About the Author: Clark Williams-Derry is an energy finance analyst at the Institute of Energy Economics and Financial Analysis.
The debate is now settled: rising natural gas exports have helped push US prices to their highest levels in more than a decade. Fueling sky-high gas prices, liquefied natural gas exports are driving up utility bills for homes and businesses, adding lighter fluid to the nation’s inflation crisis. Yet, as gas consumers suffer, American drillers are making more money than ever, revealing that what’s good for the oil and gas industry has been bad for the American economy as a whole.
As the United States exports more and more gas, there is less supply left for domestic consumers. Gas utilities, power companies and gas-dependent industries must now compete for remaining gas supplies. The bidding war has not only pushed up prices, it has also depleted gas inventories well below their five-year average, raising the specter of supply shortages next winter.
In short, the United States is exporting more and more natural gas and therefore importing higher prices. If you’re looking for concrete evidence of this dynamic, look no further than what happened after an explosion at a massive gas export project.
When operating at full capacity, the massive liquefied natural gas plant in Quintana, Texas consumes about 2% of all the natural gas produced in the country, cooling and compressing the fuel so that it can be exported to other countries. huge ocean ships. But on June 8, an explosion rocked the plant, which is operated by Freeport LNG. Fortunately, no lives were lost, but the plant was shut down, instantly causing demand and prices for natural gas in the United States to plummet. The following day, benchmark gas prices had fallen by 12%.
Less than a week later, Freeport announced that the plant would remain offline until the end of the year, not just for a few weeks as originally planned. Again, gasoline prices fell, this time by about 16%. On August 3, the company said the facility could ramp up as early as October, earlier than expected, and gas prices soared. Then, just last week, the company pushed back Freeport’s planned restart from October to November, and the prospect of a month-long delay in demand from Freeport sent gas prices plummeting again. .
It may seem surprising that a single export facility could send the US natural products market into such gyrations. But gas markets are sensitive to smaller deficits and surpluses. No one wants to be caught out of fuel when they really need it. Anything that can shift demand even by one or two percent can have outsized effects on prices.
If you need more evidence of the impact of natural gas exports on prices, simply compare the supply and demand fundamentals for the year prior to February 2020 (the last pre-pandemic month) versus to the year before May (the most recent month). with full federal data). Annualized production increased over the period, while domestic consumption remained roughly flat. Still, LNG exports nearly doubled, a surge that tightened U.S. gas markets and doubled the price U.S. consumers pay for fuel.
The growth in global demand for US LNG can be linked to many market forces, including shortages in Europe due to Russia’s manipulation of European Union gas markets. Sustained strong demand in wealthy Asian countries also contributed to export growth. So does the American gas industry’s stubborn determination to ship its goods to the highest bidder, foreign or domestic.
Russia’s role has been particularly critical in increasing global demand for LNG. As Russia choked off gas shipments to Europe, EU buyers turned to global LNG markets to fill the gap. Global LNG prices rose accordingly, and US LNG companies increased production, shipping more cargo to Europe. But Russia responded by further restricting gas supplies to the EU – a vicious circle that has hurt Europe’s economy even more badly than it has hurt America.
There are few signs that gas prices in the United States will drop in the coming years. Freeport’s demand will soon be restored, and three more massive LNG export projects are under construction, with more than a dozen more awaiting financing.
Curiously, federal regulators have always found that gas export projects are in the public interest, meaning they were in the economic interest of LNG companies and gas drillers. But now exports are creating exorbitant costs for American consumers, and drillers are reluctant to increase gas production for fear that prices will fall back to earth. It is therefore high time to ask whether the surge in US LNG exports is really in America’s interest or if, on the contrary, soaring LNG exports are fueling energy inflation and undermining the economic competitiveness of the country.
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