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The United States, and Texas in particular, is quietly experiencing a continuation of a revolution in natural gas production. Despite strong consumption and record exports, domestic prices remain at around $3 per million British thermal units. This is a remarkable productivity success story, with Texas leading the charge, accounting for more than half of the nation’s growth so far in 2023.
However, the landscape is changing. Global uncertainties, such as the Russia-Ukraine and Israel-Hamas wars, have amplified the world’s reliance on U.S. natural gas. While the U.S. industry has the potential to expand its exports by 80% by 2030, according to the U.S. Energy Information Administration (EIA), this ambitious target depends on a decrease in America’s domestic natural gas consumption for power generation. Such a scenario seems improbable, considering historical consumption trends.
Central to this is the EIA’s most recent annual energy outlook, which suggests modest natural gas production growth of 1.4% from 2023 to 2030, yet a more than 80% rise in net exports. This forecast hinges on a significant reduction of 29.1% in domestic consumption within the power sector by 2030. However, such a drastic reduction is unprecedented, given that the country hasn’t seen two consecutive years of declining natural gas usage in power generation since the end-use sector-level data were recorded beginning in 1997.
While EIA’s projections stem from the Inflation Reduction Act of 2022, which promotes renewables, their 2021 outlook painted a different picture, suggesting strong and consistent natural gas consumption levels throughout this decade. As a result, policymakers could be at risk of misinterpreting the country’s actual energy needs based solely on the EIA’s model.
Natural gas remains crucial in stabilizing electricity grids. Recent increases in natural gas consumption for power generation in states like Texas and California reinforce this argument. Natural gas is a reliable and cost-effective counterbalance to the intermittency of weather-based power sources. Plus, the vast majority of reductions in global greenhouse gases have been because of the shift from coal to natural-gas-fired power plants.
Amid these dynamics, the Biden administration’s current policies appear to misalign with our nation’s growing energy need. Perhaps they hope that increased exports, without corresponding growth in production, could increase domestic prices and accelerate a shift away from fossil fuels. But this strategy lacks foresight. An industry won’t invest in production and infrastructure without a cohesive value chain.
It’s time for decision makers in Washington to admit the truth: The U.S. natural gas industry sits at the intersection of geopolitics, domestic policies and economic realities.
The data are clear: Natural gas remains a crucial and pivotal energy source, and its efficient management requires a pragmatic, forward-looking policy approach. It’s imperative for policymakers to prioritize a realistic and sustainable strategy that aligns with the energy realities of today and the demands of tomorrow.
Dr. Dean Foreman is chief economist at the Texas Oil & Gas Association in Austin.