Technological advances in natural gas drilling techniques have made access to vast domestic natural gas reserves possible. Assuming that the environmental concerns associated with the new drilling technology are overcome, which seems likely, the energy landscape of the U.S. will have been unquestionably and forever altered.
Today U.S. consumers enjoy natural gas prices that are the product of both the newly accessible supplies of natural gas and the fact that our natural gas market is largely limited to North America. At these prices, natural gas vehicles are price competitive with gasoline, manufacturing is reshoring, and natural gas is also replacing coal and oil for electric generation both because of price and its clean-burning characteristics.
However, these benefits are predicated upon the domestic availability of affordable natural gas which is directly threatened by unfettered exports of liquefied natural gas (LNG).
To date, over 20 applications for the export of LNG have been filed at the Department of Energy (DOE), with a total export capacity of 28.54 Bcf/day. Total marketed natural gas production was approximately 66 Bcf/d in the U.S. in 20l1; therefore, based on current marketed production data, the total applied-for export capacity would have the effect of increasing the demand for natural gas by approximately 43%. Common sense and simple economics dictate that this large-scale export of natural gas will cause the domestic price of natural gas to significantly increase.
This large-scale export of natural gas via LNG will not only play havoc with the current supply/demand situation (and hence the price of natural gas) but also, because the price of LNG abroad is tied to the international oil market, will inevitably link the domestic price of natural gas to international oil markets, which are substantially more volatile and less transparent than our domestic market. The effect of this on the domestic price of natural gas (and hence on efforts to broaden the use of natural gas to displace foreign oil) is as self-evident as it is self-defeating.
Moreover, since commodities such as natural gas are sold where the price is the highest, irrespective of national boundaries or geopolitical considerations, and since many foreign nations have substantially higher prices for natural gas, U.S. natural gas would likely flow abroad in times of shortage, further increasing prices for domestic consumers and further undermining efforts to maintain domestic gas prices at competitive levels.
The impact of LNG export is not merely APGA speculation. On January 19, 2012, the Energy Information Administration released its study on the price impact of LNG exports entitled, “Effect of Increased Natural Gas Exports on Domestic Energy Markets.” The study verified the fact that export of LNG causes domestic price increases, concluding that consumers could see a 3-9% price increase for natural gas and 1-3% increase in electricity prices due to LNG export.
Similarly, the DOE-commissioned NERA Economic Consulting study, titled Macroeconomic Impacts of LNG Exports from the United States, succinctly stated that “U.S. natural gas prices increase when the U.S. exports LNG.”The NERA study also demonstrates that other significant negative externalities occur when exporting LNG, including:
- Wages and return on capital for individuals and businesses outside of natural gas production decline.
- Almost all sectors of the economy (other than natural gas production) suffer job losses and decreased output.
APGA Position: The consequences of unfettered exports of LNG are clear: energy price increases, a lost opportunity to reduce our dependence on foreign oil, and a squandered manufacturing renaissance. Given these costs, APGA believes that the wise policy choice at this time is to prohibit the export of domestically-produced LNG.