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In 'Unthinkable' Shift, U.S. Could Be Net Natural Gas Exporter by 2016 In 'Unthinkable' Shift, U.S. Could Be Net Natural Gas Exporter by 2016

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In 'Unthinkable' Shift, U.S. Could Be Net Natural Gas Exporter by 2016

Ten years ago, natural gas was growing increasingly scarce and expensive in the U.S., as demand swelled. Companies began investing huge sums to re-open mothballed facilities that would allow them to import liquid natural gas from places like the Middle East, Africa and Russia. Domestic natural gas prices skyrocketed to near-record levels.

Then everything changed.

Advances in hydraulic fracturing and horizontal drilling revolutionized U.S. energy development. Energy prospectors began to tap into previously inaccessible supplies of natural gas buried deep in shale-rock formations. Soon, the U.S. was awash in affordable, abundant natural gas.

 

By 2012, U.S. natural gas prices had plunged 85 percent from their high of the mid-2000s—and with them, the need to import liquefied natural gas (LNG).

The U.S. is now expected to become a net exporter of LNG—perhaps as early as 2016, according to a Barclays Commodities Research report cited by Platts on Jan. 9.

"In a shift of tectonic magnitude," the report said, "the U.S. is firmly on track to become a net exporter of natural gas, with far-reaching implications for the US economy, geopolitics, natural gas markets and the global LNG space."

Kenneth B. Medlock, the energy and resource economics fellow at Rice University's James A. Baker III Institute for Public Policy, called America's move from importer to possible exporter of natural gas "an unthinkable notion just a few years ago."

"This new consensus is fueled by the current reality—one that features abundant supplies and low prices in North America relative to the rest of the world," Medlock wrote in August 2012.

Debate has since turned to whether the U.S. should export its newfound natural gas wealth—as well as its many environmental and economic benefits—or try to keep domestic gas prices as low as possible by retaining supplies for domestic use. After all, the domestic abundance of natural gas is producing tens of billions of dollars in new manufacturing investment in the U.S. and has spurred a "re-shoring" of jobs that seemed lost overseas.

Industry experts predict that the U.S. natural gas boom will last for decades and that exports could mean a windfall for the national economy—one that's unlikely to significantly drive up domestic natural gas prices significantly or impede growth.

A report delivered to the Department of Energy in December 2012 by NERA Economic Consulting finds that exporting liquefied natural gas will add more than $4.4 billion to the nation's economy in 2020—and perhaps as much as $20 billion or more.

The report adds that "the increase in investment for liquefaction facilities and increased natural gas drilling and production provides, in general, near-term stimulus to the economy." That means more gas production, more jobs, more revenue, and an improved U.S. trade balance.

But will LNG exports from the U.S. mean higher natural gas prices at home? Not by much, according to a report by the Deloitte Center for Energy Solutions. Deloitte predicts the added demand will have an average price impact of only $0.12 per MMBTU from 2016 to 2035 -- a 1.7 percent increase.

Although some fear a rise in domestic prices, many experts believe those predictions overstate the facts behind the international market for LNG. They say market forces will naturally limit demand, as overseas shale gets tapped and LNG export projects go through the process of building and permitting export terminals.

"If exports can be anticipated, then producers, midstream players, and consumers can act to mitigate the price impact," the Deloitte report said. "Producers will bring more supplies online, flows will be adjusted, and consumers will react to price change resulting from LNG exports."