The narrative that liquified natural gas (LNG) exports are directly linked to natural gas prices here in the U.S. continues to circulate, but such assertions ignore contrary evidence. There is no correlation, and blaming LNG for high electricity bills is a scapegoat used by lawmakers to hide poor policy decisions that are actually contributing factors.
LNG benefits the U.S. and world at large; attempts to curtail exports are misguided. Regulators should look to solve the real issues negatively impacting natural gas prices rather than indicting an entire industry.
LNG is a booming enterprise that began a mere decade ago, when the first cargo from the continental U.S. departed Sabine Pass for Brazil on Feb. 24, 2016. Fast forward to today where the U.S. is the global leader, exporting to more than 40 countries and contributing roughly $44 billion each year to the economy.
People are concerned about natural gas prices because of LNG flourishing, but they needn’t be.
Despite its critics, LNG exports have had minimal impact on domestic natural gas prices. Over the last decade, prices experienced the lowest in U.S. history by declining over 54% from the first decade of this century where they averaged almost $9/one million British Thermal Units (MMBtu). During the first half of 2023, when the U.S. became the top LNG exporter, U.S. natural gas prices averaged $2.48/MMBtu, the lowest six-month average in over 35 years (outside the COVID-19 pandemic). How is this possible?
The key to low domestic prices amid LNG export growth is robust gas supply which, thanks to the shale revolution in the early 2000s, has bolstered domestic natural gas reservoirs. The increase of more than 40% in U.S. production since 2015 has met both domestic and foreign demand.
Natural gas “proved reserves” increase almost every year, due in large part to major advances in exploration and production technologies. The U.S. Energy Information Administration estimates 691 trillion cubic feet (tcf) of reserves; the Potential Gas Agency calculates an additional 3,870 tcf in resources for a total future gas supply of 4,562 tcf. The U.S. has over 100 years’ worth of natural gas.
The short‑term price spikes that did occur in 2022 were not provoked by increasing LNG exports but rather are the result of unique factors. Coming out of the pandemic involved major hurdles: Supply chain challenges and labor shortages stymied domestic production as demand for energy resumed. Russia’s invasion of Ukraine also upended energy supply-demand dynamics abroad and inflated global coal prices, causing increased consumption of natural gas and depleting inventories. Both crises created supply shocks, elevating prices for months.
Some regions in the U.S. have seen high natural gas prices, but LNG exports are not the culprit. Rather, a culmination of ill-advised policy decisions and permitting roadblocks largely triggered higher costs.
The states with the highest natural gas prices need more pipelines to boost distribution, but that lack of sufficient infrastructure is by choice. The Northeast has impeded close to 5 billion cubic feet per day (bcf/d) of natural gas—enough to stabilize reliability and pricing—by blocking multiple pipeline projects. This is costing consumers and businesses roughly $10-$20 billion per year.
Pipeline constraints are especially unforgiving during winter months.
While average Henry Hub spot prices may soar to $30/MMBtu with cold snaps, the Northeast generally sees closer to $80/MMBtu, at times exceeding $100/MMBtu. Winter Storm Fern this past January saw some areas reach $300/MMBtu on its harshest days.
Last winter residential customers in Massachusetts paid 80% more for natural gas than those in Pennsylvania. The difference? Pennsylvania has adequate infrastructure.
In a Federal Energy Regulatory Commission oversight hearing earlier this month, witnesses affirmed natural gas supply is plentiful but the ability to ship it is not. The solution is obvious: Increase transport capacity, which includes constructing more pipelines.
Until places like the Northeast improve their natural gas infrastructure, they will continue to encounter steep prices. Limited pipeline capacity combined with high winter heating demand and no ability to bring natural gas quickly to the homes and businesses that desperately need it translate to high costs.
U.S. LNG’s tremendous projected growth of $1.3 trillion to GDP by 2040 should not be hindered; policies that facilitate widespread distribution of natural gas should instead be put in place.
Kristen Walker is Senior Policy Analyst and Manager for Energy and Transportation with the American Consumer Institute, a nonprofit education and research organization. For more information about the Institute, visit www.theamericanconsumer.org or follow us on X @ConsumerPal
This article was originally published by RealClearEnergy and made available via RealClearWire.
