Over the past few years, natural gas prices in the United State have more than doubled and are likely to continue to grow. U.S. natural gas prices are currently 25 percent higher than in Europe. By building eight new LNG terminals by 2010 (in addition to the four already in existence, and two that have received approval to begin construction), natural gas prices could be reduced by 20-25 percent from current levels. At an average of $5.96 per thousand cubic feet in 2004 (according to the U.S. Energy Information Administration), this equates to a savings of $1.19 to $1.49 per thousand cubic feet). But the economic benefits of increased supplies of natural gas far exceed just cost savings on the natural resource itself. Secondary economic benefits include: Reducing electricity prices -- Increasingly, electricity production in the United States is generated from natural gas. This is due, in part, to the low cost of natural gas in the 1990s when many plants were coming online and the fact that it’s easier to obtain permits for natural gas facilities because of the clean-burning effects of the gas. Since natural gas currently fuels so much of our electricity production, it follows that a reduction in gas prices would result in a reduction of electricity prices. This will be especially true in California, where natural gas generates nearly 35 percent of electricity statewide. Retaining jobs -- Due to the increasing importance of natural gas as a source of fuel for businesses (particularly manufacturing) in the United States, an increase in the cost of the commodity causes an increase in production costs for firms, thus putting them at a disadvantage to competitors operating in countries where natural gas is abundant and inexpensive. Especially in manufacturing, where lower wages abroad already provide incentives to relocate jobs, increases in natural gas prices in the United States are likely to force manufacturers to consider moving jobs to places such as Indonesia and Latin America, which enjoy “steady and inexpensive supplies” of natural gas. Certain industries, for example fertilizer manufacturing, either require natural gas or gain susbstantial benefits from using it over other energy sources. Many of the companies in these industries would have little choice but to relocate to other countries if the price of natural gas continues to rise. Avoiding economic slowdown -- Continued increases in the price of natural gas will have negative effects on the economy. In addition to lost jobs, higher gas prices would slow economic growth, thereby reducing the creation of new jobs. Creating stability -- Along with price increases of the last several years, natural gas volatility has increased. Because volatility is a result of supply shortages (due to the United States’ inability to quickly respond to short spikes in demand), increasing LNG would decrease volatility by relieving demand on domestic producers, thereby allowing them to increase production to meet short-term increases. Decreasing volatility helps consumers because prices tend to be highest when they need gas the most – for example, to heat their homes during an especially cold winter. Fostering a free market economy -- Fears of an effective natural gas counterpart to OPEC are very likely unfounded. Proven natural gas reserves are located in countries with a variety of political and cultural backgrounds, and, unlike oil, are geographically diverse. Additionally, many of these countries are sitting on “stranded” deposits) gas reserves that are so much larger than the consumption in that country that they will go unused unless exported using LNG methods. This means that despite having small reserves compared to the world’s largest natural gas countries (such as Iran and Russia), countries like Norway and Trinidad and Tobago can be world players. In other words, should a cartel form and try to control prices, even small reserve-holding countries could affect US prices due to their own minimum consumption. For more information please visit the following sites: 2003 Integrated Energy Policy Report
Liquefied Natural Gas and the Future of Manufacturing
Greenspan Testimony Before Congress, June 10, 2003