Given our nation’s energy needs, it is clear that we will be using natural gas for many years to come, to heat our homes, fuel manufacturing, and importantly, to generate electricity. Even given climate concerns, most experts agree that natural gas – and other fossil fuels – along with carbon abatement technologies like carbon capture and storage (CCS) will be needed to meet our energy needs in 2050.
In fact, in an ACCF webinar last May, former Obama Secretary of Energy Ernie Moniz argued that the US will need natural gas well into the future, and that zero-carbon 2050 scenarios include the use of gas along with negative carbon technologies like CCS. Likewise, Jennifer Granholm recently told a gathering of energy executives that “[e]ven the boldest projections for clean energy deployment suggest that in the middle of the century we are going to be using abated fossil fuels.”
With the demand for natural gas in the U.S. continuing to be strong. some elected officials have raised concerns that exporting natural gas via ship as liquified natural gas (LNG) could cause domestic price increases. Sen. Angus King, for example, has long championed the idea that LNG exports could have negative impact on consumers.
Numerous studies – including those conducted by EIA (2012), NERA (2012), EIA (2014), the Baker Institute at Rice University(2015) and NERA (2018) – have demonstrated that this concern is unfounded; U.S. natural gas resources are so vast, that we can easily supply not only our own needs, but also export LNG with only very modest impacts on domestic price (which are more than offset by the significant economic benefits of exports).
Nevertheless, with Russian natural gas no longer flowing to the E.U. – the result of sanctions resulting from Russia’s aggression in Ukraine – this concern has been raised again. Can the U.S. send LNG to the E.U. and other trading partners, at higher volumes than previously exported without impacting consumers here at home?
A new study by NERA for the American Council for Capital Formation (ACCF) shows that the recent change in global markets has not changed the long-term impact of US LNG exports on domestic price. In all scenarios analyzed, price remained below $4/million Btu. In fact, the analysis indicates that in a scenario where the U.S. becomes a long-term, major supplier of LNG to the E.U., the impact on price is at most 10 cents per million Btu. Further, that scenario only results in a price increase when infrastructure expansion (e.g., pipelines) is limited to zero. In fact, in this new study, scenarios that include natural gas infrastructure expansion reduce natural gas price by at least 25 cents per million Btu in all cases in both the short (2025) and medium (2035) term.
Therefore, it appears that the real policy change that could help American consumers is not restricting LNG exports, it is permitting and building out natural gas infrastructure. Building pipelines and associated natural gas infrastructure will have real economic benefits by reducing both what consumers pay on utility bills and the cost of manufactured goods!
This issue is especially pronounced in the northeast. The New England region is underserved by existing natural gas pipelines, primarily because New York State has blocked permits to construct natural gas pipelines from gas-rich states like Pennsylvania and Ohio, that could provide low-cost, reliable supplies of natural gas. As a result, New Englanders often pay significantly more than the rest of the country for both electricity and home heating, being forced to use heating oil or import gas from overseas.
Of course, some experts opine that diversification of energy production, especially the growth of renewables, is the answer. That can certainly help, but we cannot pretend that natural gas is not needed as well. As shared above, energy experts from both sides of the aisle agree that natural gas will be a part of our energy mix for decades to come. Infrastructure build-out therefore will not serve to “lock in” gas that would otherwise not be used; we will need to develop and use that natural gas regardless!
It seems clear that the smart policy is to build the pipelines needed today and reap the benefits of secure supply and lower costs for New Englanders and all Americans.
Kyle Isakower is Senior Vice President of Energy and Regulatory Policy for the American Council for Capital Formation