A Scenario of Hope for Natural Gas Challenges

Global demand for natural gas continues to grow and the search is on to meet that demand in both the eastern and western hemispheres.

The development of both shale gas and conventional natural gas resources has turned the U.S. natural gas supply picture on its head.

  • China is seeking every available energy source to fuel economic growth.
  • Saudi Arabia has made a strategic decision to shift its energy consumption from (mostly) crude oil to natural gas, in order to free that crude for sale on world markets.
  • Massive natural gas discoveries in the eastern Mediterranean and eastern Africa are in development to supply world markets.

The challenge, of course, is that unlike with crude oil, the physical and economic challenges of transporting natural gas have thus far restrained the development of a truly global natural gas market in favor of regional markets – some more connected than others.

But large price differentials for natural gas prices across the globe, for example between North America and Asia, are shifting the economics in favor of natural gas exports and toward a more global market.

This shift is attracting its share of critics.


In the United States, policy makers and industry leaders are debating whether the nation should permit these natural gas exports.

One element of the debate is simply the rehashed argument between free traders and those who prefer more controlled markets.

But another element is a more serious policy question about when and how a nation should export a commodity product – such as crude oil or natural gas –and gain immediate economic benefit, and when should it use that commodity as an input to create, for example, a petrochemical product that yields greater economic benefit.

In an efficient market, the oil and natural gas producer is a price taker, with the price set by the last barrel of oil or MMCF of gas sold. If demand for the commodity increases, say by expanding U.S. LNG export capacity, you can expect that the next increment will be sold at a higher price. Demand is the commodity producer’s friend.

But if you are purchasing this commodity as an input into your manufacturing process, such as a chemical plant, you want that price to be as low as possible. Supply is your friend and excess supply is even better, because, for a time at least, it further depresses prices and improves your margins.

That’s the heart of the debate we’re having in the United States, and there is no simple answer, because notwithstanding economic theory, there are myriad variables at work in the energy markets and no one knows precisely how they would respond to expanded natural gas exports.


In May the Bipartisan Policy Center (BPC), a Washington, D.C., based think-tank, issued “New Dynamics of the U.S. Natural Gas Market,” its assessment of this debate.

BPC evaluated several different scenarios and modeled their impacts using the National Energy Modeling System (NEMS), a system used by the U.S. Energy Information Agency in its forecasts. It also assembled a group of energy policy experts and stakeholders to analyze the model input selections and scenario development, and evaluate the results.

The purpose of the study as BPC defined it was “to develop realistic scenarios that usefully bound the range of plausible outcomes for natural gas supplies and demand over the next few decades, as well as potential impacts in terms of fuel mix, energy prices, and opportunities to expand natural gas use in ways that improve the environmental performance of the U.S. energy system.”

Their study resulted in eight key findings:

  • The United States has ample domestic natural gas supplies to meet future demand without significant price increases.
  • LNG exports are unlikely to have a large impact on natural gas prices.
  • Increased natural gas consumption in the future will be driven primarily by overall economic growth and increased demand in the electric power and industrial sectors.
  • The industrial sector could be a major source of new demand for natural gas if projected growth in the U.S. manufacturing base is realized.
  • Natural gas vehicles stand to make significant gains in market share and vehicle miles traveled by 2030.
  • In the electric power sector, natural gas leads – but renewables also play a significant role.
  • Energy-related carbon dioxide emissions are driven primarily by overall economic growth.
  • Pricing carbon results in greater emissions reductions.

Given the inputs, assumptions and scenarios considered in its analysis, BPC’s conclusions suggest that natural gas exports and a price environment that attracts investment and expands the manufacturing base and promotes additional economic activity can coexist, all while delivering an environmental dividend from switching to clean burning natural gas.

These are modeled results. But they offer a plausible and hopeful scenario.

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Director's Corner

Director's Corner - David Curtiss

David Curtiss is an AAPG member and was named AAPG Executive Director in August 2011. He was previously Director of the AAPG GEO-DC Office in Washington D.C.

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