Amid global energy shifts and the U.S.’s rise to become the world’s top natural gas exporter, a pivotal question arises: Do U.S. LNG exports influence domestic natural gas prices?
A recent study I conducted for TXOGA delves into this query against the backdrop of the Biden administration’s pause on new LNG export permit approvals, a move predicated on concerns over potential domestic price increases. This decision overlooks the dynamic effects that global market access has had on drilling productivity, as well as the integral role of U.S. LNG exports in bolstering national and global energy security, especially against the backdrop of geopolitical tensions such as Russia’s war in Ukraine.
Our findings, derived from a robust statistical analysis, reveal a nuanced reality. Despite the tripling of U.S. LNG exports since 2019 and achieving new record highs, domestic natural gas prices have fallen to their lowest real levels in decades. This counterintuitive fact underscores a lack of sustained, significant impact of LNG exports on domestic pricing, challenging the administration’s rationale for pausing export permit approvals.
Through a comprehensive exploration, involving correlation analyses and a fundamentals-driven econometric model, the study dispels the myth of a direct, causal relationship between LNG exports and domestic price increases. Instead, it highlights how LNG exports have driven U.S. natural gas production growth and technological advancements, contributing to an expanded resource base capable of supporting over a century of production.
Debunking the myth: The impact of U.S. LNG exports on domestic natural gas prices
The FLEX RANGER LNG tanker ship on the shipping channel between the GoM and Corpus Christi, Texas, assisted by tugboats.
The examination of monthly LNG export levels and natural gas prices reveals a statistically significant correlation in certain periods, such as during the 2020 pandemic and subsequent global events. However, these correlations, influenced by external factors like seasonal variations and supply chain disruptions, do not establish causality. Our model, accounting for a range of economic indicators and employing a vector autoregression framework, further validates this conclusion. The empirical results, through impulse response functions and variance decomposition, demonstrate that LNG net exports have not had any sustained and significant impact on natural gas prices.
This analysis not only refutes misconceptions about the impact of LNG exports on domestic prices but also underscores the dynamic nature of the natural gas market. The growth in LNG exports has spurred domestic natural gas production, enhanced drilling productivity and supported the petrochemical industry by increasing the availability of NGLs, such as ethane, propane and butane. Such dynamics underscore the market’s capacity to adapt and thrive amidst increasing global demand for cleaner energy sources.
The implications of this study extend beyond academic interest, offering critical insights for policymakers, industry stakeholders and consumers. By dispelling the fears associated with LNG exports, it paves the way for more informed, strategic decisions that bolster U.S. energy leadership while supporting global environmental goals. Moreover, it calls for a reevaluation of energy policies that restrict LNG export growth, advocating for a balanced approach that recognizes the benefits of LNG exports in strengthening the U.S. economy, enhancing energy security and contributing to global sustainability efforts.
For more information, visit txoga.org.
