Q&A: Here’s Why the U.S. Should Continue Exporting LNG
Posted November 17, 2021
In the first of two blogs on natural gas, API Vice President of Natural Gas Markets Dustin Meyer discussed factors that have put upward pressure on natural gas prices around the world and in the U.S. Global prices have reached record levels. Domestic prices have risen more moderately but even so, the U.S. continues to have the lowest prices among the world’s major users.
Some have suggested the U.S. should reduce the amount of natural gas exported as liquefied natural gas (LNG). In the Q&A below, Meyer explains the role of LNG exports in prices and whether reducing those exports is a good idea.
Q: Are increased U.S. LNG exports driving U.S. natural gas prices higher?
A: Thanks to the U.S. shale revolution, the U.S. has become the world’s largest natural gas producer. The vast majority of this gas is used here at home, yet the sheer abundance of U.S. natural gas has also enabled us to become a large gas exporter. The U.S. exports natural gas via pipeline to Mexico and is now the world’s third-largest LNG exporter, sending cargoes to more than 35 countries around the world.
Currently, only about 10% of U.S. natural gas is exported as LNG. While robust export growth likely has some impact on prices, historically the biggest movers of natural gas prices are unexpected departures from norms around supply and demand, such as those caused by weather on the demand side and production disruptions on the supply side. You’ve seen quite a bit of those events in U.S. markets over the past several months. In contrast, natural gas demand associated with LNG export projects is predictable years in advance and hasn’t been really the type of unexpected market event that would heavily impact prices.
For example, during the period of the most rapid growth in LNG exports – the second half of 2019, when exports nearly doubled from 4.5 billion cubic feet per day (Bcf/d) to 8.1 Bcf/d – U.S. natural gas prices not only didn’t rise but actually fell to four-year lows. Indeed, across the full timeline since exports began in early 2016, US natural gas prices have until recently been largely flat, even trending slightly downward. Again, the question isn’t so much the magnitude of the demand growth, it’s the predictability of it. In a highly liquid market like the U.S., it’s primarily the unpredictable that drives large price swings.
Q: Should U.S. LNG exports be limited to protect U.S. consumers from higher natural gas prices?
A: Halting or limiting U.S. natural gas exports would be abysmally bad policy for many reasons. It’s uncertain whether such a policy would even have a sustained downward impact on domestic prices, but removing volumes of U.S. LNG from the global market would wreak tremendous havoc on allies who’re already struggling with record-high global prices.
The U.S. currently supplies about 20% of the global LNG market, so reducing exports would obviously impact those who’ve come to depend on U.S. natural gas in recent years. Security of supply is central to natural gas trade relationships, and halting exports would be devastating to global allies who have come to rely upon U.S. gas and need it now more than ever. Especially heading into winter, when global gas demand peaks, given its heavy use for residential heating, it would be downright cruel to suddenly remove U.S. LNG from the global market. In particular, Europe would be vulnerable and have few options but to rely even more heavily on Russian gas or even coal in some countries. Conditions could quickly become desperate.
And it’s worth noting that the U.S. Department of Energy has examined the impact of U.S. LNG exports not once, but four times over the past several years. In each instance, the studies – done under both the Obama and Trump administrations – clearly concluded that rising LNG exports will have a negligible impact on domestic prices.
The bottom line is it would have severe real-time consequences and utterly destroy America’s reputation as a reliable supplier of energy, even to our closest, long-term allies.
Q: What are some things that could happen if the U.S. cut LNG exports?
A: Protectionist policies would upend decades of clear and consistent export permitting and hundreds of billions of dollars of investment here in the U.S. This could have obvious impacts on U.S. jobs and local and regional economic growth. The sudden curtailment of LNG exports may result in decreased natural gas production, which could drive job losses just as the economy regains steam following the pandemic. Once LNG exports are allowed to resume, prices could then unexpectedly surge as the market tightens due to lower production. Given the importance of U.S. gas in global markets, it would wreak havoc across nearly every major gas market in the world.
Most of the long-term permits, which underpin the long-term multi-billion contracts supporting these projects, were issued under the Obama administration and were considered functionally sacrosanct by it and the Trump administration. In 2018, the U.S. Department of Energy even issued Policy Guidance on this specific point, ensuring global LNG buyers that the U.S. would not modify or invalidate these permits. To totally reverse that long-held position at this critical time would be ruinous.
At the same time, halting U.S. LNG exports could hinder the sharing of natural gas’ environmental benefits with vulnerable populations around the world. The U.S. exports gas to more than 35 countries across the globe, including some (such as Bangladesh and Pakistan) that suffer from acute energy shortages. Natural gas can help alleviate energy poverty in developing countries while also reducing emissions from electricity generation, cooking and heating as a substitute fuel for other options that aren’t as clean.
Further, the continued availability of natural gas is also critical to development of hydrogen and CCUS technologies, both of which are key to getting the world on a trajectory consistent with net-zero ambitions.
All of this depends on natural gas importers having full faith in gas exporters, such as the United States. For all those reasons, any effort to impose restrictions on U.S. LNG exports would be terrible policy with terrible consequences.
About The Author
Mark Green joined API after a career in newspaper journalism, including 16 years as national editorial writer for The Oklahoman in the paper’s Washington bureau. Previously, Mark was a reporter, copy editor and sports editor at an assortment of newspapers. He earned his journalism degree from the University of Oklahoma and master’s in journalism and public affairs from American University. He and his wife Pamela have two grown children and six grandchildren.