Domestic natural gas prices are unlikely to surge—even when the U.S. is exporting to a world now paying three to four times more for gas— because of the vastness of U.S. reserves, industry experts say.
Those experts were speaking at the annual IHS CERAWeek Energy conference, where exporting American natural gas, and even oil, were major topics against a backdrop of geopolitical events in Ukraine that put the focus on energy security, particularly for Europe. Calls to export oil, now largely prohibited, have picked up as U.S. production now totals about 8 million barrels per day.
The U.S. is on track to begin exporting liquefied natural gas from one approved LNG facility next year, and potentially from five others with conditional approval in the next several years.
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Siemens CEO Joe Kaeser said the U.S. gas boom has made the country far more competitive globally, and a desirable place to locate operations. He said he is considering moving more operations to the U.S., where Siemens already employs 60,000.
“Today, it’s all about going West. The U.S. is the place to be. More and more global companies are seeking to enlarge their foot print here,” he said.
“I believe we are witnessing and participating in the re-industrialization of the United States. And I think it’s fair to say that the development of horizontal drilling may have been the biggest shift of balance in the global economy since China joined the WTO,” he said.
Several industry officials said they do not see a convergence of the cheap price paid in the U.S. of less than $5 per million Btu with $15 or higher paid in some parts of Asia. Still, they do see some price advantages for Asia as new supply from the U.S. and elsewhere hits the market in the next few years. IHS, in its own study, found that gas prices should average $4 to $5 annually for the next 20 years, even with occasional spikes.
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As for the U.S., experts say there’s so much natural gas in the country that increased supply even from more expensive drilling areas will keep the lid on prices.
“There really is a lot of gas out there. I like to believe the futures, the forward curve. it doesn’t show a lot of increase,” said Stephane Caudron, head of LNG at Gunvor. Caudron, a trader, said his gut feeling is U.S. prices will go up a bit as exports rise.
Michael Smith, CEO of Freeport LNG, which hopes to begin exporting in 2018, says gas prices above $5 will be met with more supply. “As you get to $5, there are so many places people can drill wells. Haynesville has the most prolific dry gas wells we found, and we stopped drilling it,” he said, referring to the shale site in Arkansas, Texas and Louisiana.
The Russian incursion in Crimea also put the spotlight on the intertwined nature of the global energy industry, where companies from across the globe collaborate in oil and gas projects.
“It is a reminder, we are still in world where 50 percent or more of the piped gas (to Europe) goes through the Ukraine,” said Sam Laidlaw, chief executive of Centrica PLC. He said Europe is in a better position with supply than normal this year because of a mild winter and supply above the five-year average.
“If there ‘s any silver lining, it will spur people to think about energy security,” he said. About 30 percent of the European Union’s gas supply comes from Russia.
Some officials said there could be some pressure within Europe to diversify—even begin discussions on finding alternative sources of energy, including hydraulic fracturing, which has been widely opposed.
On Tuesday, House Speaker John Boehner called for the Energy Department to speed up approvals of more LNG projects so that more U.S. gas could find its way to Europe.
Energy Secretary Ernest Moniz, speaking at the conference, said while the DOE approves facilities it does not determine where the cargo goes. But Congress could take that up.
With the U.S. steadily increasing oil production, there has also been a lot of discussion about whether the U.S. should consider exporting crude. Sen. Lisa Murkowski, R-Alaska, kicked off the Houston conference Monday, calling on President Barack Obama to allow exports and seeking an Energy Department study on the feasibility.
While producers generally favor exporting, the refinery industry is opposed to it because they say it would push prices higher. Refiners currently are able to export gasoline and distillates, while raw crude cannot be exported, except to Canada or through Alaska. Even with growing production, the U.S. still imports about 6 million barrels a day, Moniz said.
“I don’t think the industry has done a very good job citing and stating the case,” Moniz said. He said it is the Commerce Department, not the DOE that would have oversight on exports.
The Energy Department, itself, had its critics. “Government decision-making has been in a state of near-paralysis when it comes to approving LNG export applications,” said Rob Franklin, president of ExxonMobil Gas and Power Marketing.
“A recent study by ICF International shows that U.S. LNG exports will translate into billions of dollars in annual GDP growth, hundreds of thousands of direct and indirect jobs, and billions more in tax revenues for federal, state and local governments,” he said, adding that some LNG projects have been awaiting U.S. approval for two years.
Franklin said global demand for gas will rise about 65 percent from 2010 to 2040, with most of that demand coming form Asia.
“In North America, we expect demand to grow at about 1 percent per year on average, flattening toward 2040 as the region makes gains in energy efficiency,” he said. “Unconventional gas production will grow in this period and is expected to satisfy about 85 percent of demand by 2040.”
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In Europe, demand is expected to be relatively flat. “Local natural gas production continues to decline and imports will rise from about 45 percent today to over 60 percent by 2025. This will require more pipeline supply, primarily from Russia and Caspian countries, as well as LNG,” he said.
Both Franklin and Siemens’ Kaeser said European energy policy is not meeting its objectives. Gas use has dropped while coal consumption has increased and billions are being spent on renewables subsidies.
“Unfortunately, Europe’s current 2020 energy and climate policies are not meeting its objectives of encouraging lower emitting energy production while supporting economic competitiveness,” Franklin said. “The many targets and subsidies in these policies have distorted energy markets and led to negative economic impacts across Europe.”