to increase its LNG exports, there will be no shortage of nations willing to import supply.
Where we go from here
The debate is just beginning to ramp up, and in all likelihood it will take some time to resolve. For one thing, in order for more exports to occur, several political solutions must be put in place to ease restrictions that currently limit natural gas exports. There are trade barriers put in place by Congress limiting exports to countries that don't have free trade agreements with the United States and there is also limited infrastructure to support LNG exports.
As lawmakers continue to debate policy, the one thing that's sure to continue is the divide between opinions on both sides of the issue.