LNG Export Ban Would Hurt Consumers, Damage US Global Interests
Banning exports of U.S. liquefied natural gas (LNG)—or significantly curtailing the supply of natural gas exported—would have major negative impacts on the global economy and environment as well as American foreign policy, new research by IHS Markit finds.
Daniel Yergin, vice chairman of IHS Markit, said:
“When markets are tight what is required is an assurance of steady, secure, reliable supply, and reliability for the agreements and relationships with other countries underwriting this supply. Proposals to limit or redirect supply only exacerbate tensions, add to uncertainty, and market volatility, and undermine both investor and consumer confidence, as well as relationships with U.S. allies and partner countries.”
Thanks to the rapid growth of shale production, America became a net energy exporter in 2018. Yet, in recent years, green groups and some federal lawmakers have sought to reverse that trend and are pushing to restrict LNG exports in a misguided quest to lower global GHG emissions.
This sort of policy would be harmful for long term prices, global emissions reduction, and America’s global standard, according to IHS Markit.
American LNG Still An International Energy Bargain
A reduced supply of natural gas on the world market, a situation driven by decreased investment in exploration and production due to the COVID-19 pandemic, lockdowns, and policies to discourage domestic production in the U.S., has pushed energy prices up.
But American energy is still a bargain internationally. In the United States, spot market prices hit highs of above $5 per MMbtu in November and have since edged downward. That is still far below prices in Europe (more than $25/MMBtu) and Asia (above $30/MMBtu). IHS Markit states:
“However, the U.S. gas price has begun trending back downward more recently and it remains extremely low in comparison to international price, the report notes. The U.S. gas price is currently at an unprecedented discount compared to Europe and Asia, where spot LNG prices have been trading above $25 and $30 per MMBtu, respectively.”
Export Ban Would Lead to Global Emissions Increases
This price advantage has encouraged countries to switch their electricity generation from coal or other high carbon fuels to natural gas in order to significantly reduce their carbon emissions. Any efforts to prevent exports of U.S. LNG would “be a major hindrance” to carbon reduction efforts in China, India, and other countries, IHS researchers found.
As Michael Stoppard, chief strategist in global gas for IHS Markit, explained:
“A stoppage of U.S. LNG exports would run counter to carbon reduction efforts following COP26, where the United States and China in particular were able to find common ground. Restricting U.S. LNG supply would simply force China, alongside other Asian markets, to delay its move away from coal-fired power generation.”
Not only that, but halting exports would also hurt investor and customer confidence internationally. Companies signing contracts for American energy are looking for assurances that natural gas is available for the agreed price. Meanwhile, domestic investors are unlikely to back projects like export facilities if there is a risk that new legislation would make their investment inoperable.
“The United States is the third largest exporter of LNG in the world, delivering supply to more than 35 countries in recent years. You cannot engineer a stoppage—even a partial one—without dealing a major blow to investor confidence and undermining relations with key partners who would see such a move as an arbitrary and damaging change to the rules of the game, as well as a negative shock to their economies.” (emphasis added)
As Energy In Depth recently noted, natural gas has taken the United States from energy scarcity to energy dominance and put the country on track to become the world’s top LNG exporter.
This has incredible cost, environmental, and diplomatic benefits for the United States and as IHS Markit sums up, efforts to slow down these exports will “undermine both investor and consumer confidence, as well as relationships with U.S. allies and partner countries.”