One big downside of LNG exports: Price swings for US gas consumers

Electricity bills in Louisiana didn’t use to fluctuate based on geopolitical turmoil on the other side of the world. But when Russia invaded Ukraine in early 2022 and kicked off a fossil gas shortage in Europe, the reverberations hit home in the Gulf Coast parishes that depend on the fuel for electricity, cooking and hot water.

The Ukraine invasion prompted European companies to pay top dollar to replace the gas they had been getting from Russian pipelines. Much of the new supply came from the United States. European buyers, backed by wartime subsidies, made gas a much hotter commodity than it had been in years — globally and locally in the U.S.

Gas prices kept rising just as the summer heat set in on the Louisiana coast in 2022, tripling what they’d been a year before. Louisiana burns gas for nearly 70% of its electricity generation, far more than the national average of 40%. When gas prices spiked, the state’s electric utilities passed that cost right along to households and businesses. Residents in two-bedroom homes suddenly found themselves paying $600 to $700 for a monthly utility bill, for months in a row, said Logan Burke, a leading consumer energy advocate for households in Louisiana.

“It was showing up boldfaced, underlined and italicized,” Burke told Canary Media. ​“People’s bills suddenly reflected an international commodities market. Louisianans, whether they know it or not, are competing with fertilizer plants and petrochemical plants in Europe and Asia.”

This global competition for American fossil gas only developed recently. The shale revolution of the early 21^st century enabled companies to extract far more U.S. gas than anyone had thought possible. That technological and industrial breakthrough delivered cheap fossil fuels for American consumers. But that created a problem for the gas producers: The same low prices that helped gas plants outcompete coal and lowered household utility bills threatened to cut into the gas industry’s profits.

Liquefied natural gas offered a solution: By compressing and cooling gas into liquid form, companies could ship it to other parts of the world where buyers were eager to pay many times the going rate in the U.S. The first shipment left Louisiana’s Sabine Pass in February 2016; by the end of 2023, LNG export terminals were shipping 14% of U.S. gas production overseas. The seven more terminals already under construction will more than double that capacity, and many more are in the works.

In January, the Biden administration paused new approvals for LNG export infrastructure in order to reassess how it determines whether a new terminal serves the public interest (the federal government has never rejected a proposed export terminal). Along with better assessing the local environmental impacts and greenhouse gas emissions of LNG infrastructure, the administration will look closely at the burdens placed on American consumers by the LNG export expansion.

Numerous studies have found that LNG exports push prices upward for American consumers, but analyses differ on how much this harms them given other potential benefits exports bestow on the overall economy. Gas prices are complicated and influenced by many factors; record-busting gas production lately has brought U.S. gas prices down from the dizzying highs of 2022 to bargain-basement levels, despite record-high LNG exports.

LNG exports have not resulted in permanently higher prices, then; nor have they left American consumers bereft of fossil gas for their own needs. But the booming trade has exposed U.S. consumers to greater volatility tied to global gas-market disruptions, and the cumulative impact of that volatility has meant many American households have paid more for gas over time.

Luckily for consumers, there’s already a proven playbook for sparing them from both gas cost increases and price volatility: systemwide investments in clean energy and electrification, both of which also tackle greenhouse gas emissions.

Who gets hurt by LNG exports? Gas-dependent households

The American consumers most at risk in the new era of globalized gas prices are the ones who can’t avoid using gas for their basic necessities.

It’s hard to find a better example of this than Louisiana, which, not coincidentally, is also ground zero for the recent LNG boom. The state already has the highest per capita residential electricity consumption in the country, per federal data.

“It was a national problem during 2022 in particular,” Burke said of LNG-related price increases. But, she noted, ​“It depends on your relative dependence on that feedstock. If [your utility] put a lot of faith in the idea that gas prices are going to stay low forever, it also means you’re really vulnerable to a spike.”

Louisiana bet on gas for many facets of its economy. ​“It all comes back to gas,” Burke said. The state enticed industrial customers to set up shop there with cheap and easy access to gas, which serves as a heat source and an ingredient in things like fertilizer production. And now, the state is hoping to attract facilities that can turn fossil gas into hydrogen and capture and sequester the resulting emissions, therefore qualifying for new clean-energy tax credits. And the state’s biggest monopoly utility, Entergy, continues to lean on gas for the bulk of its electricity production.

Entergy ​“has zero skin in the game” when its preferred fuel surges in cost, Burke said. While it’s common practice among U.S. utilities to pass fuel costs on to their customers, some states levelize the fuel surcharge over the course of a year, which softens the blow of seasonal extremes. But Louisiana passes on fuel surcharges on a monthly basis, so consumers feel them right away when the price hikes hit the gas that fuels electricity, stoves and water heaters.

The state also lacks an important safeguard for consumer protection: Nearly all other states have an official ratepayer advocate charged with shielding customers from outsize utility bills and arguing on their behalf in regulatory proceedings. Louisiana, bucking national convention, never created a ratepayer advocate role; Burke’s nonprofit, the Alliance for Affordable Energy, tries to fill that gap.

In 2022, that confluence of local factors hit Louisiana households especially hard, but the whole country felt the sting. From September 2021 through the end of 2022, American consumers paid $111 billion more than they would have according to the average monthly rates from 2010 through 2020, per an analysis by think tank Institute for Energy Economics and Financial Analysis.

That report puts the blame for the increase squarely on ​“gas exports.” It’s hasty to say that LNG exports caused every last cent of price hikes during that time of Covid disruptions and geopolitical crisis. But LNG exports were the causal mechanism that brought the soaring prices in Europe home to American households. 2022 disproved the rosy shale-revolution assumption that gas prices would always stay low.

Entergy Louisiana, undeterred, continued to bet on cheap gas. The utility’s new long-term resource plan from 2023 assumes gas won’t cost more than $7 per million Btu over the next 20 years (see slide 76), even though Henry Hub prices had already surged 40% above that level in 2022.

“They said, ​‘This is a short-term shock; it’ll go back down again, and it all evens out,’” Burke recounted.

These structural issues in the utility sector — high risk from overexposure to a single (fossil) fuel source, utility indifference to fuel costs, assumptions that cheap gas prices will continue uninterrupted — all predate the LNG era. But the competitive dynamics brought on by LNG exports exacerbate these risks. The most painful moments for American consumers are the most lucrative for the exporters.

“It’s not just about supply and demand — it’s also about increased volatility,” said Talia Calnek-Sugin, a senior policy advocate at the Natural Resources Defense Council. ​“What happens when the next supply crunch occurs in a foreign country or the next war breaks out? The U.S. used to be relatively insulated from those price spikes.”

Reshaping the U.S. gas market

LNG industry advocates frequently claim that exports don’t harm consumers. But the economic fundamentals are hard to argue with: Other things held equal, pulling a commodity out of a market drives up the price of that commodity.

A prominent 2018 study by the Department of Energy under President Donald Trump spelled it out clearly when assessing the macroeconomic outcomes of increased LNG exports: ​“On the negative side, producing incremental natural gas volumes to support natural gas exports will increase the marginal cost of supplying natural gas and therefore raise domestic natural gas prices and increase the value of natural gas in general.” This will push up prices for households and industries that use natural gas, the study notes.

Ultimately, though, the study sided in favor of increased LNG exports. Letting the market determine the rate of LNG shipments would raise the gross domestic product, it found, and ​“households who hold shares in companies that own liquefaction plants [will] receive additional income.”

“There’s no doubt that the benefits are not accruing to the people who are bearing the costs,” said Burke. ​“Shareholders would benefit from a boom in LNG exports, but the majority of those shareholders don’t live in Louisiana and have to pay a utility bill that has spiked.”

Calnek-Sugin noted that previous LNG studies have failed to evaluate distributional impacts: Low-income households disproportionately bear the burden of higher energy prices, while LNG shareholders and executives increase their wealth.

LNG critics also like to point to an unintentional experiment at the massive Freeport terminal in Texas — capable of shipping 2.38 billion cubic feet per day — as evidence of how domestic gas prices respond to the ebb and flow of exports.

When Freeport suffered an explosion on June 8, 2022 and had to pause operations, domestic gas prices plummeted. When the facility resumed exports eight months later, domestic gas prices popped back up.

The Freeport disaster illustrates what happens when the gas industry is producing for a certain market and suddenly loses a huge buyer — real and anticipated demand from LNG terminals has now thoroughly reshaped the supply side of the gas market.

That relationship helps explain why gas prices have fallen so low today in spite of record levels of LNG exports. The LNG boom has encouraged gas extraction, which hit record-high annual levels last year and record-high monthly levels in December.

Since the U.S. LNG export industry launched in 2016, terminals have grown to absorb around 15 billion cubic feet per day of U.S. gas. But in that time, U.S. gas production has also increased, adding about 30 bcfd by 2023, noted Dan Byers, an energy specialist at the pro-LNG U.S. Chamber of Commerce. In other words, gas production has grown so much that today’s increased levels of LNG exports aren’t cutting into the domestic gas supply.

“The domestic market has more slack than it did before we started exporting,” said Byers, the vice president for policy at the Chamber’s Global Energy Institute. ​“If we faced significant resource or infrastructure constraints, there would be a stronger relationship between exports and prices. But we don’t, so demand is quickly met with new supply.”

At the moment, then, fossil gas prices don’t impose an abnormal burden on consumers. Some analysts, like RBN Energy, expect U.S. gas production will continue to outpace increased demand from LNG exports over the coming decade, maintaining a buffer against LNG-related price hikes.

But current low prices represent just one point in time. Ultimately, what matters for consumers isn’t the spot price in March 2024, but the added costs that build up cumulatively each time a new global event drives up prices, even temporarily.

“You have to look backward and see how much it [has] cost people,” said Jason Rylander, legal director at the Center for Biological Diversity’s Climate Law Institute. ​“Continuing to send American energy overseas is going to be a net loss for American consumers.”

Solutions to gas volatility: More renewables, efficiency

As told by Beltway energy industry associations, the solution to volatility in the gas market is to double down on building out the gas supply chain. But there’s another option, which happens to mitigate consumer risks and climate impacts at the same time: invest in renewables and energy efficiency.

The grid obviously needs enough on-demand power to keep the lights on, and gas plants remain the default for that backstop role (though battery storage is rushing onto the grid to help). But the economics of ever-cheaper renewables, compounded by the various tax incentives in the Inflation Reduction Act, mean communities can save money by getting as much energy as possible from fossil-fuel-free renewables and leaning on gas for the rest. Lowering the annual gas burn reduces the impact of a price spike in that newly global commodity.

Hawaii ended up demonstrating this concept when energy prices skyrocketed at the start of Russia’s Ukraine invasion. That state uses oil, not gas, for dispatchable power, but the effect was the same. Kauai’s locally owned cooperative utility already had maxed out on solar production during the day and installed lithium-ion batteries to shift solar production into the evening. It mostly relies on oil plants to serve demand through the night. Consumers’ electricity bills there rose slightly for a few months. In contrast, Hawaii’s other islands rely on oil for the majority of their generation, and they all suffered stinging and persistent price hikes. The divergent outcomes hammered home the volatility-busting superpower of being able to rely on stable, long-term contracts to buy renewable energy.

That playbook works across the states. Lately, even large old-school utilities have warmed up to sweeping renewables construction to complement their gas fleets. The U.S. electricity sector is collectively picking carbon-free sources for a stunning 96% of the new power plant capacity slated to be built this year.

After years of advocacy, Burke is optimistic that Louisiana is heading in a cleaner, more resilient direction, too. Entergy Louisiana has started building large-scale solar in earnest — in 2022, it won approval to add 475 megawatts of solar. The following year, the utility asked regulators for permission to build 3,225 megawatts of solar.

For the last decade, Louisiana’s approach to efficiency measures was letting the utilities spend a fraction of their revenue handing out lightbulbs. It worked about as well as you might guess. But the state Public Service Commission just passed a new program that measures success based on energy savings, not utility expenditures on efficiency measures. This will be managed by a third-party administrator picked by the regulators, rather than by the utilities themselves.

Utilities across the country are picking renewables to round out their fleets, diversifying away from gas exposure. But that trend runs up against another one: After years of flat load growth, many regions of the country are starting to consume a lot more power. Data centers, particularly for the burgeoning AI field, are driving much of that near-term demand growth. When utilities need a bunch of new, on-demand power quickly, they tend to reach for the tool they know and trust: gas turbines.

Next door to Louisiana, the Mississippi legislature took an extreme measure to hasten power-plant construction for a proposed Amazon data center investment. A law passed in January gives Entergy permission to build new power plants for the data center without going through typical regulatory oversight. State officials said Amazon will fund the buildout, which will include solar and gas plants needed to power the new data complex.

If utilities around the U.S. move quickly to expand their power production without considering a full range of scenarios, they could lock in new levels of gas dependence that expose customers to future volatility, just as the rapid growth of LNG exports injects new levels of volatility into domestic gas markets.