Predicting the future of natural gas prices has invariably been proven a lesson in humility. Despite the Department of Energy’s (DOE) latest study suggesting that increased U.S. liquefied natural gas (LNG) exports will lead to a significant rise in domestic natural gas prices, history tells a different story. Commodity markets, particularly in energy, are notoriously unpredictable. With demand heavily influenced by weather patterns and supply dynamics constantly reshaped by upstream drilling technology advancements, long-term forecasts often miss the mark. Energy policy decisions need to consider this inherent uncertainty and be balanced with broader, more reliable factors.
Consider the track record of government agencies themselves. Back in 2007, the Energy Information Administration (EIA) and DOE incorrectly projected that the U.S. would need to import LNG. Ironically, within two years, the shale revolution transformed the energy landscape, leading to a surge of LNG export projects awaiting regulatory approval. Further demonstrating the challenges of energy forecasting, in 2012, these same agencies predicted that natural gas prices would skyrocket to $6.37 per thousand cubic feet (Mcf) once exports reached 12 billion cubic feet per day (Bcf/d).
This historical context is crucial. The very agencies tasked with understanding U.S. energy needs initially foresaw gas imports before the shale boom, and then dramatically overestimated the price impact of exports when the U.S. became an LNG exporter in 2016. Contrary to the 2012 forecast, gas prices did not double with increased exports; they remained relatively stable. This gap between prediction and reality underscores the “Invariably Learning” nature of dealing with energy market forecasts – we are constantly learning how often these predictions are inaccurate.
Therefore, the DOE’s most recent study should be viewed with skepticism. While the analysis has become politically charged, especially given Secretary of Energy Jennifer Granholm’s exaggerated interpretation of the report, the probability of its price forecasts proving accurate remains low. The study’s authors themselves acknowledge this uncertainty, stating, “[g]iven the global scope and timeframe examined in this study, there should be recognition of the inherent uncertainty in conclusions.” This caveat is perhaps the most reliable takeaway from their analysis.
Looking at long-term data provides a clearer picture. Since 2000, natural gas prices have averaged $4.34/Mcf, fluctuating between a low of $1.49/Mcf and a high of $13.42/Mcf. Current spot prices around $3.41/Mcf and forward prices for 2027 at $4/Mcf are within the historical range. Notably, natural gas is one of the few commodities that has not experienced significant inflation in recent times. Since the U.S. began exporting LNG in 2016, prices have remained largely flat. This price stability is primarily due to supply growth, which has increased by 50 Bcf/d (or 100%) since 2000, easily meeting demand thanks to continuous technological advancements unlocking cheaper shale resources.
Granholm’s prediction that “unfettered exports of LNG would increase wholesale domestic natural gas prices by over 30%” sounds alarming. However, in perspective, a 2% annual inflation rate, the Federal Reserve’s target, would result in a 64% price increase by 2050. Even the DOE’s worst-case scenario appears deflationary compared to projected wage growth. Furthermore, the forward price strip for 2028 is already near this level. The DOE’s projected 30% price rise translates to $4.42/Mcf in 2050, only marginally above the 24-year average of $4.35/Mcf.
Concerns about a potential 40 Bcf/d increase in LNG exports by 2050 (“unfettered” scenario) also seem overstated. Historical trends suggest domestic supply growth could accommodate this increase. Moreover, such export levels may never be reached. Even if the DOE’s projections were correct, the resulting price increase would likely be moderate, below core inflation, and ultimately beneficial for consumers, especially considering the positive impact on economic growth.
What about the environmental and community concerns raised in the report? Communities in Louisiana and Texas Gulf Coast overwhelmingly support LNG projects. These developments bring well-paying jobs, and LNG project sponsors invest significantly in local infrastructure, such as hospital rebuilding. Importantly, the DOE study does not conclude that U.S. LNG exports are inconsistent with public interest, the legal standard under the Natural Gas Act. Regarding emissions, the industry is actively working to reduce its environmental footprint and will continue to do so. Natural gas has displaced coal domestically, and contrary to DOE assumptions, there is no evidence that LNG replaces renewables in emerging markets. Furthermore, operators are moving towards delivering net-zero cargoes, verified from wellhead to water, highlighting the potential of U.S. gas to reduce global CO2 emissions.
The potential benefits of expanding U.S. LNG exports are substantial: positive impacts on U.S. economic growth, job creation, investment, global emissions reduction, and some of the most economically disadvantaged communities in the U.S. These opportunities should not be missed. While the U.S. hesitates on its LNG strategy, other nations are capitalizing on the global demand. In 2024, non-U.S. LNG contracts, particularly with producers in the Middle East, have surpassed those with U.S. producers.
In conclusion, a realistic interpretation of the DOE’s analysis aligns with the authors’ own description: “an exercise exploring alternative conditional scenarios of future U.S. LNG exports.” When it comes to shaping U.S. energy policy, the focus should be on expanding U.S. LNG exports, driven by the demonstrable and significant benefits to the public interest. We must apply the lessons learned – invariably learning – from past forecasting errors and embrace a more pragmatic approach to energy policy that recognizes the dynamic and often unpredictable nature of energy markets.
