Europe is desperate for new natural gas sources as the Kremlin squeezes supplies from Russian fields. But a US pledge to close the supply gap threatens a domestic backlash.
The U.S. wholesale gas market is likely to average $9 per million British thermal units for the rest of the year, the Energy Information Administration predicted Wednesday. The price is a fraction of the gas price in Europe, giving traders huge financial incentives to send fleets of liquefied gas carriers overseas. The US recently overshadowed Australia and Qatar as the world’s largest LNG exporter.
But $9 is still three times the average US gas price over the past decade, so has the potential to fuel sharp increases in residential heating and electricity prices at a time when inflation is close to a 40-year high. is.
In July, state governors in New England’s northeastern region warned the White House of a potential hike in gas prices over the winter. They alluded to the US pledge to help Europe reduce its dependence on Russian gas, weeks after Vladimir Putin’s invasion of Ukraine.
“We appreciate that the [Joe] The Biden administration has been working with European allies to expand fuel exports to Europe. A similar effort must be made for New England,” the group of governors wrote to energy secretary Jennifer Granholm, in a letter seen by the Financial Times.
The governors of Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont asked the government to help secure domestic LNG supplies for their region from the coast of the Gulf of Mexico, a move that could jeopardize U.S. exports of the could distract global markets.
High prices “will have a significant impact on our region’s electricity and natural gas customers and raise reliability concerns if the region experiences a harsh winter,” the governors told Granholm.
New England typically imports LNG from abroad through a terminal near Boston during the coldest months. To the frustration of US gas producers, some states in the region have fought against the construction of pipelines that would run from the nearby Marcellus Shale, one of the world’s largest gas fields.
The governors asked the government to relax restrictions under the Jones Act, a law that requires US-flagged ships to be built and manned for shipments between domestic ports.
Granholm replied in a letter to governors last month, saying the administration was “willing to use all the tools in our toolkit” to address supply disruptions and high prices. She said the government would quickly review all requests for exemptions from the Jones Act, but could not issue “general waivers.”
Since the first gas exports left the Gulf Coast in 2016, LNG shipments have grown to about 12 percent of total U.S. production. More than 70 percent of those cargoes have flowed to Europe this year. The continent’s need for this was accentuated this week, when Russia said it would keep the Nord Stream 1 pipeline to Europe closed until Western sanctions against Moscow are lifted.
Business groups such as the US Chamber of Commerce and the National Association of Manufacturers have largely supported continued gas exports. Still others have expressed their concerns. In August, the Industrial Energy Consumers of America, a manufacturing group, said in a regulatory filing that “LNG exports have already fueled significantly higher inflation via higher natural gas and electricity prices.”
“Electric bills will shock most consumers as they will rise well above the current rate of inflation,” said Albert Lin, executive director of Pearl Street Station Finance Lab, an energy-focused advisory group. “This super high price spike that everyone in Europe is witnessing is pulling US prices up because of LNG exports.”
The US’s export capacity now stands at 14 billion cubic feet per day, although more than 2 billion cu ft/d is temporarily offline following an explosion at a terminal in Freeport, Texas. According to the EIA, capacity is on track to increase by 40 percent to 19.7 billion cubic feet per day by 2026 as new projects are completed.
The multi-billion dollar expansions have drawn resistance from climate and environmental justice campaigners on the Gulf Coast. Sierra Club, one of the largest environmental groups in the US, has placed “Stop LNG” billboards along highways in southern Louisiana, where several projects have been approved by the government.
“We’re already overstretched and we already have communities living right next to petrochemical facilities that are already damaging the water and air,” said James Hiatt of the Louisiana Bucket Brigade, who opposes the LNG projects. “Most of southern Louisiana will be under water if we keep pumping these greenhouse gases, so we can’t continue this silly exercise.”
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Earlier this year, a group of Democratic U.S. lawmakers, including senators from New England states, urged the Biden administration to “limit the export of natural gas from the U.S.” while examining the “impact on domestic energy prices.” . Those calls could grow louder if energy prices rise this winter.
Analysts at ClearView Energy Partners, a Washington-based consulting firm, said in a recent report that they considered the government unlikely to curtail exports given its promises to Europe. But they added that higher domestic gas prices could cause approvals and permits for new projects to be delayed.
“The government recognizes the urgency of which the rest of the world is seeking U.S. natural gas,” said Charlie Riedl, executive director of the Center for Liquefied Natural Gas, a trade group. “Slowing that down due to a winter of high prices here seems like a short-sighted geopolitical decision, and I’d be surprised if this government took that kind of action.”