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Research: North America Natural Gas Markets

Natural gas is rapidly moving from a commodity traded in regional markets to one that is traded globally. This will lead to an increased connectedness of markets in North America, Europe, Asia, and Latin America. The implications are wide-ranging and important to policy-makers, corporate planners, and academicians.

Recently, North American natural gas markets have experienced unprecedented price levels. Moreover, environmental pressures, and economic and population growth are projected to increase North American demand for natural gas over the next couple of decades, in the face of maturing production in conventional basins. This has prompted a wave of development activity aimed at providing new supplies - liquefied natural gas and unconventional gas resources, in particular. Providing these supplies reliably and at an acceptable cost will require major infrastructure investments both domestically and internationally, rendering geopolitical influences increasingly important to the North American natural gas balance.

Twenty years ago, nearly 75% of federal lands were available for lease to oil and gas exploration companies. In recent years, however, environmental and land-use considerations have prompted the U.S. to withhold significant acreage from oil and gas development, and the share of Federal lands available has fallen below 20%. Moreover, since U.S. demand for natural gas is projected to grow during the next two decades, U.S. natural gas imports will have to rise significantly. This, in turn, raises concerns about security of supply and appropriate national natural gas policy.

As U.S. natural gas demand grows, questions also arise about potential structural changes that might occur in the marketplace and how they might influence the future pricing relationships with competing fuels. This, in turn, has implications for future investments and the cost of various policies enacted today. In particular, the outlook for natural gas markets in North America are complicated by factors such as (i) the possibility of extreme volatility in international oil price trends, which are likely to be highly influenced by geopolitical factors, (ii) uncertainty about future environmental regulations in the U.S. electricity sector, and (iii) natural gas developments in other key consuming and producing regions around the world. Each of these will have implications for the competitiveness of natural gas relative to other fuels as a choice in industrial applications, power generation, and residential and commercial uses.

The Baker Institute Energy Forum's North America Natural Gas program, led by Ken Medlock, is actively engaged in research on various issues in natural gas markets both in North America and abroad. The Energy Forum's ongoing development of the Baker Institute World Gas Trade Model (BIWGTM) is at the forefront of the efforts in research of natural gas markets. The BIWGTM has been presented at multiple conference venues, and was the modeling platform in the book Natural Gas and Geopolitics: 1970-2040 published by Cambridge University Press in 2006.

The future direction of the North American Natural Gas program will include continued development of the BIWGTM, further investigation of the factors affecting natural gas demand in various end-use sectors in North America and abroad, examination of current and potential U.S.-Mexico border infrastructure and supply developments, and the effects of different tax/royalty regimes on the future of North American supply.

Click here to see the study Policy Report, Working Papers and Event Presentations.

Research Activities

The North America Natural Gas study pursues several major research activities in market forecasting, market and policy analysis; these include:

1) Stanford University's Energy Modeling Forum 23 (EMF-23) - a study on factors affecting the development of global natural gas markets.

2) An inquiry into the long-run, Fundamental Relationship between Natural Gas & Crude Oil Prices in North America and the microeconomic factors behind the relationship, including policy implications (under study in collaboration with McKinsey & Co.).

3) An analysis of the security of Natural Gas in North America: Markets and Security and its implications for U.S. energy policy (sponsored by the Independent Petroleum Association of America (IPAA)).

4) The Geopolitics of Natural Gas - An examination of various geopolitical influences shaping the future of global natural gas trade, including security of supply in the European Union, security of supply in Northeast Asia, developments in Pacific Basin LNG, and the development of a cartel in natural gas.