U.S. Natural Gas Exports Did Not Cause Domestic Price Spike

Wednesday, December 13, 2017

Increased exports of natural gas have not led to increases in domestic natural gas prices in the United States, according to a review by Texans for Natural Gas. The finding contradicts prior government modeling and claims from environmental critics, who have warned repeatedly against approving LNG export facilities on the basis that they would cause price spikes for consumers.

Between 2010 and 2016, Henry Hub natural gas spot prices declined by 42 percent, from $4.53 per thousand cubic feet (Mcf) to $2.61/Mcf. The average price in October 2017 was $2.98/Mcf. Residential natural gas prices – what households pay for their monthly bills, which include transmission and infrastructure costs – have fallen by about 12 percent since 2010.

Over the same period (2010-2016), exports and re-exports of liquefied natural gas have increased by 188 percent, from 64.8 billion cubic feet (Bcf) to 186.8 Bcf. Total natural gas exports, including via pipeline, have more than doubled since 2010.

A report from the U.S. Energy Information Administration (EIA) in January 2012, however, modeled the impact of natural gas exports from the United States and projected in nearly all scenarios that natural gas prices would gradually increase from 2010 to 2035. In all export scenarios modeled, EIA projected natural gas prices would exceed its own reference case, ranging from five percent to 25 percent higher than what the price would be without additional exports.

In fact, even in EIA’s baseline cases, the agency projected that prices would remain above $4 per thousand cubic feet (Mcf). One scenario showed prices reaching nearly $6/Mcf by 2017. Only the “high shale” resource scenario – and in which there were no additional natural gas exports – showed prices below $4/Mcf through 2025, and even that scenario showed prices staying above $3/Mcf every year between 2010 and 2035.

 Image: U.S. Department of Energy, 2012

Image: U.S. Department of Energy, 2012

Henry Hub prices temporarily ticked up in 2014 due to an abnormally cold winter, brought on by the Polar Vortex. The next year, however, prices dropped back to 2012 levels, which was the lowest annual average since 1999.

Fodder for Critics

EIA’s price modeling in 2012 was a primary reference source for export opponents.

The Sierra Club issued an anti-LNG export paper in 2012, claiming in part that exports “would raise domestic energy prices,” citing EIA’s analysis throughout. Then-Congressman Ed Markey (D-Mass.), a prominent foe of exports, remarked after the EIA analysis was released: “higher prices are on the horizon if we don't keep our natural gas here in America.”

Markey’s staff even released a report in March 2012, entitled “Drill Here, Sell There, Pay More,” which declared that natural gas exports “could raise domestic prices 24 to 54 percent, which would substantially increase energy bills for American consumers and could potentially have catastrophic impacts on U.S. manufacturing.” Citing price impacts, Markey, whose home state of Massachusetts has the country’s most active LNG import facility, said “we should be keeping more of our American fuel here in America.”

Another prominent critic on Capitol Hill, Senator Ron Wyden (D-Ore.), also frequently referenced potential price impacts. In 2012, his office released a statement declaring that “exports of LNG will raise the domestic price of natural gas.”

News reports at the time only amplified those criticisms. “Exporting large amounts of US natural gas will significantly increase energy prices for domestic consumers,” read the opening line of coverage from the Financial Times. Other headlines were similarly blunt.

Earlier this year, the Wall Street Journal observed that instead of increasing domestic prices, U.S. LNG exports were reducing costs for our trading partners:

“Worries by U.S. political leaders that gas exports would drive domestic prices significantly higher haven’t been borne out, at least so far, as Energy Department studies show only marginal effects. The U.S. appears to be exporting its low gas prices rather than importing higher ones from the rest of the world.” 

Nonetheless, export critics have continued to claim that LNG exports will raise costs for U.S. consumers.

Last month, one prominent anti-export group cited research from the U.S. Department of Energy in 2012, arguing that “increased LNG exports resulted in higher natural-gas and electricity prices” – even though neither of those things happened.

Energy Dominance

Energy exports – including LNG – are a key part of President Donald Trump’s “energy dominance” agenda, and his administration has done little to obstruct America’s ascent to a net energy exporter.

In the third quarter of this year, U.S. LNG export capacity was roughly three times larger than what it was at the beginning of 2016. Since President Trump took office in January, LNG export volumes have increased by 3.4 billion cubic feet. Much of the increase is due to expanded exports from Cheniere’s Sabine Pass facility in Louisiana, which was approved by the Obama administration in 2012.

Five more LNG export facilities are currently under construction in the United States, two of which are in Texas.