Low Domestic Prices Undercut Administration’s Rationale for LNG Freeze

Mark Green
Posted February 29, 2024

Two charts and three key points about American natural gas, our nation’s opportunity to supply liquefied natural gas (LNG) to friends and allies abroad, and natural gas’ role in reducing global emissions – which could be undermined by the Biden administration’s LNG permitting pause.

Point #1: U.S. natural gas prices are L-O-W

Make that very low. According to the U.S. Energy Information Administration (EIA), on Feb. 20, the benchmark Henry Hub daily natural gas price averaged $1.50 per million British thermal units, the lowest price in inflation-adjusted dollars since at least 1997.

Chart #1:

Why are prices low? Domestic supply is a big reason, EIA said, with U.S. dry natural gas production averaging a record high of 105.7 billion cubic feet per day (Bcf/d) in December. Low natural gas use and higher natural gas inventories factored into prices declining throughout much of 2023 and the first two months of this year, EIA said.

Point #2: U.S. LNG shipments continued to rise

EIA reports American LNG supply levels reached a record 386.2 billion cubic feet in November 2023, leading to Chart #2:

Focus on the time period in both charts from 2016 to present, and you see rapidly growing LNG supply levels, yet relatively stable Henry Hub prices.

Put the two together and they show the administration’s concern about LNG impacting domestic prices – one of the chief reasons given for imposing the LNG permitting freeze – is unfounded.

Rob Jennings, API vice president of Natural Gas Markets, wrote recently:

“The [U.S.] Energy Department’s own data crunchers reported that U.S. natural gas prices were down 62% last year compared to the annual average in 2022 – even as U.S. LNG deliveries reached all-time highs while supporting our allies. And compared with 2016, when the U.S. LNG exports began, domestic gas utilities are currently paying less for natural gas (adjusted for inflation). Thus, changes in consumer bills are likely due to other factors, not the cost of the gas itself.”

Domestic natural gas prices may well trouble the administration. If so, instead of restricting America’s LNG potential, the White House should support smart energy policies like supporting new natural gas pipelines to address infrastructure constraints, which a 2023 study found have a real impact on bringing the lowest-cost natural gas to market.

Point #3: LNG and coal

The Biden administration’s focus should be on reducing coal use around the world, not getting in the way of America’s ability to help achieve that goal.

In the U.S., increased use of natural gas is the leading reason carbon dioxide (CO₂) emissions from the power sector are near generational lows. That’s because using natural gas as a fuel results in fewer emissions of nearly all types of air pollutants and CO₂ compared to coal – about 50% fewer CO₂ emissions. Other nations could see similar emissions reductions by turning to natural gas, which American LNG can supply.

Meanwhile, it was estimated that 2023 would be record year for global coal consumption. China, India and others continue to build coal-fired power plants.

At the annual Coaltrans India conference this month, Reuters reported, forecasters expected at least a 25% increase in coal demand in the next six years – 300 million tons, more than Germany’s annual coal demand.

Reuters:

“India may have committed to eventually starting to phase down consumption of the polluting fuel on its road to net-zero emissions by a targeted 2070, but for the coming decade the coal industry sees a ramp up.”

The point here is that if India and others are likely to increase their coal use, then the focus should be on offering a cleaner alternative – U.S. LNG. The administration’s freeze on LNG permits actually could encourage more coal use, not reduce it.

Rob Jennings:

“At a time of geopolitical turmoil around the world, the Department of Energy's arbitrary LNG freeze is not only unlawful – it cedes America’s energy advantage to hostile nations while jeopardizing thousands of American jobs. U.S. LNG is a cornerstone of global energy security, and its benefits – which include bolstering the American economy, reducing global emissions and strengthening our national security – are well-established.”