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Ag Metal Miner

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Should the US Export LNG at the Risk of Increased Domestic Gas Prices?

Should the US Export LNG at the Risk of Increased Domestic Gas Prices?

Capitalism is a wonderful thing. It can create so much wealth, spur so much research and progress that we sometimes take on blind faith that unrestrained pursuit of profit is a good thing.

But large energy consumers in the US are asking the question: what is more beneficial — profit for the few or wider employment for the many? It’s not a new question and it is a balance on which societies are constantly having judgments on; but the recent fall in natural gas prices due to the development of shale gas has caused issues of this nature to be debated among business leaders and politicians anew.

Natural Gas Price Activity

The fall in natural gas prices due to shale gas development has meant US gas prices are below world prices, both a major boon for energy-dependent industries in the US and an opportunity for gas producers to develop overseas export markets for Liquefied Natural Gas (LNG).

An FT report says US gas prices are only about $3 per million British thermal units now, and a little over $5 in the forward market for 2017, making exports of LNG from the US to Asia and Europe look highly attractive.

As this graph from the EIA Annual Energy Outlook 2011 illustrates, shale gas is forecast to constitute up to half of future supply, but currently has added maybe 25-30 percent to total supplies:

Natural gas production
Source: EIA

The US Department of Energy has received at least eight applications for the development of export LNG facilities, which combined have sought permission to ship 10.9 billion cubic feet per day to markets worldwide; that’s about 18 percent of US gas production.

Clearly by the time these plants are all fully operational – assuming permission is granted – shale gas supplies are projected to have increased further, but it does appear that at 18 percent of total US gas production, exports would deprive the domestic market of much of the additional supply shale gas has currently created.

Should I Stay Or Should I Go?

The fear for large energy users like Alcoa and US Steel is that gas (and therefore electricity prices) would rise again as the natural gas market became tighter if unrestrained exports were permitted. Those campaigning against unrestricted exports are not saying they should be totally banned; those given the go-ahead should obviously proceed, and possibly there is room for some of the balance; but they are suggesting a thorough review on a case-by-case basis with the backdrop of future US reserves, supply and prices taken into account.

So the debate centers on whether the US should be an exporter of raw materials/commodities such as natural gas, or use that low-cost resource to manufacture products with higher value-add. The argument that the US should not be in more polluting basic manufacturing activities does not hold water — simply shipping the production of those commodities offshore to places like China does not make the CO2 emitted any less or the process any more efficient; probably quite the opposite.

Supporters of LNG exports say the US has sufficient reserves (if all shale gas resources are exploited) to last for a hundred years at current rates of consumption. Others would say, what better gift to bequeath future generations than a low-carbon, low-cost, low-pollution energy resource?

By. Stuart Burns

MetalMiner is the largest metals-related media site in the US according to third party ranking sites. With a preemptive global perspective on the issues, trends, strategies, and trade policies that will impact how you source and/or trade metals and related metals services, MetalMiner provides unique insight, analysis, and tools for buyers, purchasing professionals, and everyone else for whom metals and their related markets matter.

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  • Robert Price on January 16 2012 said:
    And to keep domestic prices down, should we also restrict export of coal, wheat, corn, industrial machinery, etc. etc? Users like Dow should hope the U.S. domestic natural gas price increases to maintain production. Producers cannot produce at a financial loss forever.
  • Mike H. on January 16 2012 said:
    Fracked shale gas wells seem to have a sustainability issue. Refracking is needed to keep flow rates up. To say nothing of the air & water pollution, & the used water from that being useless.Shale gas was being touted as making the US energy independent. Yet, they want to export our independence? Better that we have more CNG vehicles than export the gas.
  • Ashish Dimri on January 17 2012 said:
    The counter-question is "Should the producers not earn higher revenues by exporting LNG, rather than sell at a lower price in an artificially depressed market?"

    Higher revenues should redeployed in the existing business. Of course, this puts the domestic consumers at a disadvantage. But this is an incentive for these consumers to be more efficient in their operations. Restricting exports would lull the domestic gas consumers into believing that they are doing a good job & they shall be stuck in a rut. If shale gas monetisation has been a game changer, what guarantee is there that another breakthrough in energy production shall not break ground in the next 5 years? If this happens, what would these domestic consumers do? It is better to tighten the belts today than be left with no option but close shop at a later date.
  • Wingnut on January 18 2012 said:
    Fun and all, but capitalism is a servitude-infested, rat-racing, join-or-starve, get-a-leg-up, pyramid scheme. Its getting more top-heavy by the day. And just like every childhood playground pyramid-o-people, it WILL collapse. I hope that doesn’t disappoint our author.
  • NorskeDiv on March 10 2012 said:
    Yes, time to restrict LNG exports. Already approved projects should be allowed to go forward, new projects should not. At the least, exporting companies should be taxed such that profit margin is 5% or less, most of the revenue should be captured by the people of America, not a small class of people who own the wells and the export terminals. A small number of people should not be the ones profiting from resources which belong to everyone. The profit margins on oil and natural gas extraction in America are absurd, and represents a huge loss in potential revenue for the American People.

    Ashish Dimri, the point is that consumers are barely, if at all, responsive to natural gas prices. The ones responsive to them are Alcoa and major industrial concerns, who offer great middle class jobs. A sane national energy policy would seek to keep these value added industries here, and not export gas overseas so that they can relocate to China.

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