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Natural Gas Glut Leads To Lower Prices


As oil prices range around $100 a barrel, another energy source is dropping in price and gaining market share. The U.S. is facing a growing surplus in natural gas. Amy Myers Jaffe is the director of the Baker Institute Energy Forum at Rice University, and she joined us from Houston to talk about that surplus and what it means for the U.S.

Good morning.

AMY MYERS JAFFE: Good morning.

MONTAGNE: What does it mean that we've got this huge glut of natural gas?

JAFFE: Well, I suppose if you're a natural gas selling company it's not great news, but for the rest of us it's excellent news. It's meaning that consumers, while they're being hit at the retail gasoline pump with high prices, they are having low prices inside their homes. It means that certain states that are not used to being energy producing states have the benefit of severance tax and other kind of economic activities. And it's meaning some good things, geopolitically. It means that we are not buying natural gas from the Middle East. We're not buying that gas from Africa and Russia. So, all good from the point of view of domestic economy, and from household consumers, and from the point of view of U.S. foreign policy.

MONTAGNE: Then the downside is actually for the natural gas producers, themselves, who, might it be said, they're victims of their drilling successes.

JAFFE: So one of the things I think we're going to see over time, as the price of natural gas, I think, probably is going to stay low, you're going to see consolidation in the industry. So companies that borrowed and used leverage funds, to do all this drilling activity, are going to be under increasing pressure. And you're going to see bigger players step in and buy small companies - we've already seen that.

The other downside is that we have a lot of states that are not used to having oil and gas development in their state - its noise pollution and industrial trucks moving in and out of communities.

MONTAGNE: Give us an example where they've suddenly had this boom in natural gas production.

JAFFE: North Dakota is a great example. But I think you're going to see it in western Pennsylvania and in Ohio. You have rural places that are not used to having large-scale industrial development. It takes a lot of equipment, you're having to come in with trucks. These are all new phenomenons and there is going to be, I think, a big adjustment period.

You can hear from my accent I did not grow up in Texas. And one of the interesting perspectives I have, is looking back on '70s. We had this whole the Northeast was energy poor and Texas and Louisiana was energy rich. And when we have oil supply crises, it tends to very much hurt the economy and the U.S. East Coast. And it helps the economy in Texas and Louisiana.

And that's really going to change, I think, the way people think about energy in this country, because it's not going to be all the environmental pressure is in Texas and Louisiana, and we're supplying energy for the rest of the country. Many, many states are going to have the opportunity to produce energy.

MONTAGNE: What about exporting the natural gas itself? Is there enough of it, potentially, to become an export product? And is there the capacity to do that?

JAFFE: Well, to export the natural gas, you need to liquefy it and then put it on a tanker. Say they make that investment, you're talking about over a billion dollar investment, to have an export facility. Then the next question is, is there an enough supply? And, I think, probably, the answer to that question is yes. But will that market stay high over the time it will take you to build the facilities to export?

And there's a lot of competition in the natural gas markets. Can United States gas compete, economically, with Australian gas? Or with gas from a place like Qatar where the cost are very low to produce it? And when we have done our computer simulations of, you know, the world five years from now or the world 10 years from now, it really doesn't look like a smart decision.

MONTAGNE: Amy Myers Jaffe is the director of the Baker Institute Energy Forum at Rice University, speaking to us from Houston, Texas. Thanks for joining us.

JAFFE: Thank you for having me.

MONTAGNE: You're listening to MORNING EDITION from NPR News. Transcript provided by NPR, Copyright NPR.