Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Breakingviews

U.S. eyes supply-side economics of natural gas Add to ...

Uncle Sam may soon be sharing his bounty of natural gas with the world. If planned liquefied natural gas projects happen, the United States could end up exporting up to a fifth of its gas. That’s enough to shift the balance of energy power elsewhere in the world.

For the motivation to export gas, look no further than the domestic U.S. price of the fuel. On Dec. 30, it fell below $3 (U.S.) per million British thermal units for the first time in two years. Gas typically sells for almost five times that in Asia and nearly three times as much in Europe. Infrastructure firms, such as Cheniere Energy Inc., want to convert idle U.S. plants, once intended to import LNG, into export hubs. So far, six projects are awaiting U.S. Department of Energy approval.

If they all go ahead, the United States could export about 12 billion cubic feet of gas a day. That’s equivalent to almost 90 per cent of Russian sales to Europe, according to energy consultancy IHS Cera. It’s an indication of the potential impact U.S. exports eventually could have on energy politics, although Russia is protected in the short to medium term by supply contracts. Meanwhile, for Asian gas users, which import 20 billion cubic feet a day, another source of supply would enable them to drive a harder bargain.

But that dynamic poses a threat to Cheniere and other infrastructure firms. They may have to spend up to $40-billion building the new export plants, according to IHS Cera. If they swamp the global market with LNG, a price collapse could render their investments unprofitable.

It will be 2015 at the earliest before any of the planned projects are operating. Meanwhile, the Department of Energy, which has to approve them, may be wary of encouraging exports that could reduce domestic supply significantly and raise prices for U.S. consumers.

Still, the price gap between the U.S. and the rest of the world is so big that market forces are likely to find a way to exploit it. Even a lower level of U.S. exports of LNG could make a big difference, in both energy politics and the development of a global market for natural gas.

Follow us on Twitter: @GlobeBusiness

In the know

Most popular videos »

Highlights

More from The Globe and Mail

Most popular