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World consumption of natural gas is on the rise, while the relative shares of oil and coal are declining rapidly. For example, in 1970 oil constituted about 50% of primary global supplies, while gas was less than 20%. Today, oil is down to 30%, and natural gas is up to 25%. If current trends continue, within a decade natural gas will surpass both oil and coal to become the primary source of world energy.
Why is this shift occurring? Not only is natural gas abundant in many parts of the world but it’s by far our most versatile energy source. It can be used to generate electricity, to heat homes and businesses, and to fuel industrial boilers. Natural gas is a feedstock to the petrochemical industry and, in compressed or liquefied form, it can be used to fuel cars, trucks, and railroad locomotives. Natural gas is also a clean-burning fuel with a carbon footprint 50% lower than coal and 30% lower than oil. Indeed, the substitution of natural gas for coal and oil in a variety of uses is the main reason greenhouse gas emissions in the United States are lower today than they were 20 years ago.
Growing supplies of natural gas in North America and elsewhere are also enhancing global energy security. For example, all of the Eurozone nations — with the exception of the Netherlands — are net importers of gas, with Russia as the major supplier. But as the recent past has shown, Russia has a tendency to use its dominance over the European gas market for political purposes. Though geologic studies indicate several European countries have significant recoverable shale gas reserves — most notably Poland and France — it will be at least several decades before these resources are exploited. Fortunately, several new pipelines are under construction that will bring gas from non-Russian suppliers like Azerbaijan to the European market.
By expanding their capacity to export liquefied natural gas (LNG), countries like Canada, Algeria, Qatar, and Australia are also contributing to energy security by offering the European and Asian consumers an alternative to Russian gas. But to make natural gas a globally-traded commodity like oil, the United States must get into the export business.
Last year, at nearly 70 billion cubic feet per day, America was the world’s largest natural gas producer. But what little was exported went primarily to Canada and Mexico. The good news is that two export facilities have been recently approved by the U.S. Department of Energy, one in Louisiana and one in Texas. Meanwhile, 19 other applications are currently being evaluated. With gas prices currently averaging $10.00 per mcf in Europe and up to $15.00 in Asia, $4.00 U.S. gas is attracting both domestic and foreign investment into American LNG facilities. Though the Henry Hub price may rise to $6.00 or $7.00 over the next decade, American gas will still remain competitive in the export market, even including the costs of liquefaction and transportation.
Some politicians and corporations want to limit or prohibit natural gas exports from the U.S., arguing that exports will bring about higher prices that, in turn, will erode America’s competitiveness. But this is a specious argument. LNG is produced from “dry” gas, much of which is currently being flared because of insufficient domestic demand. Exports of dry gas will not significantly diminish the supply of natural gas liquids, such as ethane and benzene, which are the principal components of plastics and other manufactured products.
Not only is the U.S. the world’s number one producer of natural gas, it also possesses the largest storehouse of proven reserves. By exporting some of this gas, America can assume the mantle of leadership in ensuring global energy security while at the same time stimulating economic growth at home.
This commentary is based on a presentation at a panel on “Energy Security from the Caspian to Europe” as part of the USA-Azerbaijan Convention held in Baku on May 28-29, 2013.
Bernard L. Weinstein is Associate Director of the Maguire Energy Institute and an Adjunct Professor of Business Economics in the Cox School of Business at Southern Methodist University. He has taught at Rensselaer Polytechnic Institute, the State University of New York, the University of Texas at Dallas, and the University of North Texas. He has authored or co-authored numerous books, monographs, and articles on the subjects of economic development, energy security, public policy, and taxation. His work has appeared in professional journals as well as the popular press. He earned an A.B. degree from Dartmouth College and an M.A. and a Ph.D. in economics from Columbia University.Full Bio
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