After reading Art
Berman’s excellent summary of how fast-growing U.S. natural gas exports are likely to
reduce domestic supplies significantly over the next several years as shale gas output begins to decline, I want to
assure you that everything has been going according to plan for the natural gas industry, that is, until now.

On Friday the Biden Administration announced a freeze on new permits for liquefied natural gas (LNG) export facilities that could last up to 15 months. The administration said that during the freeze it will review the environmental effects of such exports on climate and the communities in which the facilities are located. It is also possible that despite the industry’s assurances, the administration may believe that supply problems and therefore higher prices lie ahead, something that voters won’t like.

When U.S. oil and gas producers successfully lobbied the federal
government for an end to restrictions on the export of crude oil and
natural gas in the middle of the last decade, they loudly proclaimed that
America could produce so much of both from the country’s shale fields that
the United States would have plenty left over for export—and that would
boost the American economy while addressing the country’s trade imbalance.
They promised that this boom would go on for decades.

Of course, what those producers were really angling for was to integrate
domestic oil and gas markets more fully with world markets in order to
benefit from higher world prices and make a lot more money. In fairness,
what they were asking for is what almost every other industry in the
United States enjoys, the right to sell their products to the highest
bidders no matter where those customers are on the globe.

Naturally, that argument would not have appealed to members of Congress
whose constituents prefer low energy prices to high ones, so it was never
advanced with any vigor.

We are now a decade into the U.S. experiment with largely unrestricted
exports of oil and natural gas and as Berman suggests, the boom is
leveling off and setting up for what looks like a decline. I’m focusing on
natural gas in this piece, but you can read Berman’s excellent coverage of
the approaching decline in U.S. oil production here
and here.

For context, the U.S. oil market was already integrated into the world
market before the changes in U.S. policy except for a restriction on crude
oil exports that tended to suppress domestic crude oil prices. U.S.
refiners had long been allowed to export as much finished product
(gasoline, diesel, etc.) as they liked.

Natural gas producers, however, were generally unable to access the world
market as their gas was delivered by pipeline to domestic customers and to
some customers in Canada and Mexico. This kept U.S. natural gas prices
much lower than world prices for many years. So, the change in policy is
having a much bigger effect on natural gas prices.

As the international LNG market expanded dramatically, U.S. gas producers
saw their opportunity. If they could only get their gas turned
into LNG, it could be shipped to higher-paying customers abroad. The more gas that went abroad as LNG, the higher prices would be
for U.S. consumers and ultimately for LNG exporters, a double win for domestic producers.

The move has led to mixed results. This is in part because U.S. natural
gas producers have shot themselves in the foot showing little discipline
and overproducing. (The reason is often that the wells are drilled with
borrowed money and therefore the producers must sell all the gas they can
produce to pay back their creditors rather than wait for better prices.)
There have been periods when U.S. natural gas prices jumped in the past 10
years, but those
prices are currently stuck at levels reminiscent of the 1990s. World
LNG prices, however, remain
consistently and considerably above U.S. prices.

This differential has been driving a huge expansion in U.S. LNG export
facilities, facilities
that are likely to double the combined export capacity of the United
States, Canada and Mexico by 2027, according to the the U.S. Energy
Information Administration (if that expansion is allowed to proceed).
Including all three countries in any assessment of LNG exports makes sense
because of the dense network of natural gas pipelines that connect them
and therefore affect the supply of natural gas available in all three.

It’s important to understand that LNG delivery contracts usually run for
20 to 30 years. The customers receiving LNG are unwilling to invest the
billions it costs to build and run a regasification facility without being
guaranteed a consistent supply of LNG. That means that most of the natural
gas leaving American shores cannot simply be held back and kept at home if
America’s natural gas supplies get low. And, some of those contracts are
with America’s gas-hungry allies in Europe. So, declaring a national
emergency and depriving those allies of contracted natural gas supplies
would have major geopolitical implications.

It now appears that the Biden administration may have figured all this
out. The ostensible reason for the just announced moratorium on
the permitting of new LNG export facilities is, of course, the environmental effects on climate and communities hosting LNG export sites. It seems likely, however, that someone whispered into the administration’s ear something about the possibility of
much higher domestic prices in the coming years if the U.S. LNG export
juggernaut is allowed to continue.

Given the uncertainties surrounding U.S. production of both oil and
natural gas, it seems likely that the United States will start putting
more emphasis on making sure enough domestic production remains in the
country to meet domestic demand and, in the case of natural gas, to keep
prices down. (U.S. oil prices will continue to be linked to world prices
under pretty much any scenario except price controls or extraordinary new
export restrictions, both of which seem unlikely.)

My guess is it will take a major crisis for U.S. export policies to
actually go into reverse (rather than merely halt the expansion of
exports as the Biden administration is considering). Producers have until
then to maximize their gains before the curtain falls on the current U.S.
export system that is now plumping up their profits.

Kurt Cobb is a freelance writer and communications consultant
who writes frequently about energy and environment. His work has appeared in The Christian Science Monitor, Resilience, Common Dreams, Naked Capitalism, Le Monde Diplomatique, Oilprice.com, OilVoice, TalkMarkets, Investing.com, Business Insider and many other places. He is the author of an oil-themed novel entitled Prelude and has a widely followed blog called Resource Insights. He can be contacted at kurtcobb2001@yahoo.com.

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