Hold 'em or Fold 'em - Debating Natural Gas Exports

September 12, 2012 10:08 AM

More signs came out today from the U.S. Energy Information Administration (EIA) that U.S. natural gas supplies are near full storage capacity. With all of this natural gas on hand, some are wondering if we should export some of our reserves, or hold fast to what we have. U.S. Department of Energy reports that around 800 billion cubic feet (bcf) of natural gas is exported each year. Recent EIA data suggests domestic supply is at 94% of its 4,500 bcf working gas design capacity. The data also reflects an increase in domestic production this year while consumer demand is in decline.

Much of the export/not-to-export debate revolves around domestic natural gas prices. Anxieties have been raised at the thought that exporting our natural gas would make our domestic supplies both shorter and subject to World market prices. Each of these is seen as having the potential to boost energy prices here at home by artificially increasing the price of domestic natural gas. Experts have looked at this closely and the consensus is that increasing natural gas imports would likely raise prices by only 2% to 11% between 2015 and 2035.

Logistically, natural gas is difficult and labor intensive to ship overseas. The gas must first be converted to a liquid form by cooling it to -260 degrees F. Specialized insulated ships ferry the liquid natural gas to its destination where it must be reheated to a gas again. The EIA agrees that, in moderation, natural gas exports could inspire a 10% increase in domestic prices, but points out that 'runaway' natural gas prices are unlikely unless huge amounts of gas are taken from storage all at one time.

A natural gas embargo would probably soften natural gas prices, which have trended lower for most of the end of this summer. But production would likely soften right along with it, pushing prices right back up.

The U.S. is in a good position with respect to natural gas. Domestic supplies are at 94% of working gas design capacity; production is up and consumption is trending lower. If the U.S. decides to share its good fortune with the World and sell off moderate amounts of existing reserves, domestic prices may see an incidental uptick. However, new technologies have made it much easier and less expensive to produce natural gas in the U.S., so, barring some catastrophe, don't expect runaway natural gas prices anytime soon.

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