Insight: Love it or hate it, natural gas is likely here to stay.

Source: By Kyra Buckley, Houston Chroncile • Posted: Tuesday, June 28, 2022

A flare burns at Venture Global LNG in Cameron, La., on Friday, April 21, 2022. The new facility, which exports liquefied natural gas, is one of several like it along the Gulf Coast — and there are proposals for several more in Louisiana and Texas.
A flare burns at Venture Global LNG in Cameron, La., on Friday, April 21, 2022. The new facility, which exports liquefied natural gas, is one of several like it along the Gulf Coast — and there are proposals for several more in Louisiana and Texas. Martha Irvine, STF / Associated Press

With gasoline prices hitting record highs this year, a lot of focus has been put on domestic crude oil production – namely, by President Joe Biden, who has called on companies to increase drilling and expand refining capacity to boost supply and lower costs.

But Houstonians are feeling the pain beyond the gas pump. And it’s coming every month when utility bills arrive.

Most electricity is generated from natural gas, which at more than $6 per million British thermal units, is three times the price Americans were paying in 2019. And it’s been worse. Earlier this year, natural gas was trading near $9 per mmBtu.

“Costs are rising for all of those industries that use gas, and it’s contributing to inflation,” said Jim Krane, energy fellow at Rice University’s Baker Institute. “It’s making it more expensive to heat and cool our homes, and dry our clothes, or take a shower and everything else.”

Natural gas, often a byproduct of oil drilling, is priced high pretty much everywhere in the world. The global nature of energy is one of the reasons why U.S. oil and gas companies (or the president, for that matter) don’t have that much control over prices.

Not so long ago, the U.S. natural gas market was mostly a domestic one. That changed in 2016 when the U.S. began exporting LNG, liquefied natural gas, or natural gas that’s been cooled down for travel.

Moscow’s invasion of Ukraine especially put pressure on natural gas prices over fears that Russian gas would be essentially lost to the market. In 2021, Europe got 40 percent of the gas it consumed from Russia.

But, you may ask, isn’t the world moving away from fossil fuels and toward renewable sources of energy, which advocates say will eventually lower consumer costs?

Energy companies say that transition will take decades, and argue that oil and gas will still be needed after 2050.

Also, concerns about near-term fuel shortages from the war has not only forced prices up, but also has caused many countries to reduce their focus on fighting climate change to secure enough oil and gas to try to hold down prices and inflation.

This time is different

Traditionally a price surge has also spurred increased production, but this time is different. Public companies are heeding investor calls for more disciplined growth and robust shareholder returns, meaning they’re sticking to production plans and not rapidly increasing output to chase high prices.

Instead, companies are racing to build or expand LNG processing and export terminals, primarily along the Gulf Coast.

“We are exporting between 10 and 15 percent of our domestic gas production now, so that’s a big chunk flowing overseas,” Krane said. “And so that means we’re not putting that much gas into storage for next winter when we’re really going to need it.”

The demand for gas, once the poor cousin to oil, is reflected in recent dealmaking. Two of the biggest energy business deals in the first quarter of the year were related to gas utilities, according to consulting firm Ernst & Young.

J.P. Morgan Chase’s Infrastructure Investments Fund spent $7.6 billion to acquire a gas utility from South Jersey Industries. The infrastructure fund for insurance company Ullico paid $690 million to add a large-scale gas utility from Dominion Hope Gas to its portfolio.

“What we’re finding is that there is a growing confidence in the natural gas distribution companies, and that growing confidence is that there is potential for growth in those businesses for the long run,” said Miles Huq, a partner at Ernst & Young.

Some government officials and environmental advocates worry that the expansion of natural gas pipelines, storage and processing will lock the next generation into using fossil fuels when scientists say most oil and gas reserves need to stay in ground to avoid the most catastrophic effects of climate change. Companies tout natural as a bridge to a lower carbon world because it displaces far dirtier coal for electricity generation, but environmentalists say natural gas is still destructive to the climate.

In recent years, the image of natural gas as a bridge fuel was sullied by the large amounts of the potent greenhouse gas methane spewed into the atmosphere by oil and gas production. But as governments around the world react to short supplies and soaring prices, it appears natural gas has won its place in the transition to lower carbon fuels. And barring a major shift in the global energy system, it’s here to stay for decades to come,