Can The U.S. Increase Natural Gas Exports?

Today's Wall Street Journal carries two headline stories about the glut of domestic natural gas.  The first points out current gas futures prices of $2.03 per MMBtus, a level not seen since 2002.  The second suggested that U.S. gas exports might surge, based on burgeoning supply and shrinking domestic demand.  Let's look at the export hypothesis.

Where would our exportable gas go?  The most logical market is the European Union, with its 27 members. 
According to statistics from BP, quoted by the Congressional Research Service's March 2012 report on Russian gas supplies, EU natural gas consumption in 2011 was 11.7 trillion cubic feet, comprised of 76% pipeline gas and 24% liquefied natural gas.  This is a large, attractive market with a varied pipeline infrastructure for distribution. 

The EU imports about 81% of its natural gas consumption, with its biggest supplier being Russia which supplies 34% of European gas imports, followed by Norway and Algeria.  These three account for about 81% of EU gas imports.  As we've written about before, protection of the Russia's export share to the EU is a pillar of Russian foreign policy, which aims to protect and grow the income stream to Gazprom oligarchs. 

What role could U.S. gas exports play?  In the short run, we believe that it is a relatively minor role at best.  U.S. exports would have be LNG, which is certainly possible, but one would have to expect political pressure from the Russians to prevent switching from pipeline gas to LNG. For higher LNG exports from the U.S. to the EU, there would have to be terminal and storage facilities constructed on both ends of the supply chain, which would take us to the 3-5 year horizon, at best of cases. 

A more economic source of incremental pipeline gas into Europe would be for Algeria to increase its reserve development and exports, but even this possibility is doubtful in the short run. 

U.S. gas exports increasing to Europe seems wishful thinking in the short run: interesting headlines, but I don't believe it's something Kremlin energy wonks are worrying about.