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Will Halt To New LNG Exports Ease U.S. Natural Gas Price Spikes?

The recent pause on new permits for LNG export projects has divided America in the latest controversy surrounding the Biden Administration's energy policies.  

Environmentalists hailed the decision as a win for the climate and a step toward weaning the world off fossil fuels. A group of U.S. industrial gas consumers welcomed the permit halt as a win for reliability for American consumers and a means to prevent spikes in domestic natural gas and electricity prices.  

On the other hand, oil and gas industry associations slammed the Biden Administration's decision as a "loss for America" and a "win for Russia" as it would undermine the economy and jobs at home and America's credibility as a reliable partner to provide gas to its allies.

The pause in new LNG export project approvals is "a mistake" as it would actually hold back global efforts to reduce emissions, according to ExxonMobil.

"Reducing production of LNG actually harms the world achieving net zero sooner rather than later," Exxon's chief financial officer Kathy Mikells told Bloomberg in an interview earlier this month.

The American Petroleum Institute (API) and other major industry groups, including American Exploration and Production Council (AXPC), Center for LNG (CLNG), Independent Petroleum Association of America (IPAA), LNG Allies, among others, slammed the Biden Administration's decision to halt export project approvals. Related: Plunging Oil and Gas Sales Drag Russia's Exports to Europe Down by 68%

Environmental issues aside, supporters of the LNG permit halt say that lower U.S. LNG exports would ease upward price pressures on natural gas and electricity in America as more gas would be available for the domestic market.  

Soaring U.S. LNG exports have made natural gas a global commodity and the United States vulnerable to global price volatility.

The Biden Administration is clearly mindful to stress as much on protecting American consumers from natural gas and electricity price spikes as on the climate benefits of less LNG production on local U.S. communities.

If the U.S. were to approve - after the pause - all currently paused LNG export terminals, U.S. natural gas prices could jump by between 9% and 14% per year in the medium term, according to modeling by clean energy policy think tank Energy Innovation and Jesse Jenkins of Princeton University.

Such a surge in prices "would impose $11-$18 billion in new annual gas costs on U.S. households, businesses, and industry. Over time, exact expenditures may moderate as producers adjust output to demand," Energy Innovation wrote in a Forbes article.

According to the Industrial Energy Consumers of America, every $1 per MMBtu increase in the price of natural gas adds $34.2 billion in annual costs to domestic consumers plus the increased cost of electricity.

"As LNG export volumes increase, reliability risks and costs for both natural gas and electricity increase due to the combination of accelerating increases in peak LNG export demand and domestic demand during peak winter weather," the association said last week.

Yet, even with temporary spikes during the 2021 winter storm and in 2022 after the Russian invasion of Ukraine, U.S. benchmark natural gas prices have averaged $3.37 per million British thermal units (MMBtu) since 2016, compared to $3.48 per MMBtu in the six years before 2016, when the U.S. started exporting LNG, data from the Energy Information Administration shows. 

The EIA expects the Henry Hub price to average under $3.00/MMBtu in 2024 and 2025, only slightly higher than the average price of $2.54/MMBtu for 2023. The Henry Hub price remained relatively low for all of 2023 because of strong natural gas production and more natural gas in storage, said the administration, which expects slow growth in U.S. gas output over the next two years but enough to set new record highs.

"LNG exports offtake provide actually a couple of useful benefits for the US - one is that it makes it easier to produce oil in gassy formations because it gives the gas a place to go," Kevin Book at U.S.-based consultancy ClearView Energy Partners told the Financial Times at the end of last month.

If natural gas producers are discouraged by regulation - such as stalled LNG project approvals - from boosting production, U.S. gas prices could rise anyway because supply may not catch up with demand, and global LNG markets could tighten more than previously expected.  

By Tsvetana Paraskova for Oilprice.com

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Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.  More