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Sun June 16, 2013
Michigan's natural gas prices may rise, depending on decisions to allow more overseas exports
For years, Michigan businesses and consumers have enjoyed extremely low natural gas prices.
But that may be changing. And it’s a case of basic economics.
Natural gas is selling for about $4 per thousand cubic feet in the U.S.
In Europe, the price is closer to $10 per thousand cubic feet. In Japan, the price is hovering over $15.
So it should be no surprise that the energy industry is pushing hard for more exports of natural gas.
Last month, the Obama Administration took a step in that direction by approving an application for a natural gas export terminal in Texas. There are about two dozen similar applications under review.
Monica Martinez is a former Michigan Public Service Commissioner who currently consults with oil and gas companies. She says expanding natural gas exports will give Michigan’s small, but growing energy industry a big boost.
“With any industry, you want to be able to sell more of your product,” says Martinez, “Being able to export some of that (natural gas) is going to really help our economy greatly.”
But others say there is a different benefit if natural gas prices stay low.
Midland-based Dow Chemical has been one of the leading opponents of wider natural gas exports. A company spokeswoman says Dow has "consistently called for a balanced approach that considers and satisfies the domestic needs for natural gas when the country considers exporting natural gas to other countries." Natural gas is a key manufacturing component for Dow and other chemical companies.
Kevin Kolevar is a Senior Director for International Government Affairs and Public Policy with Dow Chemical. He says cheap, domestic natural gas has helped rebuild Michigan’s and the nation’s manufacturing industries.
“In the early part of the 2000’s, the United States was a no growth environment. (Natural gas from shale) has completely turned that around,” says Kolevar, “Just two years ago, we announced we’re moving forward on a $4 billion investment in the United States, a market that we thought we would never be able to serve again.”
Soren Anderson is an economist at Michigan State University. He specializes in the energy sector.
Anderson says Michigan only produces about a quarter of the natural gas that its manufacturers, utilities and residents use. That means Michigan customers can expect to pay more if the price of natural gas is determined, not by the domestic market but, by the world market.
“The fact that Michigan is a net buyer of natural gas,” says Anderson, “means Michigan will probably be worse off.”
But Anderson does not expect Michigan’s natural gas prices to soar.
He expects domestic gas production would increase -- maybe not enough to keep prices where they are now, but enough to keep prices from more than doubling.
And if history is any guide, the current glut of natural gas could change quickly.
It was just a decade ago that the nation’s manufacturers were making plans to import natural gas. For example, Dow Chemical has an interest in the Texas terminal that recently received approval for its application to export natural gas. A decade ago, Dow planned to import natural gas through the terminal. A Dow official says the Midland company is not involved in the export application.
It was the boom in natural gas produced by the controversial practice of hydraulic fracturing, or fracking, that created the supply glut that has depressed the price.
Monica Martinez, the former state regulator turned consultant, says opposition to fracking is a bigger threat to the stability of natural gas prices than exports.
“There are people out there who want to put a stop to that,” says Martinez. “That poses a greater threat to prices than (natural gas) exports.”
There is also a concern that the large glut of natural gas created by fracking over the last decade might be facing a tipping point. Analysts say many of the wells that were drilled during the past ten years may reach their production peak by 2015. After that, the nation’s natural gas supply may plateau or even begin to decline as demand rises and fewer wells come on line.
And a sharp increase in natural gas exports, combined with flat supply, is one of the reasons manufacturers like Dow Chemical are advocating a ‘go slow’ approach when it comes to Washington approving more natural gas export terminal applications.
Environment & Science
Environment & Science