The Downs and Ups of Gas Prices

The boom in domestic gas production will drive down gas prices and cut carbon dioxide emissions. Until it drives both prices and CO2 emissions up. Confused? Don't be. Markets can do funny things like that.

Here's the scoop: It wasn't so long ago that forecasts of declining domestic production from "mature" gas fields resulted in a flurry of proposals to build terminals for importing liquefied natural gas (LNG) from overseas. LNG is floated across oceans in special ships fitted with bulbous, imposing tanks for keeping the gas chillled to at least 259 degrees below zero Fahrenheit.

Now, with domestic shale gas production surging--up by a factor of nearly 13 between 2000 and 2010-- the market for importing LNG into the U.S. has dried up. The gas guys are talking about exporting LNG in order to chase higher prices available in Asian and European markets.

There have been rumbles from industrial gas users and publicly owned gas utilities that exports would drive up prices for domestic consumers. Last week, the U.S. Energy Information Administration released a study that in essence said, yup, exports would cause prices to rise -- for everyone: homeowners, businesses, and industries. During the 2015-2035 period, residential customers, for example, would see price increases averaging 3.2 to 7 percent per year over the study's business-as-usual scenario.

With higher gas prices, electric utilities would shave down gas-fired generation and coal would make up most of the difference, along with a smattering of renewables. The study projected a 2 to 4 percent increase in coal-fired generation in this scenario. As a result of that and other market shifts, projected carbon dioxide emissions would edge up a bit: from slightly more than 125 billion metric tons during the 2015-2035 period to anywhere from 125.7 billion to 126.3 billion metric tons.

Here's what's happening on the ground. On the coast of Oregon, for example, the proposed Jordan Cove facility, which has in hand a Federal Energy Regulatory Commission (FERC) permit to build an import terminal, has applied for a FERC permit to build an export terminal. Last month, Jordan Cove received Department of Energy (DOE) clearance to export 9 million metric tons of gas per year to the 18 countries with which the U.S. has trade agreements requiring equal treatment of foreign and domestic gas customers. Gas exports to such countries are largely a ministerial matter: by federal law, they are presumed to be in the public interest and DOE must wave them through. For exports to countries with which the U.S. does not have such agreements, the burden of proof is on export opponents to show why the application is not in the public interest.

In testimony to the Senate Energy and Natural Resources Commitee last November, a representative of the American Public Gas Association--speaking for publicly owned gas utilities--said five export proposals, including Jordan Cove, would allow for shipment of just under 3 trillion cubic feet of gas per year, about 13 percent of total domestic consumption in 2010--a recipe, in his view, for higher prices.

Goes to show that in the energy world, nothing is black-and-white. Every set of energy choices has economic and environmental tradeoffs.