8. NATURAL GAS
For pipeline exports, Mexico and Canada remained the major destinations, whereas the primary destinations for US LNG shifted from the Americas to Asia in 2017 (Figure 8.9).
Figure 8.9 US LNG exports by destination, 2016-17
Africa
2%
Middle East
11%
Europe
10% Americas
48%
Asia 29%
2016 (4.8 bcm)
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10% |
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14% |
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Asia 46%
2017 (18.6 bcm)
IEA (2019). All rights reserved.
US LNG’s primary destination shifted from the Americas to Asia in 2017.
Source: IEA (2018), Gas 2018: Analysis and Forecasts to 2023, www.iea.org/gas2018/.
Market structure
In the United States, ownership of subsurface mineral resources is granted to the individuals or organisations that are surface landowners. This unique ownership structure for mineral rights in the country has helped enable the growth of onshore production as property owners are more economically vested in resource development compared with many other countries, where the government owns all subsurface mineral rights (see Chapter 7, “Oil”).
The gas industry has a high degree of private ownership with little vertical integration. The natural gas market is highly competitive and wellhead prices are not regulated. The federal government supervises production on federal land and states regulate production on non-federal lands – which accounts for the majority of domestic production. The main segments of the industry are largely unbundled by Federal Energy Regulatory Commission (FERC) regulations, with supply, transportation, distribution and other services provided by different companies. Interstate transportation, including trans-border facilities, is regulated by FERC, and local distribution is regulated at the state level.
While prices are generally set by competitive markets, state public utilities commissions can exercise regulatory authority over retail gas prices, and are responsible for consumer protection, natural gas facility construction and environmental issues that are not covered by FERC or the Department of Transportation (DOT). One of the primary features of the current market is the existence of natural gas marketers, who serve as middlemen to connect producers and end users by offering both bundled and unbundled services.
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Box 8.2 Growth of the US LNG trade and its outlook
For the United States, the current growth in LNG trade indicates a further diversification of US gas exports. In 2016-17, the number of US LNG export destinations increased from 17 to 25 (Figure 8.10).
Figure 8.10 US LNG exports by destination (by region and country), 2016-17
Note: Light grey bars represent volumes of US LNG to destinations other than the top three importing countries in a region.
LNG exports to Mexico are being replaced by pipeline flows with additional capacity being commissioned. By 2023, Mexico is expected to import approximately 45 bcm from the United States by pipeline, meeting around 50% of the growing domestic demand in Mexico.
While gas trade through pipelines is still dominant, the expansion of the US LNG trade will continue to reshuffle trade relations, not only for the United States but for the global market. With a notable 2.2 bcm increase in exports in 2016-17, Europe will remain an attractive market for US LNG, though overall flows will shift eastwards to the Pacific basin, driven by higher demand growth and margins. The IEA projects that the Pacific basin will eventually account for around two-thirds of US LNG exports by 2023.
Looking at the global LNG market, most of the increase in LNG exports will come from new projects in Australia, Russia and the United States, further diversifying supply sources as well as shipping routes. Of these countries, US output will lead LNG market supply growth until 2023, with US projects accounting for over 75% of incremental exports in the 2017-23 period.
Source: IEA (2018), Gas 2018: Analysis and Forecast to 2023, www.iea.org/gas2018/.
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Price and taxes
The most widely referenced wholesale gas prices are observed at the Henry Hub (HH). HH is a natural gas distribution hub located in Erath, Louisiana, that serves as the official and national pricing reference for futures contracts on the New York Mercantile Exchange (NYMEX).
Over the last five years, consumption in the Northeast did not keep up with incremental natural gas production from the Appalachian basin; the lack of additional pipeline capacity to move this extra gas production to other US regions and to Canada kept a large portion of the gas where it was produced and put a lid on the regional price. Wholesale gas prices at the Appalachian pricing hubs Tennessee Zone 4 Marcellus and Dominion North/Leidy were lower than the wholesale gas price at HH (Figure 8.11). Price spreads between HH and regional prices in the Appalachian basin narrowed in 2017, due to pipeline capacity increases, compared with the period between 2014 and 2016 (Figure 8.11). However, in the Permian region, the regional price differentials are persisting at the time of writing with a lack of sufficient pipeline capacity to accommodate growing production and placing downward pressure on natural gas prices.
Figure 8.11 Average wholesale gas prices at three US hubs, 2013-18
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IEA (2019). All rights reserved.
The price spreads between HH and regional prices in the Appalachian basin narrowed in 2017 due to pipeline capacity increases.
Note: HH is a pricing hub in Louisiana; Tennessee Zone 4 and Dominion North are pricing hubs in the Appalachian basin.
Source: IEA (2018), Gas 2018: Analysis and Forecasts to 2023, www.iea.org/gas2018/.
As for retail gas prices, the United States had the lowest industry gas price (USD 13.9 per megawatt-hour [MWh]) and third-lowest household price (USD 34.6/MWh) among IEA countries in 2018 (Figure 8.12) 3. Over the last five years, industry gas prices in the United States have varied from USD 18.3/MWh in 2014 down to USD 11.6/MWh in 2016. Household prices have been more stable around USD 34/MWh. In 2017, gas-fired electricity prices stood at USD 11.6/MWh, 22% below the 2013 level.
3 Tax component figures not available for the United States, and hence not included.
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It should be noted that with an increasing share of associated gas in total US supply, domestic gas production is also influenced by fluctuations in oil prices. The recovery of the oil price (West Texas Intermediate) was one of the key drivers of natural gas production growth, specifically LTO associated gas, in 2017.
The United States provides subsidies for oil and gas production, mostly in the form of tax breaks to producing companies. Between fiscal years (FYs) 2013 and 2016, direct federal financial incentives and subsidies in energy markets decreased by nearly half, from USD 29.3 billion in FY 2013 to USD 15.0 billion in FY 2016. Federal subsidy support for fossil fuels, including natural gas, declined from almost USD 3.9 billion to USD 489 million in FY 2013-16 (EIA, 2018c).
Figure 8.12 Natural gas prices in IEA member countries, 2018
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IEA (2019). All rights reserved.
US gas prices are one of the lowest among the IEA member countries.
Notes: Tax information not available for the United States. According to the US country notes submitted to the IEA, taxes are included in the prices for households, industry and electricity generation, and mostly refer to general sales taxes levied by the states. The rates range between 2% and 6% and the national average is currently unknown.
Industry price data are not available for Australia, Greece, Japan, Mexico and Norway; household price data are unavailable for Australia, Finland, Greece, Japan, Mexico and Norway.
Source: IEA (2019d), Energy Prices and Taxes 2019, www.iea.org/statistics/.
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