After a very expensive winter, home heating costs are beginning to fall. Household use of natural gas fluctuates with the weather, and as furnaces go dormant, utility bills ease.
But that seasonal decline is masking a breakneck rise in price. The spot price of U.S. benchmark Henry Hub has doubled since March, according to Insider. It surpassed $9 per thousand cubic feet last week — triple its spot price at this time last year — for the first time in almost 14 years.
Some natural gas companies in the Intermountain West say the region’s lack of access to overseas markets is partly to blame.
“If we were able to export the natural gas that’s trapped in Wyoming, Colorado and Utah to Asia, that would lead the price around the world,” said H. Howard Cooper, president of Colorado-based Three Crown Petroleum.
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The problem for Wyoming and its landlocked neighbors is that they can’t export that gas on their own. Their only access to international markets comes through coastal states. But the country’s existing capacity is concentrated along the distant shores of the East Coast, the Gulf of Mexico and Alaska, all too far away to be of much use.
There are no liquified natural gas (LNG) export terminals in the West — and the West Coast doesn’t want them.
Wyoming very much does.
Ongoing shortages
The Russian invasion of Ukraine and the international rejection of Russian energy exports that followed are directly responsible for the spike in global oil and gasoline prices and European natural gas prices.
That disruption has been much more muted for natural gas markets outside of Europe.
U.S. natural gas prices are going up primarily because the country’s production is still recovering from its collapse early in the pandemic, and coronavirus-related supply chain issues and labor shortages are now impeding companies that want to drill, slowing the industry’s growth.
As temperatures rise and air conditioners kick on, people consume more electricity — much of it generated from natural gas. And the supply of natural gas isn’t keeping pace with that demand.
Europe’s search for non-Russian sources of natural gas has also exacerbated the imbalance. The U.S. — forecast to be the world’s top LNG exporter this year — maxed out its export capacity as European prices soared. Its LNG shipments went up 18% in the first four months of 2022, according to the Energy Information Administration, and aren’t expected to slow anytime soon (though an explosion at one of the biggest U.S. LNG export plants on Wednesday will take about 20% of the country’s processing offline for at least the next few weeks).
“We have the capability of displacing all of the Russian natural gas that’s flowing into Europe, today” said Paul Ulrich, vice president of government and regulatory affairs at the Denver-based oil and gas company Jonah Energy. “Now, with our current LNG infrastructure, most of that natural gas will be coming through Gulf of Mexico ports.”
Before Europe’s energy crisis, existing U.S. ports primarily exported natural gas to Asia. Between January and April of this year, 74% of the country’s exports went to Europe.
LNG export capacity is a hard thing to change, at least in the short term. Scaling it up is a lengthy, costly and controversial process, embroiled in concerns about the terminals’ long-term economic prospects and contributions to climate change.
Which means, as Cooper emphasized, that devoting most of the existing capacity to Europe has left less natural gas available to send to Asia. He believes additional capacity is the solution, and wants that new development to happen a lot faster.
“We need to open up LNG facilities on the West Coast so we can supply Asia with natural gas from Wyoming, Colorado and Utah,” Cooper said. “We have the gas here. So let us replace Russian gas with U.S. gas.”
Staunch opposition
The attention in recent months on LNG exports has left Wyoming’s producers feeling burned.
It can be hard for companies operating in the state to compete with the cheaper natural gas produced in other parts of the country, according to Rob Godby, an economics professor at the University of Wyoming.
The state’s natural gas industry pinned its hopes on Jordan Cove, a major LNG export terminal that was proposed for southern Oregon in 2013 and secured federal approval two summers ago. But landowners, environmental groups and Indigenous communities worried about water, tourism and climate change fought back. State regulators’ denial of key permits ultimately led to the project’s cancellation late last year.
Had the terminal been built, “it could provide an outlet to allow Wyoming natural gas to kind of be sold onto the international market,” Godby said. “So they wouldn’t be so wholly dependent on the domestic market.”
He figured the additional exports would have a more muted effect on consumers.
“Would that single port have made a huge difference to international LNG prices?” Godby said. “Probably it would make some difference. But it’s going to be, you know, a marginal change.”
It would take a lot more than Jordan Cove to transform energy markets in Asia and beyond, an attractive prospect for Western natural gas producers. Many believe exporting the fuel — “some of the cleanest in the country, if not the world, based on methane intensity and how responsibly we produce natural gas,” Ulrich said — would oust other, leakier sources of natural gas and replace some higher-emitting coal-fired power generation.
The whole concept is a hard sell to environmental groups.
Shannon Anderson, staff attorney for the Powder River Basin Resource Council, a Wyoming landowners’ group, said she’s not convinced that the potential contribution to Europe’s energy needs is reason enough to commit to an option as costly and permanent as Jordan Cove.
“Why are we talking about natural gas when we can talk about renewables and electrification and other options that are available?” Anderson said. “I think that the challenge right now with natural gas, similar to coal, is, you know, why invest in something that may not have a future — that is going to be challenged with climate change and a global reckoning around fossil fuel use?”
The Powder River Basin Resource Council didn’t take a position on the Oregon terminal. It felt the decision was best left to the community where it was proposed.
Looking elsewhere
Natural gas producers’ frustration over Jordan Cove parallels the Wyoming coal industry’s experience with a string of blocked coal export terminals proposed — and fought by local residents — in Washington and Oregon.
In Wyoming, “the coal market, in some ways, resembles the natural gas market,” Godby said. “The coal market kind of functions primarily as a domestic market. Exports don’t play a huge role.”
That’s partly because, like with natural gas, Wyoming can’t export its coal without the coastal states’ consent. The state’s attempt to force Washington to build one such terminal came to an end when the Supreme Court refused to take up the case last June.
“The fact of the matter is that there are markets in Asia that want our coal, that could use our coal, and we just can’t get it there,” said Travis Deti, executive director of the Wyoming Mining Association.
Wyoming’s natural gas industry is now in a similar position. While its prospects in the U.S. energy market in the coming years are brighter than those of coal, it will also face more domestic competition. So it’s not giving up on international buyers.
But instead of turning to the courts, landlocked Western natural gas producers are looking to Mexico, where San Diego-based Sempra Energy plans to build two LNG export terminals south of California. The first of those terminals is expected to open in late 2024.
“The bottom line is currently, no, there isn’t a project moving forward on the West Coast, domestically,” Ulrich said. “So the reality is, if we’re going to have a, quote, West Coast terminal right now, the current path is this through those two facilities.”
