Why The USA Should Export Natural Gas (LNG)

abarrelfullabarrelfull wrote on 12 Jul 2011 09:09

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The shale gas revolution in the USA has led to very low gas prices in comparison with other markets, and a major shift in interest from importing to exporting natural gas. Excelerate Energy was the first to announce the closure of an LNG import facility whilst others plan to convert from import to export.

Back in May, Cheniere was the first company to receive DOE approval to convert its existing LNG import terminal into one capable of export. In light of the economic realities, it seemed a perfectly logical move, yet it was met with strong opposition in some quarters.

The American Public Gas Association (APGA) had tried to block the approval.

In its motion, APGA states that the export of large quantities of natural gas may have significant adverse implications for domestic consumers of natural gas, for U.S. energy supply, and national security. The motion further states that the export of natural gas is inconsistent with a policy of energy independence.

The APGA is not the only opponent. Back in 2008, Democratic Senator Ron Wyden had asked to stop LNG exports from Alaska, supporting instead the supply of gas to the lower 48. In his defence, he was not to know what the landscape was to look like in 2011.

Whilst I understand the arguments in favour of energy independence, I think the opponents are wrong on a number of issues.


First, when a government bans exports of a commodity in order to keep the domestic price down, it is basically making a transfer of value from producer to consumer. This is very arbitrary, and can have significant unforeseen circumstances. In principle it is no different to the gasoline subsidies that consumers enjoy in the Middle East
Low Price Sustainability

Today’s price may be a mirage. Over the longer term, given the cost of extracting shale gas, the natural gas price is likely to rise anyway. Stopping exports to maintain low prices may ultimately be futile. Many companies have sold gas forward, or are producing so as not to lose licences and are therefore not deterred by today’s low prices.
In addition, the cost of liquefaction and transport, require natural gas prices to remain lower in the USA than in the markets of competitors anyway, otherwise exports will not happen


Shale gas production has the potential for further billions of dollars of investment by both local and foreign firms, with the jobs and tax revenues that this creates. Artificially keeping prices low will reduce this investment. The option of exporting the gas will reduce the risks for the producers, encouraging investment.

Reduced Crude Imports

Natural gas usually comes with associated liquids. These constitute a kind of very light crude oil, which is mostly LPG and Naphtha. The larger the volumes of gas produced, the more NGL can be used to substitute imported crude. Likewise Ethane substitution for Naphtha, marginally decreases oil consumption, for domestic gas.

Supporting Development of Global Gas Demand

Rising availability of LNG has rapidly accelerating the switch from oil to gas, in those regions where fuel oil is still used to generate electricity. The USA is likely to have a swing producer role in the global LNG market as at least some of the export terminals are going to be merchant terminals selling spot cargos. This reduces the risk of LNG adoption by providing greater flexibility of supply and better liquidity.

Global substitution from oil to natural gas is hugely positive for the world’s largest consumer of crude oil. By supporting these developments, the USA can marginally reduce the price of crude oil.


Trying to buck the market always poses big risks. In this case it potentially risks huge benefits from increased gas production, NGL production and increased global oil substitution, whilst achieving absolutely nothing.

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