With the advent of the "shale gas revolution," the United States has undergone a full-scale natural gas boom. Driven by fracking and horizontal drilling, the United States will likely overtake Russia as the world's largest producer of natural gas by 2015, according to the International Energy Agency.

Now, as estimates of available reserves continue to go up and prices drop to less than $3 per million BTU, talk is turning to exporting natural gas – potentially a serious moneymaker, with countries like Singapore facing per million BTU prices around $16.

As a Stanford economics professor and director of the Program on Energy and Sustainable Development at the university's Freeman Spogli Institute for International Studies, Frank Wolak understands the urge to export.

"But there's a significant risk here that I don't think people are necessarily factoring in," he said.

As he explained in a recent policy brief for the Stanford Institute for Economic Policy Research, investing in natural gas export facilities "is a bet against what U.S. firms excel in – developing and commercializing new technologies and products."

Ghost facilities

Along the coasts of Texas and Louisiana, the early 2000s saw the construction of a number of liquefied natural gas (LNG) receiving terminals, intended to meet a predicted increase in natural gas imports.

"Those facilities are now sitting vacant," Wolak said, "because the price of natural gas in the United States has fallen so much." Many are converting themselves into export facilities.

He thinks moving immediately to export runs the risk of repeating this scenario in reverse. It takes time to site, permit, construct and bring an LNG export facility online. In the meantime, American entrepreneurs will be looking to apply technologies like fracking and horizontal drilling elsewhere.

"It's hard to see why this technology can't be exported to the rest of the world," said Wolak.

If that happens, a U.S. export facility could be finished only to find a few new shale gas revolutions in other parts of the globe overturning its intended markets.

Cooking with gas

What does Wolak recommend the United States do with its embarrassment of domestic natural gas riches? Use it at home.

There is no major technological barrier to using natural gas in the transportation sector – our heaviest user of oil. Vehicles that burn compressed natural gas (CNG) are already in common use, particularly in Asia and South America.

Wolak noted that the use of compressed natural gas makes the most sense in a vehicle fleet that drives a well-defined circuit, such as urban buses or taxis. Vehicles that use the denser liquid natural gas are better suited for heavy-duty use, such as regional long-haul truckers. The compressed natural gas refueling infrastructure could expand once these routes were established.

Home filling stations for personal vehicles are another option – household compressors that work with existing home natural gas connections are, in fact, already on the market. The devices are currently priced out of the range of most consumers, but these home filling stations could become a viable option as natural gas becomes a more popular fuel choice.

Wolak also noted that natural gas is currently replacing coal in the production of electricity, a trend that is likely to continue given current conditions in the global coal market and natural gas's relative environmental benefits. Natural gas generation facilities, he pointed out, produce only a third to a half of the greenhouse gas emissions per megawatt hour as coal-fired facilities, and are now cheaper per BTU.

"All I need is heat energy," Wolak said. "Whatever source of energy is cheapest is ultimately what I'm going to use."

Max McClure is a writer for the Stanford News Service.

On Tuesday, December 11, 2012, the Program on Energy and Sustainable Development will host an all-day conference on "The New U.S. Role in Global Fossil Fuel Markets"

As recently as 2007, the United States seemed headed towards ever greater fossil fuel import dependence, as domestic oil and natural gas production dwindled and consumption continued to grow.   Five years later, the landscape looks dramatically different. An explosion in natural gas production from shales has overturned paradigms and sparked bold talk of LNG exports. While less remarked-upon, unconventional oil production has followed suit, helping to boost liquids output 20% from 50-year lows and vaulting North Dakota ahead of Alaska to become the nation’s second-largest oil producer. A new order is emerging in the coal market as well, with efforts underway to ship cheap, low-sulfur coal from the western U.S. to China.

The new role for the U.S. as a hotbed of production and technology development for unconventional resources, a reduced import market, and a possible key exporter of natural gas and coal raises a host of political, economic, and environmental questions. The goal of this conference is to contribute to insightful and data-driven dialogue on these pressing (and often politically-charged) issues by bringing together academics, policymakers, industry experts, and other stakeholder groups.

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PESD director Frank Wolak spoke on role of congestion revenue rights (CRRs) and financial transmission rights (FTRs) in improving energy market efficiency at the Energy Risk magazine’s 16^th annual 2-day conference.   His talk focused on the question of whether CRRs and FTRs issued by the market operator in Locational Marginal Pricing (LMP) markets improved or degraded wholesale electricity market performance.  

Wolak argued that CRRs and FTRs issued by market participants were more likely to improve market performance than those issued by the market operator.    Frank also participated in a panel on the future of liquefied natural gas (LNG) in the US and around the world given tremendous increase in shale gas production in the United States and likely increase in other parts of the world.