U.S. Natural Gas Value

Charlie Levesley
January 15, 2024

Submitted as coursework for PH240, Stanford University, Fall 2023

Introduction

Fig. 1: United States' natural gas value every year from 2012 to 2021, from Table 1. [2] The graph shows fluctuations in the total value of all natural gas produced in the U.S. between 2012 and 2021. (Image Source: C. Levesley)

In less than ten years, the United States (U.S.) transitioned from being among the largest gas importers globally to achieving self-sufficiency and is now gearing up to become an exporter. The increase in shale gas production by using new techniques, such as combining horizontal drilling and hydraulic fracturing, caused an increase in natural gas production, reshaping the U.S. market dynamics and driving down gas prices. [1] An assessment of the total market value of the U.S. natural gas each year over the last decade gives us a better understanding of how the gross domestic product of the U.S. natural gas sector has changed.

Analysis

Using industry data, we know that 0.029 bcm is equal to 1 trillion Btu, which converts to 1,000,000 MMBtu. We can divide 1,000,000 by 0.029 to calculate that 1 bcm is equal to 34,482,759 MMBtu. Using U.S. Henry Hub prices, we can multiply the price of natural gas in USD per MMBtu by 34,482,759 to find the price of natural gas in USD per bcm, and divide this value by 1,000,000 to find the price in million USD per bcm. Finally, to calculate the value of natural gas produced in billion USD per year, we can multiply this value by the amount of gas produced in bcm per year, then divide this amount by 1,000. [2] This is listed in Table 1 and also shown in Fig. 1.

Conclusion

In 2012, 2016, and 2020, the lowest values for U.S. natural gas were observed, which is reflected in decreased production and prices. Temporary production shut-ins related to Hurricane Isaac caused production to remain flat in 2012. [3] In 2016, warmer temperatures, increased demand in the power sector and export markets, and low demand for heating led to a decline in value. Furthermore, the decline in gas drilling rigs and economic effects induced by the COVID-19 pandemic contributed to low production and prices in 2020. [4]

Assessing the value of natural gas is beneficial to observe its impact on the U.S. economy and for policymakers to make decisions relating to the growth of the natural gas sector. Since 2016, natural gas has been the leading source of electricity. [5] Despite the low production and price of natural gas in 2020, 2021 saw a surge in natural gas value. The natural gas market is becoming increasingly independent of COVID-19 cases. [6] Therefore, I predict the value of U.S. natural gas will continue to increase as we continue to recover from the COVID-19 pandemic and will continue to have a significant impact on the U.S. economy.

Year Production (bcm year-1) Price (USD MMBtu-1) Price (Million USD bcm-1) Total Value (Billion USD year-1)
2012 649.1 2.76 95.17 61.78
2013 655.7 3.71 127.93 83.88
2014 704.7 4.35 150.00 105.71
2015 740.3 2.60 89.66 66.37
2016 727.4 2.46 84.83 61.70
2017 746.2 2.96 102.07 76.16
2018 840.9 3.12 107.59 90.47
2019 928.1 2.51 86.55 80.33
2020 915.9 1.99 68.62 62.85
2021 934.2 3.84 132.41 123.70
Table 1: Production, price, and total value of natural gas in the U.S. from 2012 to 2021. [2]

© Charles Levesley. The author warrants that the work is the author's own and that Stanford University provided no input other than typesetting and referencing guidelines. The author grants permission to copy, distribute and display this work in unaltered form, with attribution to the author, for noncommercial purposes only. All other rights, including commercial rights, are reserved to the author.

References

[1] Q. Wang et al., "Natural Gas From Shale Formation - the Evolution, Evidences and Challenges of Shale Gas Revolution in United States," Renew. Sustain. Energy Rev. 30, 128 (2014).

[2] "BP Statistical Review of World Energy," British Petroleum, June 2022, pp. 29, 33, 56.

[3] Q. Wang et al., "Natural Gas From Shale Formation - The Evolution, Evidences and Challenges of Shale Gas Revolution in United States," Renew. Sustain. Energy Rev. 30, 1 (2014).

[4] N. Norouzi, "Post-COVID-19 and Globalization of Oil and Natural Gas Trade: Challenges, Opportunities, Lessons, Regulations, and Strategies," Int. J. Energy Res. 45, 14338 (2021).

[5] F. Feijoo et al., "The Future of Natural Gas Infrastructure Development in the United states," Appl. Energy 228, 149 (2018).

[6] K. Dmytrów, J. Landmesser, and B. Bieszk-Stolorz, "The Connections Between COVID-19 and the Energy Commodities Prices: Evidence Through the Dynamic Time Warping Method," Energies 14, 4024 (2021).