Despite a Biden administration pause in new natural gas exports, the U.S. still ships a lot of the stuff to the world. Last year it sent 88.9 million metric tons of natural gas abroad, becoming the globe’s biggest supplier. One would imagine that would mean cheaper natural gas for Americans. But it turns out the opposite has become true.
A new National Bureau of Economic Research (NBER) working paper suggests that U.S. dominance of global natural gas markets imposes a tax on American consumers, more than doubling the price that they were paying when the United States was keeping much of its natural gas for itself.
“U.S. [liquified natural gas] exports have connected U.S. gas prices to world markets, and in particular to the price of oil — in contrast to the situation prior to LNG exports in which the flood of fracked gas and constrained export options kept domestic wholesale gas prices far below world levels,” write the economists James H. Stock of Harvard and Matthew Zaragoza-Watkins of University of California Davis.
No good for gas prices
Essentially: U.S. gas prices, which had long been tied to oil prices, started doing their own, cheaper thing because so much was stuck ashore. But as American natural gas became un-stuck, it resumed trading like a global commodity instead of something special just for Americans. By 2030, the economists suggest, U.S. prices will be 54% higher than they would have been in a less export-intensive scenario. The paper equates the jump with the equivalent of a $30-per-ton carbon tax on natural gas emissions.
A couple of decades ago, U.S. energy companies discovered new techniques to bring long-buried natural gas supplies to the surface through hydraulic fracturing (or fracking), in which they dug really deep holes in the ground, then shot liquid into to force the gas out.
The United States once imported more natural gas than it exported, mostly from Canada. But as it doubled down on fracking in the mid-2010s, its ratio of imports and exports began shifting — and by 2017, the U.S. was officially sending out more gas than it was bringing in. The fracking boom rippled throughout local economies and minted a new species of billionaire.
Eventually, America got so much natural gas from itself that it largely stopped importing it — and started exporting it in a big way. But when all those exports re-wove the U.S. into global markets, the boon of all that domestic supply has petered out.