Why the US should not Invest in Exporting Natural Gas

Investing in natural gas export facilities “is a bet against what US firms excel in—developing and commercializing new technologies and products,” says economist Frank Wolak.

With the advent of the “shale gas revolution,” the United States has undergone a full-scale natural gas boom. Driven by fracking and horizontal drilling, the United States will likely overtake Russia as the world’s largest producer of natural gas by 2015, according to the International Energy Agency.
Now, as estimates of available reserves continue to go up and prices drop to less than $3 per million BTU, talk is turning to exporting natural gas—potentially a serious moneymaker, with countries like Singapore facing prices around $16 per million BTU.

Wolak understands the urge to export.

“But, there’s a significant risk here that I don’t think people are necessarily factoring in,” says Wolak, an economics professor at Stanford University.

Market shift

Along the coasts of Texas and Louisiana the early 2000s saw the construction of a number of liquefied natural gas (LNG) receiving terminals, intended to meet a predicted increase in natural gas imports.

“Those facilities are now sitting vacant,” says Wolak, “because the price of natural gas in the United States has fallen so much.” Many are converting themselves into export facilities in hopes of huge profits.

He thinks moving immediately to export runs the risk of repeating this scenario in reverse. It takes time to site, permit, construct, and bring an LNG export facility online.

In the meantime, American entrepreneurs will be looking to apply technologies like fracking and horizontal drilling elsewhere.

“It’s hard to see why this technology can’t be exported to the rest of the world,” says Wolak.
If that happens, a US export facility could be finished only to find a few new shale gas revolutions in other parts of the globe overturning its intended markets.

Gas up the vehicle

What does Wolak recommend the United States do with its domestic natural gas riches? Use it at home. There is no major technological barrier to using natural gas in the transportation sector—our heaviest user of oil.

Vehicles that burn compressed natural gas (CNG) are already in common use, particularly in Asia and South America.

Wolak notes that the use of compressed natural gas makes the most sense in a vehicle fleet that drives a well-defined circuit, such as urban buses or taxis. Vehicles that use the denser liquid natural gas are better suited for heavy-duty use, such as regional long-haul truckers.

The compressed natural gas refueling infrastructure could expand once these routes were established.

Home filling stations for personal vehicles are another option—household compressors that work with existing home natural gas connections are, in fact, already on the market. The devices are currently priced out of the range of most consumers, but these home filling stations could become a viable option as natural gas becomes a more popular fuel choice.

Wolak also notes that natural gas is currently replacing coal in the production of electricity, a trend that is likely to continue given current conditions in the global coal market and natural gas’s relative environmental benefits.

Natural gas generation facilities, he points out, produce only a third to a half of the greenhouse gas emissions per megawatt hour as coal-fired facilities, and are now cheaper per BTU.

By. Max McClure