Seb Kennedy
Opinion: US LNG is becoming a zero-sum game
The US is now a world-beating gas exporter, but the spoils of LNG market dominance are increasingly coming at the expense of US consumers via higher gas prices. Renewables stand to benefit, but tail risks abound.
Tricky trade-offs
The Freeport outage illustrates how US LNG exports help to keep a lid on soaring European energy prices, while driving up domestic prices.
Put simply, more US gas in Europe means less gas in America. So far, the US has enjoyed the economic benefits of its cheap shale gas bounty on the road to becoming a world player on the global LNG stage. Soon, it will have to choose between the two.
Industrial Energy Consumers of America, a Washington-based trade body that has been campaigning for years to cap US gas exports, has seized on this moment to drive home its message: US LNG is hurting American industry.
Shale peak looms
So, if US gas demand won’t fall to match rising exports, can production keep pace? Shale gas output grew spectacularly in the 2010s. A net increase in supply of 20Bcf/d since 2016 far outstripped the 10Bcf/d of new LNG export demand, creating the structural surplus that kept Henry Hub at a structural discount to prices in global gas markets – underpinning the original economic case for LNG exports.
However, field declines, constraints on investment and broken supply chains mean the US gas industry is at an inflection point. The Permian, Marcellus and Haynesville shale plays that drive supply growth are rapidly approaching peak production, tipping the US gas market from structural surplus to structural deficit.That is according to New York investment house Goehring & Rozencwajg Associates, which said in a May 2022 briefing: “The idea that gas supply could falter and as a result that
US gas prices could nearly instantly rise four-fold is completely off any investors’ radar. And yet, this is exactly what our models are telling us could happen within the next six months.”
No more cheap US gas?
What would $30/MMBtu on Henry Hub mean for the US energy transition? For starters, LNG exports would falter if feed gas costs rose to the point that liquefying and transporting the molecules to Europe becomes unprofitable. For that to happen, natural gas would first be rendered uneconomic in many domestic end-use segments, making alternatives more attractive – but it would also aggravate inflationary tail risks for clean energy investments.
More homeowners would be convinced to invest in solar thermal or heat pumps for space heating in cooler northern states. Solar PV would become a vital source of onsite generation for homes, apartment blocks and offices to offset spiralling energy bills during the summer cooling season, particularly in warmer climes.
Full article:
https://www.energymonitor.ai/analysis/o ... o-sum-game