With the development of new technology for drilling natural gas in shale formations, both economists and oil & gas experts are projecting shifts in American natural gas usage and supply. What does this mean for the energy market, American energy consumers, and environmental groups?
In 2010, natural gas generated 33.1% of the energy produced and 25.2% of the energy consumed in the United States. The United States Energy Information Administration’s (EIA) Annual Energy Outlook 2012 estimated that domestically produced natural gas will increase by 29% between 2010 and 2035 (from 21.6 trillion cubic feet in 2010 to 27.9 trillion cubic feet in 2035); while still highly speculative, almost all of this increase is attributable to projected growth in shale gas production.
This projected increase is in stark contrast to the turn of the millennium, when U.S. natural gas needs exceeded supply and U.S. companies invested billions into liquefied natural gas (LNG) import facilities. As recently as 2007, more than sixty LNG import projects were proposed in North America. Now, many of these same companies are moving to convert existing import facilities into natural gas exporting centers. Only one LNG export facility has received approval from the Federal Energy Regulatory Commission (FERC) and the U.S. Department of Energy: the Sabine Pass LNG export terminal in Louisiana.
Currently, experts are debating whether America should export natural gas to nations like South Korea and China. In January 2012, the EIA released a study analyzing the effect of increased LNG exports on domestic energy markets, concluding that exporting LNG would raise the price of natural gas domestically while increasing production. Proponents of increased exports (and lower regulatory hurdles) argue that exporting natural gas is vital to stabilizing the price of natural gas in the United States and to stimulating the economy in the long run. Opponents point to the EIA study, arguing that higher domestic prices for natural gas will slow the economy. Environmental groups such as the Sierra Club also oppose LNG exports, arguing that increasing natural gas exports will have negative environmental impacts due to the controversial “hydraulic fracturing” process used to extract gas from shale.
Both Republicans and Democrats are steering clear of this highly contentious issue. Unlike most black-and-white political issues, LNG exports affect not only U.S. consumers concerned with higher prices, but also America’s international allies, rivals, and largest corporations. Furthermore, it pits America’s traditional free-trade orthodoxy against the domestic need for cheaper and longer-term fuel solutions. The U.S. Department of Energy is currently finalizing a study analyzing the commercial effects of exporting LNG to worldwide markets, including China and other Asian economies. The DOE and FERC have declined to approve any more LNG export facilities until the study is released.