Report: Abundant natural gas means no big price increases

A deal signed in May 2013 between Exxon Mobil Corp. and Qatar Petroleum International would add a liquefied natural gas export terminal to the existing Golden Pass import terminal in the Port Arthur community of Sabine Pass.

A deal signed in May 2013 between Exxon Mobil Corp. and Qatar Petroleum International would add a liquefied natural gas export terminal to the existing Golden Pass import terminal in the Port Arthur community of Sabine Pass.

The United States has more than enough natural gas to meet the needs of domestic customers and simultaneously sell the fossil fuel overseas without causing big price increases, according to a report issued Monday.

The study by the non-profit, non-partisan Bipartisan Policy Center, concludes that even in a worst-case scenario — where domestic supplies are constrained even as demand spikes — U.S. natural gas prices are unlikely to come near previous peaks.

And according to the analysis, exports of the fossil fuel are far less likely to set domestic natural gas prices than to be driven by them. “The price of U.S. natural gas will influence LNG export levels far more than LNG exports will influence domestic prices,” the report concluded.

The finding comes as the Obama administration weighs whether to allow more foreign sales of liquefied natural gas amid a domestic drilling boom that has kept prices relatively low. On Friday, the Energy Department gave Texas-based Freeport LNG conditional approval to broadly export domestically harvested natural gas, marking only the second time a company has won a license to sell the fossil fuel to Japan and other countries that don’t have free trade agreements with the United States.

But as low as U.S. prices are — about $4.13 per million BTUs in trading Monday — LNG exports must fetch much more to cover the added cost of liquefying the fossil fuel, shipping it overseas in tankers and regasifying the substance at its destination. Some economists have separately argued the added conversion and transportation costs will keep the amount of U.S. natural gas exports in check, especially as other nearby countries begin supplying Asian markets.

“LNG export volumes are determined by the price of U.S. natural gas, relative to the price of competing LNG on the market,” said David Rosner, associate director of BPC’s Energy Project, which conducted the new analysis. “We see a natural break in the way this market works. If U.S. prices rise as a result of increasing demand, LNG exports are likely to fall.”

With LNG export levels so tied to U.S. prices, the Bipartisan Policy Center predicts total foreign sales of liquefied natural gas could range rom as little as 2 billion cubic feet per day to as much as 6.4 billion cubic feet per day by 2030.

A number of reports have evaluated the effects LNG exports might have on domestic prices, with most generally concluding that more foreign sales would result only in a slight increase. By contrast, the new BPC study examined the confluence of a number of natural gas demand drivers under both high and low supply assumptions.

Beyond LNG exports, the report concluded that a big chunk of domestic demand for natural gas could come the industrial sector, as more manufacturers and petrochemical companies move facilities to the United States to take advantage of the domestic supply.

That dovetails with the conclusion of the American Chemistry Council in a separate report Monday that predicted that as many as 46,000 permanent jobs are set to be created in the U.S. in connection with new chemical and plastics manufacturing projects tied to low-cost natural gas.

The companies don’t just have their eyes on natural gas. Natural gas liquids such as ethane and butanes, which are produced alongside the fossil fuel, also are a big driver of the newly planned U.S. chemical plants. They can be used in a variety of sectors; for instance, chemical companies can transform propane into ethylene and propylene.

“Increased domestic production of natural gas will likely also result in greater domestic production of these liquids,” the BPC report concluded.

The surge in domestic natural gas production is driven by the recent combination of two relatively old techniques: horizontal drilling and hydraulic fracturing. With fracturing, companies pump water, sand and chemicals underground to open up the pores of dense rock formations and release trapped hydrocarbons.