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.

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 inadequate supply.
This entry was posted in Alternatives to Oil, Financial Implications and tagged , , . Bookmark the permalink.

581 Responses to The Absurdity of US Natural Gas Exports

  1. B9K9 says:

    I become somewhat bored with discussions of technical feasibility studies and expected outcome projections. Not because of the nature of the subject matter – after all, I’m an analyst – but it appears to miss the real game being played.

    Paul is spot on when he simply states “where’s the beef?” That is, why aren’t $trillions of freshly printed QE being spent on alternative energy projects? And the answer of course, to quote Gertrude Stein, is because there is “no there, there”.

    Ok, so let’s step back and review this observation with my initial comment regarding the futility of detailed analysis without recognizing the contextual environment in which it’s being performed. Or, where **IS** QE being spent and why ie to what purpose?

    Within this context, I think we can generally categorize QE into two primary sectors, with each being further comprised of two more detailed ares of focus, but noting that all are devoted to maintaining the status quo for as long as it can be reasonably sustained:
    A. Illusion
    1. Bread – social services, public works projects, etc
    2. Circus (entertainment) – (goosed) financial markets, FB, etc
    B. Maintenance
    1. Military – global security of sea lanes, pipelines & ground transport routes
    2. Exploration, development & delivery – core production, whether conventional or advanced tech

    Using the framework above, I think we could generally trace out any volume of QE as being 1/2 devoted towards placating & entertaining the masses, with the other 1/2 spent on maintaining the core underlying system.

    This model is also useful in understanding the fundamental fact that no investments, virtual or real, are being directed towards anything remotely approaching a sustainable arrangement for earth’s inhabitants. Rather, it positively shouts that traditional economic cost-benefit has no place when the return period (time itself, not $) is no longer guaranteed.

    To conclude, this why there are numerous large freeway infrastructure projects underway in SoCal. The money is essentially free (in that it will never be repaid), so why not keep people busy? It’s also why $trillions can (and most likely, will) be spent on all manner of FF extraction, processing and shipping (LPG, etc) facilities, with absolutely no measure of economic benefit.

    In fact, they can be humungous failures by any economic measure, and it will still be double-plus good. To wit, it simply does not matter if it’s a “good idea” in the traditional sense. Every extra day that the world operates as usual is in itself a “win”. And that’s the point I believe Paul is making – the absence of, and those actually performed, actions being undertaken are essentially shouting all anyone needs to know if they are possess even 1/2 a clue.

    • Thanks for your interesting analysis. I think you are probably right–the main goal is keeping BAU for a bit longer. Traditional cost/benefit analyses don’t make any sense, especially when you may never have to pay back borrowed money.

    • edpell says:

      I agree BAU analysis no longer makes sense. This is the point I have tried to make about Germany’s investment in solar. From a BAU analysis it is over priced and a waste of money. From a nationalistic analysis when the day comes that all of Europe is sitting in the cold and dark while Germany has some level of power and industry, Germany will rule Europe. Whether a solar economy will be able to replace the PV that was produced by oil remains to be seen but at least for 20 years Germany will be in charge in Europe.

      As I have said before the US military continues it push into solar for its own use.

      The KSA is building 16 nuclear power plants at a cost of 112 billion dollars. It will not save the mass of residence but it will keep the lights and air conditioning on for the ruling class for some years to come.

      • Steve Rodriguez says:

        It will keep the military at an interim state of readiness to maintain order. Who do yo think will be driving the combines on the seized midwestern farms, distributing the grain to LA and NY refugee camps? that is the only plan B that I can imagine…

      • I am not convinced that the solar will allow Germany to continue to rule Europe. Germany, like the rest of Europe, will need a much cheaper government. If it is going to keep electricity going, it will need a way to maintain the electric power lines. This depends on oil today. They will also need replacement parts for many parts of the system–inverters, natural gas and coal back up, wind, etc. The electric output of solar panels by itself doesn’t give much of an advantage, if they only operate as part of the grid, and the grid doesn’t work.

    • Theadore the great says:

      Aren’t you being a bit Naive? Do you think any of the money prior to WW2 was ever paid back? Do you think Japan “paid back” or Germany “paid back” ….You are trying to conceptualize a system that you have no idea how it works. If your theory or idea was correct we would have already had our collapse. This could go on for another 10 years or more and you will be left with sitting on the edge of your seat for a very, very long time. But hey who am I to tell you how to “waste your precious time” you may be dead tomorrow! I come to blogs to find ideas and new ways of thinking….not hand wringing are crying about the future….. Yes, Yes we all know that BAU is not going to continue…tell us something we don’t already know….

  2. B9K9 says:

    It may also be instructive to consider what is meant by my statement “the reward for intelligence is the booby prize”. For example, Gail analyzes available data and comes to the conclusion that, guess what, we’re still net importers. Therefore, any talk of building LPG facilities and shipping finished product to Europe is pure, unadulterated fantasy.

    Ah, but wait, that type of (fact based) opinion is all fine & dandy in an open society still operating under some semblance of constitutional rights. But what happens when the US continues to pursue the logical end-game of global resource war? That is, I think most are under some kind of impression that the current brouhaha in Ukraine will eventually blow over and resolve itself.

    But what if it doesn’t just “go away”? What if, it’s the actual start to a real, honest-to-goodness, low intensity war operating under traditional domestic censorship rules? Sort of like this one: http://en.wikipedia.org/wiki/Sedition_Act_of_1918

    Under those kinds of guidelines, nice, honest people like Gail, and all the other bloggers and posters (myself included) discussing these issues would not be viewed with particular kindness. After all, anyone pointing out the ludicrous fantasy of exporting LPG could be immediately categorized as conducting “a broad(er) range of offenses, notably speech and the expression of opinion that cast the government or the war effort in a negative light or interfered with the sale of government bonds.”

    So, yeah, smarty pants, the reward for being intelligent is a big, fat booby prize. But wait, it actually gets better than that, because while back in 1918 you could still be prosecuted via normal channels, today is so very much more interesting:

    http://www.truthdig.com/report/item/fighting_the_militarized_state_20140330
    “There was no law at the time that permitted the government, because of my work as a reporter, to order the military to seize and detain me. Now there is. This law (NDAA), if it is not struck down, will essentially replace our civilian judiciary with a military one. Those targeted under this law will not be warned beforehand that they will be arrested. They will not have a chance to get a lawyer. They will not see the inside of a courtroom. They will simply vanish.”

    Get it? It’s all fun right now to discuss with other like-minded individuals about what’s coming down the pike, but don’t underestimate the seriousness by which the state will conduct its affairs. This isn’t some f*cking game.

    • yt75 says:

      “But what happens when the US continues to pursue the logical end-game of global resource war? That is, I think most are under some kind of impression that the current brouhaha in Ukraine will eventually blow over and resolve itself.”

      Yes, could be the case indeed, even if in a mode “let’s topple Putin, put a comprehensive guy in Russia and a few Nato bases, and open the gates for Exxon Chevron or others”(even if in fact there is already plenty of joint ventures with western majors operating in Russia), but for sure Baku oil was a major hitler objective, and not the other way around … (sorry for the godwin point)
      And the propaganda against Russia/Putin these days is getting really kind of amazing, for instance today a bunch of articles about Russia raising the price of gas for Ukraine, in the sense “look at that atrocious monster”, when this is just more or less aligning the price on the one for Poland or Germany …

      • People don’t realize that when natural gas prices were very low, the Ukraine’s natural gas imports were very high–nearly up with Germany’s in 2005. With the high price of putting in pipeline and the long distance natural gas is now being shipped, it is not clear to me that Russia can afford to give Ukraine big discounts any longer. Their imports are now less than half of what they were in 2005–about the level of Spain’s imports.

    • xabier says:

      B9 K9

      Yes, the bit about the Emperor’s New Clothes where the kid gets beheaded is usually left off for some reason……..

    • Steve Rodriguez says:

      The role of Information in warfare is often under appreciated. Intelligence they call it. How good is your information? It is an important if not the only weapon used to win wars and for survival. ALL of humanity’s problem could be attributed to poor communication, a reluctance to share Information, and the inability to misinterpret the information that is freely available.

    • dolph says:

      B9K9:
      You make some interesting points.

      More broadly speaking, what is celebrated by America and now the globe as the open, democratic, capitalist society is perhaps itself only viable with energy surplus, and new frontiers to conquer, and new markets to open.

      The last people to come to this game in size were the Chinese. Now that they have, there is nowhere else for the system to go. The rest of the third world is too fractured and exploited to fully participate, as the system is dependent on keeping the price of the commodities that they produce low.

      So we approach the end game as the system does everything it can to preserve itself. We approach a more closed and poorer world. The good times will be forgotten.

      I think most people who stay out of the way will be alright. In other words, don’t act directly against the system, and you won’t be considered a threat. Keep one foot in and one foot out.

    • Paul says:

      I was very perplexed and saddened when Hedges lost his battle against the Obama administration on this issue — he is correct — the mechanisms for all encompassing totalitarian rule are now in place — all that is left is for things to reach a point where the beast (which currently remains hidden behind the curtain) to show its true self — to bear its fangs — and by then it will be too late to do anything.

      The NSA has the goods on EVERYONE.

      Let’s say Gail is informed by the FBI that this blog is a threat to the American economy and she is told to stop publishing.

      Gail refuses.

      All the FBI would need to do is ask the NSA to review Gail’s communication history — ah what do we have here —- Gail said something nasty about a client …. about her boss… oh look here she’s said something not so nice about a daughter in law — etc etc…

      No Gail has not committed a crime — but like all of us she has communicated things that she absolutely wants to remain private — that would be damaging if they were released.

      The FBI knows this – the NSA knows this — and most importantly, the Deep State — which runs the show knows this.

      They know how to control Gail — they could quickly put Obama in line if he opposed them — they could take anyone down if they felt a reason that they had to.

      Make no mistake about it – every single one of us is compromised and owned by the NSA and their evil overlords.

      Get just a little out of line and you’d quickly find that out – when the beast is unleashed journalists like Hedges, Jeremy Scahill, and Glenn Greenwald will be at the top of the hit list… anyone protesting things like pipelines, fracking, monsanto etc… – they are likely to be silenced using these very powerful methods.

      Recall that J Edgar hoover had a file on many politicians – and used that info to control them … so to believe the NSA is not already doing the same is naive.

      I always wondered why Colin Powell gave that ridiculous speech prior to the Iraq invasion….

      • xabier says:

        Having lots of dirty info on people was one of Berlusconi’s tools in Italian politics – beware of politicians inviting you to parties……. I suspect that given the psychological profile of most who go into national politics, they are more likely than most to provide the means of blackmail to their enemies.

        Freedom of speech, and hence of association, is dead in the West.

        If we had our insurance numbers and internet passwords tattooed on our arms more of us might realise that fact, although a significant % undoubtedly wouldn’t care at all. Numbered, tagged and monitored.

        • Paul says:

          Speaking of Berlusconi — recall how easily he was forced out of office a few years ago when he went against the wishes of the central bankers?

          Basically overnight he was gone. This guy is a billionaire mafia king — and he stepped down without a whimper….

          Hmmmm…. someone would have to have a hell of a lot of power to do that…. I smell NSA….

      • Jan Steinman says:

        I think you’re a little paranoid, Paul.

        TPTB are not interested in Gail. They control the mainstream media; why should they care about some blog? They can hire or promote hundreds of rebuttal blogs!

        I don’t think information suppression is really necessary for large, capitalist countries. They can swamp it with re-runs and Superbowls and Olympics and what-have-you. Why suppress when you can overwhelm?

        At some point, information suppression may come back into vogue, but not until the Internet dies.

        • Paul says:

          Actually I was just using Gail as an example of how the NSA has the power to control every single person on the planet (other than those living ‘off the grid’).

          They can get to anyone — just a matter of giving them a reason. I don’t think this blog gets onto their radar as it is not a threat to the Deep State.

        • InAlaska says:

          I think that Paul was just using Gail as an example, not actually suggesting that this blog is a possible target.

  3. Gail, this is a wonderfully clear article. I love the multiple choice question-and-answer style. It really engages the reader. The article will help destroy false complacency with natural gas. Try to get a (shorter) version published more widely.

  4. tmsr says:

    Gail, thanks for this article. It is very helpful to see all this information in one place.

    Here in New York State we are shutting down coal and the five nuclear electric plants as fast as possible to be replaced with natural gas. The states energy plan is ever increasing use of natural gas out to 2030 (the planning horizon).

    There is a move to re-fire coal plants with natural gas. Unfortunately, they will not be upgrading the turbines in the process so we will have low efficiency natural gas plants. Which suits the need of those who see electric generators as consumers of fuel as opposed to producers of electricity.

    In New York it is all about the financial structuring that allows a quick profit for insiders like the Blackstone Group of Manhattan.

    • Thanks for your observation regarding what is going on in New York.

      There is an outfit that sends me e-mail ads more or less daily for a conference called Natural Gas Power Generation USA | 2014. The leader at the top says, “Successfully Plan, Construct, Upgrade and Operate a Utility-Scale Gas fired Generation Facility.” I sent them an e-mail with a link to my article and an offer to speak at their conference. I don’t think I provide the message they want to get across.

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  7. anon says:

    I believe you have a typo in your great article… Shoulbe (b)?

    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 (a)).

  8. Fred ohr says:

    Dear Gail,
    No need to be alarmed over US nat gas exports. As u stated, market price is too low to sustain current production levels. Price in US will rise, with or without exports. But, let the marketplace work. If exports help balance S/D, let ’em rip. Nat gas prices are very cyclical. Market clearing price is where US wealth is maximized. If some exports end up in the equation, fine. If a bunch of export terminals are built and the world price croaks, well, that’s a risk the market will deal with. I say the country is better off at the market clearing price with or without exports. I just wish I knew what that price was. (I think it is about 30% above current levels).

    • The price of coal provides a partial cap for oil prices, under normal circumstances. In fact, electricity production from natural gas is already down in the US because coal is currently cheaper than natural gas-based electricity for many utilities. Europe and Japan don’t have coal acting as a built-in cap to the same extent.

      Prices of gas are very volatile because pipelines and storage caverns give very little flexibility for quantities. If it is a cold winter, prices temporarily spike. If producers add a little too much natural gas to the system, prices “tank.” The situation is very different from producing oil, coal, wood, copper, or iron, where unused amounts can be stored quite easily. Natural gas prices tend to be far more volatile, because of the inflexibility of the situation. I don’t think gas stays at one price very long, unless long-term contracts are used (a good idea in my opinion).

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  10. Tim Olsen says:

    The absurdity or the brilliance? It depends on your perspective. Super-cheap US natural gas does not accurately reflect the inherent VALUE and COSTS of the resource, and thus causes warped market behavior like abandoning renewable energy and efficiency. The sooner we jack up that price the sooner the world gets a little smarter.

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