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Pondering The Future of Natural Gas Exports

By Ideas Lab Staff January 15, 2013

The Center for Strategic and International Studies releases a publication about the future of U.S. natural gas exports.

The United States is expected to be a net gas exporter by 2020, but what should the nation do with abundant natural gas resources?

In a publication for the Center for Strategic and International Studies, fellow Jane Nakano explores the next steps for natural gas exports, noting that many are wondering when the next export authorization might be issued now that a study on the domestic economic effects of U.S. natural gas exports has been released.

Nakano also addresses the changes in natural gas exports, pointing out that just a decade ago many people were skeptical about exporting U.S. natural gas.

“The sea change in the U.S. natural gas outlook is a result of successful development of shale gas resources in the United States brought about by the combination of innovative technology applications, high gas prices, mineral rights ownership/development on private lands, the right mix of industry players, and the availability of infrastructure,” she states.

In fact, shale gas production – which increased at an average annual rate of 48 percent between 2006 and 2010 – represents a third of domestic gas output. Given this increase, some producers are turning to overseas markets to find new sources of demand, as many believe sufficient price differentials and the expansion of the Panama Canal will improve the economics of U.S. natural gas shipments out of the U.S. Gulf Coast, the article states.

An increase in U.S. exports could drive up the low price of natural gas in the United States and create more jobs in the natural gas industry, and Nakano also writes that the prospect of U.S. gas export is attracting interest in Asian countries. “Many in Asia look to the greater presence of North American gas in the Asian markets to serve as a potential leverage in moderating the power of traditional suppliers in price negotiations,” she explains. “Such a development, they hope, would also facilitate gradual de-linking of natural gas prices from global oil prices — a welcome departure from decades of LNG trade with a Japan Crude Cocktail–based price tag.”

But given some opposition from various groups, the Department of Energy commissioned a study to analyze macroeconomic impacts of natural gas exports, which is now open for a public comment period. According to the DOE, federal law generally requires approval of natural gas exports to countries that have a free trade agreement with the United States. For other countries without a free trade agreement, the DOE is required to grant applications for export authorizations unless the Department finds that the proposed exports “will not be consistent with the public interest,” the DOE’s notice of the study states.

Despite which decision is made, Nakano believes the U.S. natural gas industry will continue to evolve. “But the export decision will surely affect both the pace and scope of the (liquefied natural gas) market evolution, including the regional gas trade dynamics,” she states.