Natural Gas Exports Could Shift Power in U.S. Energy

Thnatgasforcaste U.S. has a glut of natural gas, and according to free market theory, it should be more effective to start selling more of it overseas than to simply store greater and greater quantities of it domestically. To that end, the U.S. government has approved the export of over 10 billion cubic feet of natural gas, which will start hitting global markets later this year.

For natural gas producers and shippers, those additional customers could mean booming revenues. But for energy markets as a whole, those exports could cause some strange side effects.

1.) Heating prices could spike
Over half of U.S. households use natural gas to heat their homes in the winter, and the boom in production has resulted in huge savings for them. In 2015, the U.S. Energy Information Administration expects lower natural gas prices to result in 10% energy savings for consumers. But those lower prices may not last.

 

In foreign markets, natural gas carries a much higher price than it does domestically, but if exports grow as predicted, prices here could jump.

Early exporter Cheniere Energy (NYSEMKT: LNG), which will start shipping liquid natural gas later this year, is selling millions of BTUs worth of energy per year to countries like France, Portugal, and Japan, where natural gas prices are triple or quadruple what we pay in the U.S. Even at relatively low prices around the world the low cost structure of U.S. natural gas can generate a significant margin for Cheniere.

2.)Electricity prices could rise
One of the things cheap natural gas has done is take market share from coal in the electricity generation industry. That’s where most of the increasing domestic supply has gone. You can see that the amount of electricity from natural gas has more than doubled over the past decade, while electricity from coal has declined more than 20%.

3.)A potentially rapid transition
Even the EIA predicts that the shift from domestic oversupply to heavy natural gas exports could be fast and furious. The chart below shows the agency’s projected range of net U.S. exports.

Us Natural Gas Export Projections

IMAGE: U.S. ENERGY INFORMATION ADMINISTRATION.

It’s possible that by 2020, the country could be exporting 4 trillion cubic feet of natural gas annually — about the same amount we imported less than a decade ago. That could shift the cost structure of energy in the U.S.

Higher natural gas prices would upset the balance in energy
Low-cost natural gas has caused a huge shift in the U.S. energy profile over the past decade; we’re using much more of it to heat our homes and to generate electricity. So if exporting U.S.-produced natural gas globally leads to higher prices at home, it would hit consumers hard, which could, in turn, make competing resources like renewable energy or even coal more competitive.

It’s worth watching what happens to natural gas prices over the next few years. Exports may have a bigger impact than you’d expect on your bottom line.

With natural gas prices high enough overseas to justify shipping billions of Btus per year there will be a big new demand source for U.S. natural gas. That could spark an increase in U.S. natural gas prices, especially if international LNG prices return to where they were in 2014. It may not seem like a big deal if natural gas prices went from near $2 per MMBtu to $3 per MMBtu, but that’s a 50% increase in energy cost that could hit most Americans’ checkbook.

SAFE HARBOR STATEMENTS:
Certain statements in this blog post may contain forward-looking information within the meaning of Rule 175 under the Securities Act of 1933 and Rule 3b-6 under the Securities Exchange Act of 1934, and are subject to the safe harbor created by those rules. All statements, other than statements of fact, included in this release and other potential future plans and objectives of the company, are forward-looking statements that involve risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statement.

 

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