The US natural gas boom is fueled by reliable European demand.
Even as the sector works to overcome objections to pipeline development, rising European demand has contributed to a surge in US natural gas investment.
According to the most recent US data available, production of the fuel hit 3.1 trillion cubic feet for October, a record and an increase of about 50% from the level a decade ago.
According to Steven Miles, a fellow at Rice University’s Banker Institute in Houston, the market has been expanding since Russia started cutting back on exports to Europe in the summer of 2021.
The US shale revolution of the first decade of the twenty-first century, finally resulted in the country turning into a net exporter of fuel in 2017, before that.
The development has not been constant, since falling natural gas prices have discouraged investment and caused one of the main participants in the sector, Chesapeake Energy, to file for bankruptcy in June 2020.
But in light of altering geopolitical factors, energy corporations now have more faith in the fuel’s long-term demand prognosis.
According to Eli Rubin of the consultancy EBW AnalyticsGroup, the long-term need “was not nearly as evident as it is now” five years ago.
“We have a healthy new regard for natural gas’s function in supplying energy security and for its role in helping to moderate consumer pricing, especially in light of Russia’s invasion of Ukraine.
There was a significant investment in infrastructure to convert gas into liquefied natural gas even before the invasion (LNG). 14 new liquefaction terminals have just received approval, with the first one scheduled to open in 2024.
Rubin stated that we may treble US LNG exports over the next five years. The effort comes as major energy corporations benefit from high commodity prices, which have made it possible for the sector to spend aggressively while also increasing share buybacks and dividends.
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Obstruction in Pipeline
Although there has been some limited globalization of the natural gas market due to the rise of LNG, the dynamics are still regional.
Due to this pricing difference, LNG exports are priced more similarly to US levels, which creates the opportunity for “middlemen” to transport the cargoes to Europe and “sell them at European rates,” according to Miles.
More consistent prices across areas may result from significantly increased US natural gas exports, but probably not for several years.
Ryan Kellogg, an energy expert at the University of Chicago, speculated that eventually, “(the United States would) export so much gas to Europe that pricing between Europe, Asia, and North America become more aligned.”
But I believe that we are now a long way from it. The absence of pipeline capacity, particularly in the northeastern United States, continues to be a problem for the sector.
The Marcellus Shale, the largest natural gas basin in the US and mostly located in Pennsylvania are constrained by a lack of infrastructure.
A project known as the Mountain Valley Pipeline is one possibility, but it has been put on hold for the past five years due to opposition from landowners and environmentalists.
Climate activists and political officials are “definitely a lot stronger than they were” in their opposition to projects sponsored by industry, according to Rubin.
But during times of peak demand, a lack of infrastructure can make price volatility worse. A small portion of New England’s heating comes from LNG, which is located in the northeastern United States.
But the area, which often experiences some of the harshest temperatures in the nation, is also renowned for refusing to accept more pipeline capacity.
“New England is fighting with Europe for a spot LNG shipment during a cold spell,” said Rubin. “They have to pay more than in Europe for the freight to get to New England.”
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