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Thursday, October 30, 2014

Increased LNG exports lead to increased natural gas prices

The US Energy Information Administration has released its study of the impact on liquified natural gas exports on domestic prices and found that - surprise (not) - exports will increase domestic natgas prices.

Effect of Increased Levels of Liquefied Natural Gas Exports on U.S. Energy Markets confirms what any Econ 101 student should know - that increased demand for a commodity will likely push up its price.  The study finds:
projected U.S. natural gas prices increase in each of the five baseline cases. The price paths depend on the assumptions made regarding the resource base and advances in production technology, economic growth, and natural gas demand. In the Reference case, the average Lower 48 state supply price more than doubles between 2013 and 2040, ultimately reaching $7.25/Million British thermal units (MMBtu) in 2040. In contrast, under the more optimistic resource assumptions of the [high oil and gas resource] case, prices increase by only 38% by 2040 and never rise above $4.34/MMBtu. Under the more pessimistic resource assumptions of the [low oil and gas resource] case, prices reach $10.08/MMBtu in 2040.
EIA notes understandable caveats:
projections of energy markets over a 25-year period are highly uncertain and subject to many events that cannot be foreseen, such as supply disruptions, policy changes, and technological breakthroughs. This uncertainty is particularly true in projecting the effects of exporting significant LNG volumes from the United States...
Natural gas exports will raise prices and impact domestic consumers, utilities, and manufacturers. That has been a concern raised by legislators and business leaders. How much of an impact there will be remains to be seen.  There have been thoughtful analyses of this issue, and some perhaps less thoughtful. But any way you slice it, you can't repeal the laws of economics.  EIA's basic result is not surprising.


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