The debate about U.S. natural gas exports goes to show just how quickly technology can change things. In a profound reversal of expectations, the U.S. could now become a major exporter of natural gas by the end of this decade, as opposed to a major importer, which was the conventional view just five years ago.

This about-face is largely the result of an unforeseen surge in shale gas production, made possible by radical advances in drilling technologies. The resultant glut of natural gas led to a collapse in its price, which fell from more than $10 per MMBtu in 2008 to under $2 per MMBtu in spring of last year.

While prices have rebounded this year, they're still well below those in Asia and Europe -- a disparity that has created lucrative opportunities for U.S. natural gas exports in the form of liquefied natural gas, or LNG. This is where the debate arises.

Some argue that exporting LNG to foreign markets would lead to higher domestic prices, eroding the benefits millions of American consumers enjoy in the form of lower heating bills, as well as the competitive advantage that manufacturing and other energy-intensive U.S. companies enjoy.

But others say that exports will create tens of thousands of jobs and boost the nation's economy, while simultaneously improving U.S. energy security and geopolitical leverage. They maintain, unlike the skeptics, that a reasonable policy of LNG exports will not result in meaningfully higher domestic gas prices.

Which side has it right?

LNG exports and gas prices
According to a report issued Monday by the Bipartisan Policy Center, a non-profit, non-partisan public policy organization, the latter group -- the one pushing for LNG exports -- is on the right track.

The BPC report, which aimed to explore the dynamics of natural gas prices under different supply and demand situations over the next several decades, finds that that the U.S. is awash in so much natural gas that it can easily export the stuff without causing a sharp spike in domestic prices.

It concludes that even in a worst-case scenario -- which assumed a low level of domestic supplies and a high level of demand -- U.S. gas prices are unlikely to approach their previous peaks. Furthermore, the BPC study argues that natural gas prices drive exports, not the other way around.

"The price of U.S. natural gas will influence LNG export levels far more than LNG exports will influence domestic prices," the report states. It then goes on to assess the possibilities for both exports and prices under various demand and supply situations.

Under a high-demand, low-supply scenario, it finds that LNG exports would reach 2 billion cubic feet per day in 2020, while under a high-supply and low-demand scenario, they would be about 6.4 billion cubic feet per day.  

With respect to prices, the study determined that gas prices would be $0.97 per MMBtu higher than the reference case scenario under its low-supply, high-demand scenario, while in a high-supply, low-demand scenario they would be $0.86 per MMBtu lower than the reference case in 2020.  

What's next?
Going forward, the Department of Energy is likely to approve additional LNG export projects to countries that don't have free-trade agreements with the United States. Thus far, the department has given the go-ahead to just two ventures: Cheniere Energy's (LNG 1.23%) Sabine Pass terminal in Louisiana, which was green-lighted in 2011, and the Freeport LNG project in Texas -- a $10 billion facility partly owned by ConocoPhillips (COP 0.64%), Dow Chemical (DOW), and Osaka Gas -- which received permission last week.

The DOE has said it will work through the remaining applications in the order they were received. That means the next projects up for review are likely to be the Lake Charles LNG facility in Louisiana, which is owned by subsidiaries of Southern Union (SU 0.43%), and the Cove Point LNG terminal in Maryland, a facility operated by utility company Dominion (D -0.51%).  

Though Freeport's approval bodes well for additional authorizations of LNG export projects, it doesn't necessarily open the floodgates for new ventures. In addition to its requirement that new projects should be in the best interest of the nation and its economy, the DOE will carefully assess market developments at the end of the year -- probably referring to the impact of new LNG export projects on domestic natural gas prices -- in making future decisions.