The Absurdity of US Natural Gas Exports

Quiz:

1. How much natural gas is the United States currently extracting?

(a) Barely enough to meet its own needs
(b) Enough to allow lots of exports
(c) Enough to allow a bit of exports
(d) The United States is a natural gas importer

Answer: (d) The United States is a natural gas importer, and has been for many years. The EIA is forecasting that by 2017, we will finally be able to meet our own natural gas needs.

Figure 1. US Natural Gas recent history and forecast, based on EIA's Annual Energy Outlook 2014 Early Release Overview

Figure 1. US Natural Gas recent history and forecast, based on EIA’s Annual Energy Outlook 2014 Early Release Overview

In fact, this last year, with a cold winter, we have had a problem with excessively drawing down amounts in storage.

Figure 2. US EIA's chart showing natural gas in storage, compared to the five year average, from Weekly Natural Gas Storage Report.

Figure 2. US EIA’s chart showing natural gas in storage, compared to the five year average, from Weekly Natural Gas Storage Report.

There is even discussion that at the low level in storage and current rates of production, it may not be possible to fully replace the natural gas in storage before next fall.

2. How much natural gas is the United States talking about exporting?

(a) A tiny amount, less than 5% of what it is currently producing.
(b) About 20% of what it is currently producing.
(c) About 40% of what it is currently producing.
(d) Over 60% of what it is currently producing.

The correct answer is (d) Over 60% what it is currently producing. If we look at the applications for natural gas exports found on the Energy.Gov website, we find that applications for exports total 42 billion cubic feet a day, most of which has already been approved.* This compares to US 2013 natural gas production of 67 billion cubic feet a day. In fact, if companies applying for exports build the facilities in, say, 3 years, and little additional natural gas production is ramped up, we could be left with less than half of current natural gas production for our own use.

*This is my calculation of the sum, equal to 38.51 billion cubic feet a day for Free Trade Association applications (and combined applications), and 3.25 for Non-Free Trade applications.

3. How much are the United States’ own natural gas needs projected to grow by 2030?

a. No growth
b. 12%
c. 50%
d. 150%

If we believe the US Energy Information Administration, US natural gas needs are expected to grow by only 12% between 2013 and 2030 (answer (b)). By 2040, natural gas consumption is expected to be 23% higher than in 2013. This is a little surprising for several reasons. For one, we are talking about scaling back coal use for making electricity, and we use almost as much coal as natural gas. Natural gas is an alternative to coal for this purpose.

Furthermore, the EIA expects US oil production to start dropping by 2020 (Figure 3, below), so logically we might want to use natural gas as a transportation fuel too.

Figure 3. US Annual Energy Outlook 2014 Early Release Oil Forecast for the United States.

Figure 3. US Annual Energy Outlook 2014 Early Release Oil Forecast for the United States.

We currently use more oil than natural gas, so this change could in theory lead to a 100% or more increase in natural gas use.

Many nuclear plants we now have in service will need to be replaced in the next 20 years. If we substitute natural gas in this area as well, it would further send US natural gas usage up. So the EIA’s forecast of US natural gas needs definitely seem on the “light” side.

4. How does natural gas’s production growth fit in with the growth of other US fuels according to the EIA?

(a) Natural gas is the only fuel showing much growth
(b) Renewables grow by a lot more than natural gas
(c) All fuels are growing

The answer is (a). Natural gas is the only fuel showing much growth in production between now and 2040.

Figure 4 below shows the EIA’s figure from its Annual Energy Outlook 2014 Early Release showing expected production of all types of fuels.

Figure 4. Forecast US Energy Production by source, from US EIA's Annual Energy Outlook 2014 Early Release.

Figure 4. Forecast US Energy Production by source, from US EIA’s Annual Energy Outlook 2014 Early Release.

Natural gas is pretty much the only growth area, growing from 31% of total energy production in 2012 to 38% of total US energy production in 2040. Renewables are expected to grow from 11% to 12% of total US energy production (probably because the majority is hydroelectric, and this doesn’t grow much). All of the others fuels, including oil, are expected to shrink as percentages of total energy production between 2012 and 2040.

5. What is the projected path of natural gas prices:

(a) Growing slowly
(b) Ramping up quickly
(c) It depends on who you ask

It depends on who you ask: Answer (c). According to the EIA, natural gas prices are expected to remain quite low. The EIA provides a forecast of natural gas prices for electricity producers, from which we can estimate expected wellhead prices (Figure 5).

Figure 5. EIA Forecast of Natural Gas prices for electricity use from AEO 2014 Advance Release, together with my forecast of corresponding wellhead prices. (2011 and 2012 are actual amounts, not forecasts.)

Figure 5. EIA Forecast of Natural Gas prices for electricity use from AEO 2014 Advance Release, together with my forecast of corresponding wellhead prices. (2011 and 2012 are actual amounts, not forecasts.)

In this forecast, wellhead prices remain below $5.00 until 2028. Electricity companies look at these low price forecasts and assume that they should plan on ramping up electricity production from natural gas.

The catch–and the reason for all of the natural gas exports–is that most shale gas producers cannot produce natural gas at recent price levels. They need much higher price levels in order to make money on natural gas. We see one article after another on this subject: From Oil and Gas Journal; from Bloomberg; from the Financial Times. The Wall Street Journal quoted Exxon’s Rex Tillerson as saying, “We are all losing our shirts today. We’re making no money. It’s all in the red.”

Why all of the natural gas exports, if we don’t have very much natural gas, and the shale gas portion (which is the only portion with much potential for growth) is so unprofitable? The reason for all of the exports is too pump up the prices shale gas producers can get for their gas. This comes partly by engineering higher US prices (by shipping an excessive portion overseas) and partly by trying to take advantage of higher prices in Europe and Japan.

Figure 6. Comparison of natural gas prices based on World Bank "Pink Sheet" data. Also includes Pink Sheet world oil price on similar basis.

Figure 6. Comparison of natural gas prices based on World Bank “Pink Sheet” data. Also includes Pink Sheet world oil price on similar basis.

There are several catches in all of this. Dumping huge amounts of natural gas on world export markets is likely to sink the selling price of natural gas overseas, just as dumping shale gas on US markets sank US natural gas prices here (and misled some people, by making it look as if shale gas production is cheap). The amount of natural gas export capacity that is in the approval process is huge: 42 billion cubic feet per day. The European Union imports only about 30 billion cubic feet a day from all sources. This amount hasn’t increased since 2005, even though EU natural gas production has dropped. Japan’s imports amounted to 12 billion cubic feet of natural gas a day in 2012; China’s amounted to about 4 billion cubic feet. So in theory, if we try hard enough, there might be a place for the 42 billion cubic feet per day of natural gas to go–but it would take a huge amount of effort.

There are other issues involved, as well. The countries that are importing huge amounts of high-priced natural gas are not doing well financially. They aren’t going to be able to afford to import a whole lot more high-priced natural gas. In fact, a big part of the reason that they are not doing well financially is because they are paying so much for imported natural gas (and oil).

If the US has to pay these high prices for natural gas (even if we produce it ourselves), we won’t be doing very well financially either. In particular, companies who manufacture goods with electricity from high-priced natural gas will find that the goods they make are not competitive with goods made with cheaper fuels (coal, nuclear, or hydroelectric) in the world marketplace. This is a problem, whether the country produces the high-priced natural gas itself or imports it. So the issue is not an imported fuel problem; it is a high-priced fuel problem.

Another issue is that with shale gas, we are the high cost producer. There is a lot of natural gas production around the world, particularly in the Middle East, that is cheaper. If we add our high cost of shale gas to the high cost of shipping LNG long-distance across the Atlantic or Pacific, we will most definitely be the high cost producer. Other producers with lower costs (even local shale gas producers) can undercut our prices. So at best those shipping LNG overseas are likely to make mediocre profits.

And there would seem to be great temptation to stir up trouble, to encourage Europe to buy our natural gas exports, rather than Russia’s. Of course, our ability to provide this natural gas is not entirely clear. It makes a good story, with lots of “ifs” involved: “If we can really extract this natural gas. If the price can really go up and stay up. If you can wait long enough.” The story makes the US look more rich and powerful than it really is. We can even pretend to offer help to the Ukraine.

Perhaps the best outcome would be if virtually none of this natural gas export capacity ever gets built–approval or no approval. If it is really possible to get the natural gas out, we need it here instead. Or leave it in the ground.

This entry was posted in Alternatives to Oil, Financial Implications and tagged , , by Gail Tverberg. Bookmark the permalink.

About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.

581 thoughts on “The Absurdity of US Natural Gas Exports

  1. Resuming again, it would not be difficult to find a thousand or more PhD around the world endorsing actual limitations to growth and some of the general implications to Mankind. Could some specific document prove to be useful? It would not be difficult to add some artists, some journalists, even the Pope and some politicians, and may be a million ordinary people. Or more.

    What for? How? What else?

    Meanwhile, limits recognition seems to be difficult to find outside the core of the western civilization: Europe, US-Can, Au. I specially wonder what can think Asians about this, if there are peak blogs there… Latin America is generally not talking of this, excepting Argentina and Uruguay, so many supposed ecological chances could be lost by delaying.

    • Christian,
      in the LTG model, the only scenario that didn’t lead to collapse implied very strong measures (control of the population increase, diminution of energy consumption, etc…) which should have been implemented woldwide, not later than 1975.

      So I’m afraid you’re right when you say that “many supposed ecological chance could be lost by delaying.”
      According to Meadows’ model, we’re even 40 years too late to avoid collapse.
      But IMHO, such scenario wasn’t realistic because 1) impossible to implement, especially in such short period of time, and 2) steady state to which it was supposed to lead would have been very difficult to maintain, considering all forces and physical laws playing against it.

      Reuired level of cooperation can be obtained only in case of immediate, global, and clearly identified threat (invasion of aliens?).
      For example, today’s topic of climate change is global, (almost) clearly identified, but not (yet) immediate; result is that BAU isn’t really questioned.

      • Also, the model only went to 2100. My expectation was that even with these controls, there would still have been collapse, just later.

        I thought that the conditions were unrealistic as well.

  2. As I sift through the vitriol in the article below (keep in mind Roberts is a former Reagan high official and WSJournal editor – and he has come out of the matrix and turned on the establishment in a very big and angry way) I am inclined to believe that the world has had enough of the US and they are in the process of throwing it under a bus…

    1. The NSA abuses everyone – even ‘allies’
    2. Of course there is no end to countries that have had to endure US installed monsters — who’s people would just love to slit Uncle Sam’s throat
    3. I believe even US allies are only allies because they have had no choice – they have gritted their teeth all the while — I can imagine if they thought the US was ‘over’ they’d jump on the next bus very quickly and leave the US lying dead in the mud
    4. “I think they sit there across the pond in the U.S., sometimes it seems … like they’re in a lab and they’re running all sorts of experiments on the rats without understanding consequences of what they’re doing” Putin

    I see China and Russia are almost certainly cutting deals to trade oil in their own currencies…

    No doubt they have worked out the US is fucked and that they are better off trying a new path – regardless of how fraught that is with danger…

    Better to get off the sinking ship and try to swim to shore than go down with it….

    I don’t think Roberts headline is over the top — if the nasty, arrogant monsters who really run the US refuse to just let the ship sink and they dig in against China Russia — that could bring WW3…

    Is the US or the World Coming to an End?
    > It will be one or the other

    Paul Craig Roberts

    2014 is shaping up as a year of reckoning for the United States.

    Two pressures are building on the US dollar. One pressure comes from the Federal Reserve’s declining ability to rig the price of gold as Western gold supplies shrivel and market knowledge of the Fed’s illegal price rigging spreads. The evidence of massive amounts of naked shorts being dumped into the paper gold futures market at times of day when trading is thin is unequivocal. It has become obvious that the price of gold is being rigged in the futures market in order to protect the dollar’s value from QE.

    The other pressure arises from the Obama regime’s foolish threats of sanctions on Russia. Other countries are no longer willing to tolerate Washington’s abuse of the world dollar standard. Washington uses the dollar-based international payments system to inflict damage on the economies of countries that resist Washington’s political hegemony.

    Russia and China have had enough. As I have reported and as Peter Koenig reports here http://www.informationclearinghouse.info/article38165.htm Russia and China are disconnecting their international trade from the dollar. Henceforth, Russia will conduct its trade, including the sale of oil and natural gas to Europe, in rubles and in the currencies of its BRICS partners.

    This means a big drop in the demand for US dollars and a corresponding drop in the dollar’s exchange value.

    As John Williams (shadowstats.com) has made clear, the US economy has not recovered from the downturn in 2008 and has weakened further. The vast majority of the US population is hard pressed from the lack of income growth for years. As the US is now an import-dependent economy, a drop in the dollar’s value will raise US prices and push living standards lower.

    All evidence points to US economic failure in 2014, and that is the conclusion of John Williams’ April 9 report.

    This year could also see the breakup of NATO and even the EU. Washington’s reckless coup in Ukraine and threat of sanctions against Russia have pushed its NATO puppet states onto dangerous ground. Washington misjudged the reaction in Ukraine to its overthrow of the elected democratic government and imposition of a stooge government. Crimea quickly departed Ukraine and rejoined Russia. Other former Russian territories in Ukraine might soon follow. Protesters in Lugansk, Donetsk, and Kharkov are demanding their own referendums. Protesters have declared the Donetsk People’s Republic and Kharkov People’s Republic. Washington’s stooge government in Kiev has threatened to put the protests down with violence. http://rt.com/news/eastern-ukraine-violence-threats-405/ Washington claims that the protests are organized by Russia, but no one believes Washington, not even its Ukrainian stooges.

    Russian news reports have identified US mercenaries among the Kiev force that has been sent to put down the separatists in eastern Ukraine. A member of the right-wing, neo-Nazi Fatherland Party in the Kiev parliament has called for shooting the protesters dead.

    Violence against the protesters is likely to bring in the Russian Army and result in the return to Russia of its former territories in Eastern Ukraine that were attached to Ukraine by the Soviet Communist Party.

    With Washington out on a limb issuing threats hand over fist, Washington is pushing Europe into two highly undesirable confrontations. Europeans do not want a war with Russia over Washington’s coup in Kiev, and Europeans understand that any real sanctions on Russia, if observed, would do far more damage to Europeans. Within the EU, growing economic inequality among the countries, high unemployment, and stringent economic austerity imposed on poorer members have produced enormous strains. Europeans are in no mood to bear the brunt of a Washington-orchestrated conflict with Russia. While Washington presents Europe with war and sacrifice, Russia and China offer trade and friendship. Washington will do its best to keep European politicians bought-and-paid-for and in line with Washington’s policies, but the downside for Europe of going along with Washington is now much larger.

    Across many fronts, Washington is emerging in the world’s eye as duplicitous, untrustworthy, and totally corrupt. A Securities and Exchange Commission prosecuting attorney, James Kidney used the occasion of his retirement to reveal that higher ups had squelched his prosecutions of Goldman Sachs and other “banks too big to fail,” because his SEC bosses were not focused on justice but “on getting high-paying jobs after their government service” by protecting the banks from prosecution for their illegal actions. http://www.counterpunch.org/2014/04/09/65578/

    The US Agency for International Development has been caught trying to use social media to overthrow the government of Cuba. http://rt.com/news/cuba-usaid-senate-zunzuneo-241/

    This audacious recklessness comes on top of Washington’s overthrow of the Ukrainian government, the NSA spying scandal, Seymour Hersh’s investigative report that the Sarin gas attack in Syria was a false flag event arranged by NATO member Turkey in order to justify a US military attack on Syria, Washington’s forcing down Bolivian President Evo Morales’ presidential plane to be searched, Saddam Hussein’s “weapons of mass destruction,” the misuse of the Libyan no-fly resolution for military attack, and on and on. Essentially, Washington has so badly damaged other countries’ confidence in the judgment and integrity of the US government that the world has lost its belief in US leadership. Washington is reduced to threats and bribes and increasingly presents as a bully.

    The self-inflicted hammer blows to Washington’s credibility have taken a toll. The most serious blow of all is the dawning realization everywhere that Washington’s crackpot conspiracy theory of 9/11 is false. Large numbers of independent experts as well as more than one hundred first responders have contradicted every aspect of Washington’s absurd conspiracy theory. No aware person believes that a few Saudi Arabians, who could not fly airplanes, operating without help from any intelligence agency, outwitted the entire National Security State, not only all 16 US intelligence agencies but also all intelligence agencies of NATO and Israel as well.

    Nothing worked on 9/11. Airport security failed four times in one hour, more failures in one hour than have occurred during the other 116,232 hours of the 21st century combined. For the first time in history the US Air Force could not get interceptor fighters off the ground and into the sky. For the first time in history Air Traffic Control lost airliners for up to one hour and did not report it. For the first time in history low temperature, short-lived, fires on a few floors caused massive steel structures to weaken and collapse. For the first time in history 3 skyscrapers fell at essentially free fall acceleration without the benefit of controlled demolition removing resistance from below.

    Two-thirds of Americans fell for this crackpot story. The left-wing fell for it, because they saw the story as the oppressed striking back at America’s evil empire. The right-wing fell for the story, because they saw it as the demonized Muslims striking out at American goodness. President George W. Bush expressed the right-wing view very well: “They hate us for our freedom and democracy.”

    But no one else believed it, least of all the Italians. Italians had been informed some years previously about government false flag events when their President revealed the truth about secret Operation Gladio. Operation Gladio was an operation run by the CIA and Italian intelligence during the second half of the 20th century to set off bombs that would kill European women and children in order to blame communists and, thereby, erode support for European communist parties.

    Italians were among the first to make video presentations challenging Washington’s crackpot story of 9/11. The ultimate of this challenge is the 1 hour and 45 minute film, “Zero.” You can watch it here: http://www.youtube.com/watch?v=QU961SGps8g&feature=youtu.be

    Zero was produced as a film investigating 9/ll by the Italian company Telemaco. Many prominent people appear in the film along with independent experts. Together, they disprove every assertion made by the US government regarding its explanation of 9/11.

    The film was shown to the European parliament.

    It is impossible for anyone who watches this film to believe one word of the official explanation of 9/11.

    The conclusion is increasingly difficult to avoid that elements of the US government blew up three New York skyscrapers in order to destroy Iraq, Afghanistan, Libya, Somalia, Syria, Iran, and Hezbollah and to launch the US on the neoconservatives agenda of US world hegemony.

    China and Russia protested but accepted Libya’s destruction even though it was to their own detriment. But Iran became a red line. Washington was blocked, so Washington decided to cause major problems for Russia in Ukraine in order to distract Russia from Washington’s agenda elsewhere.

    China has been uncertain about the trade-offs between its trade surpluses with the US and Washington’s growing encirclement of China with naval and air bases. China has come to the conclusion that China has the same enemy as Russia has–Washington.

    One of two things is likely: Either the US dollar will be abandoned and collapse in value, thus ending Washington’s superpower status and Washington’s threat to world peace, or Washington will lead its puppets into military conflict with Russia and China. The outcome of such a war would be far more devastating than the collapse of the US dollar.

    http://www.paulcraigroberts.org/2014/04/09/us-world-coming-end-paul-craig-roberts/

  3. Into the final bend it’s China and Japan neck and neck —- the EU is making a charge — Japan pulls ahead of China…. we will rejoin the action after this commercial break…

    As expected Abe has failed – stock market tanking – consumer spending is crashing with the higher sales tax http://www.reuters.com/article/2014/04/11/us-markets-global-idUSBRE96S00E20140411

    I would suggest Abe follow the Paul Krugman solution — put the petal to the floor and announce the unheard of number of 100 trillion dollars (in yen) of money printing.

    At some point some central bank has got to try this on — we all know that — why not make it so?

    Anything that kicks the can a day – a month – a year —- I fully support that

    • EU will probably be the last one going for QE (i.e. when it’s become useless), because it doesn’t fit in with the precepts of German “financial religion”.
      They’re still stuck with bad memories of runaway inflation in the late 1920’s.
      They prefer austerity, no matter if it starves southern countries (contemptuously called PIIGS).
      For those who haven’t already watched the movie Catastroika:

    • That stock market report link was from a week ago, the 11th. Since then it has partially rebounded. How? I have no idea. It’s hard to know what keeps things going these days. Maybe it’s as Nicole Foss says, when people have collective optimism they spend and borrow. Could it be that US QE simply reinstated collective optimism?

      • Well the answer is complex in detail, but simple in outline: all markets are rigged, e.g. from Libor, to gold, to the stock market, ‘thanks’ to QEs cheap money. Then there is HFT, front-running, insider trading and the end of anything remotely like the trading floors of old.

        Over-arching all is Financialism which has eliminated whatever Capitalism was, so that now it’s all about the banksters totally taking over the world with their central banks, the World Bank, the IMF and the BIS at the top of the pyramid/Ponzi scheme.

        It’s why Gaddafi had to go when he went for independence – and Saddam Hussein before. Oh and Syria still has a sovereign central bank and so does Iran … join the dots!?

  4. Dear Gail
    You commented that some of my statements come from the perspective of a fairly prosperous Westerner. That’s true. But many of our problems have deeper roots than any cultural traits. One instructive example is, I think, an analysis of food and the obesity and diabetes epidemic. The world has now achieved an ‘upside down’ triangle: the poorest people are now fatter than the richest people. It’s worth while looking at the situation from a Neurobiological perspective, and also to put it into a Constructal Law framework. The video below summarizes the research, and shows just how we got humanity into this fix, and how difficult it will be to get us out. It is 45 minutes, but I do not think there is any alternative to watching the whole thing. Watching the whole thing gives you an appreciation for how all the parts fit together. One big issue the speaker does not address is the research on addiction…sugar is several times as addictive as cocaine. Fast food, with its formulaic architecture, is addictive.

    When analyzed from a Constructal Law framework, we begin with the question ‘what is flowing?’. And my oversimplified summary is ‘hormones which give us pleasure’. You will note the experiment with animals where, without hormones, they literally don’t know which way to go. Other than some primitive responses, hormones have a large measure of control over our actions. We are also supposed to have good sense, but George Mobus claims there is a hole in our brains, with missing neurons, where that is supposed to reside. We can also look at other flows such as the flows of fractionated primary agricultural products which are assembled into the plastic wrapped stuff sold by the big food companies. We can look at the flows of profits which go to the food companies. We could go farther afield and look at the flows of money from the food companies to politicians and universities. And then the biggest flows of all go to the medical fraternity to deal with the aftermath. Even farther afield would be the flows of information and nutrients from real food to the various systems in our bodies, fostering good health.

    In terms of the hormonal flow, the Constructal Law seems to have been at work. The big food companies have figured out the science and can precisely design an irresistable, addictive food using very cheap ingredients. The big food companies have figured out the profit flows so well that the industry has become highly concentrated. And if we look at the quiesence with which the governments and universities greet the situation, and their cooperation with diversionary tactics such as Move America, then we can see that the Constructal Law has been at work as influence flows along with the money. The Medical flows are more turbulent…but the flow has tripled over the last 40 years, so again we might suspect that the Constructal Law has been at work.

    I submit that if one sees food simplistically as ‘food is just oil’, then one misses all the real action. One stops thinking, believing that one understands everything there is to understand. If you want to save yourself, much less save the world, you have to understand the real dynamics. That doesn’t mean that oil is irrelevant…without oil the industrial food system would doubtless collapse. But it may take it a long while to collapse and it is worthwhile understanding the system so long as it continues to function.

    And, of course, as Geoff Lawton says, ‘we can solve all the world’s problems in a garden’. Gardens are, I think, the only way this problem can be addressed.

    Don Stewart

    Why Do We Overeat? A Neurobiological Perspective

    • Don, I do NOT know how many times I witness people in a small parking lot with several stores that are not really obese and will take the trouble to drive their car from one spot to another just to save a few steps of walking. It’s called laziness

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  6. The 60% export amount only means that most producers also could send shipments to Canada, because the US and Canada have a single market. The other FTA countries are irrelevant. The amount planned for export outside our market is 10%.

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