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Natural Gas To Go Abroad; Biomass Says 'Bon Voyage'

By Kolby Hoagland | July 19, 2013

There is an obvious angst around the continued delay by the DOE to approve applications that would allow the export of natural gas from the U.S. to foreign markets. The angst for the DOE to approve natural gas exports is obvious given current price discrepancies in other countries. While the spot price for natural gas in the U.S. hovers around $4 an MMBtu, Europe pays around $12 and Japan $18 for the equivalent amount. The substantial difference in domestic and foreign prices has led twenty different groups to apply to the DOE for permission to export domestically produced natural gas. The natural gas boom in the U.S. and the companies behind it are looking to go abroad where greater profits await, and they have considerable support behind their effort.

There isn’t much that Washington can agree on these days, but when it comes to the question of whether to allow the export of natural gas, lawmakers are quick to cross the isle. On July 9th, a bipartisan letter from thirty four U.S. Senators was sent to Secretary Moniz at DOE strongly encouraging him to speed up the approval process for the twenty proposed natural gas export facilities. Abroad, there is additional support where cheaper natural gas from the U.S. would ease prices and alleviate dependence on hostile countries. Those that oppose the natural gas exports are primarily from domestic chemical and manufacturing industries that benefit greatly from cheap natural gas. They argue that by exporting natural gas the domestic prices for natural will increase dramatically. A study commissioned by the DOE and released last December on the economic impact of exporting natural gas reports that the U.S. is “projected to gain net economic benefits from allowing [natural gas] exports.”  The report does acknowledge that natural gas export would increase the price between zero and $0.33 an MMBtu, depending on economic scenario. The study, however, unequivocally concludes that the overall impact on the U.S. economy would be positive despite price increases.

For the biomass-to-energy industry, the export of natural gas is a boon for future growth. There is no arguing that biomass projects compete directly with natural gas for electricity production, thermal demands, and (in much lesser terms) for transportation fuel production. When deciding the type of energy project to build, project developers weigh the many costs associated with potential energy inputs and the capital needed to convert the energy feedstock into a usable energy product. Most often, if not always, project developers go with the project that has lowest associated costs that accomplish the original goals. Biomass has many inherent advantages to natural gas, but in regards to price, natural gas currently wins. By expanding natural gas exports in the U.S., the price difference that allows natural gas to trump biomass as a raw energy feedstock would be reduced. Furthermore, by allowing natural gas export, the domestic spot price market for natural gas would be affected by fluctuations in foreign natural gas markets around the world. We can strongly assume that the added influence of foreign markets on domestic natural gas prices will instigate greater and more erratic domestic price fluctuations. Hedging and other tricks to mitigate erratic prices will become more widely needed to maintain profit from natural gas energy production. Greater stability in raw material prices for biomass is an asset that energy developers must take into account for the long-term economic stability of current and future energy projects. Biomass will likely see greater attention among developers as the DOE moves forward on the twenty applications pending approval, which it seems to be doing slowly.  

 

2 Responses

  1. William Strauss

    2013-07-23

    1

    Low cost natural gas as transportation fuel will make the wood using industries more competitive. If the entire supply chain for wood was supported with natural gas fueled machines and trucks, it would lower wood costs at the gate significantly. See my paper on this at http://www.FutureMetrics.com It would make pellets as heating fuel the lowest cost fuel for the residential sector; even versus natural gas. It will also make our industrial pellet export sector very competitive.

  2. Kolby Hoagland

    2013-07-24

    2

    Thank you for linking your paper, Bill. The NG infrastructure will need to be considerably better equipped to deal with higher demands if export and transportation fuel are in NG's future. The spike in NG and electricity (52% generated from NG in the Northeast) prices in the first half of the summer elicits these issues. http://www.eia.gov/special/alert/east_coast/

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