The Natural Gas Supply Association (NGSA) sent letters to the House and Senate energy committee leaders on June 19 calling for three major policies to advance the interests of the US natural gas industry. According to its website, NGSA represents suppliers that produce and market natural gas. Dena Wiggins, president and CEO of NGSA, said these three measures are necessary to help the nation achieve the economic and environmental benefits of natural gas:
- Expand infrastructure
- Allow exports of liquefied natural gas (LNG)
- Establish a regulatory body to assist gas companies in complying with market rules
To some extent these measures could help retail buyers, but they could also create major risks.
Potential Impacts on Retail Buyers
Much has been written about how the US natural gas boom has driven down energy costs and in turn helped to reverse the trend of offshoring in industrial and manufacturing operations. Reports from the University of Michigan, Forbes, and The Hollingsworth Companies all extoll the virtues of natural gas and its importance in what could be the beginning of a manufacturing renaissance. How will the measures proposed above affect the industry?
Expanded infrastructure will help to bring natural gas from production centers with rich natural gas resources to the population centers and industrial hubs that require it for electricity, heat, natural gas and more. It will also continue to encourage power generators to replace coal with gas, further driving down electricity costs while helping the regions to achieve federal and state emissions targets. This will be a boon for both gas and electricity buyers, especially in regions with limited gas transmission capacity like the Northeast and mid-Atlantic. These regions have seen soaring energy prices during the winter heating season and have been forced to procure overseas LNG supplies.
One caution is that, while natural gas supplies are abundant, an overreliance on these resources could cause a rapid depletion of these resources that could ultimately lead to massive shortages. For example, at current consumption levels, the Marcellus Formation, which has been an enormous boon to the economies of northeastern states, has enough extractable reserves to supply gas for about 25 years. If production increased, however, that timeline would contract. The expanded infrastructure would also help enable gas companies to transport supplies from production centers to liquefaction terminals for export to international markets.
Allowing LNG exports would benefit the natural gas industry, but it could pose a major risk to domestic energy buyers by forcing them to compete with international buyers. A map of international LNG prices in April from the Federal Energy Regulatory Commission (FERC) shows wholesale prices of just $2.47 to $3.35 per MMBtu in the US, compared with prices ranging from $6.71 to $8.01 in all international markets shown. Although gas producers could offer moderately lower prices to US customers as the “mid-stream” costs of transporting, liquefying and shipping the gas to international markets would be higher than simply transporting it domestically, US natural gas prices could still rise significantly to be more in line with international prices. This would pose a major risk for both electricity and gas customers.
On the other hand, this would increase US exports and create jobs related to gas extraction and transportation, which would provide a boost to the economy and could indirectly help retail buyers. The NGSA letter also notes that US gas reserve estimates have expanded dramatically from about 600 trillion cubic feet in 1966 to 1,200 in 2002, and 2,400 in 2014, in part due to fracking. Whether this will be sufficient to maintain the low current prices is unclear.
Creating a regulatory body to foster market compliance could help gas producers and customers alike, depending on its function and implementation. The letter proposed creating an agency that would report to FERC to enforce market rules and assist gas companies in complying with these rules. If implemented in an effective manner this could help improve industry efficiency, mitigate the behavior of bad actors, and ensure a functioning market for natural gas – a positive development for energy buyers.