In the midst of the shale revolution, US proved natural gas reserves drove the first ever global decline in proved gas reserves in 2012, and it all comes down to low prices, according to BP Chief Economist Christof Rühl.

Global proved natural gas reserves fell by half a trillion cubic metres in 2012 compared to 2011. “This was driven by lower prices and reduced drilling activity in the US,” said Rühl at a discussion of BP’s 2012 Statistical Review of Energy in New York. The Statistical Review puts US proved gas reserves at 8.5 tcm in 2012, compared to 8.8 tcm the year before. Ukraine, Egypt, Bangladesh, Indonesia and Pakistan also registered declines.

“Proved reserves, which we use here, are different from technically recoverable reserves in that they will change not only with technology and with discoveries, but also following change in prices,” Rühl said. US gas prices hit their low point at less than $2.00 per million Btu in April of last year.

But Rühl expects this drop in proved US gas reserves to be temporary. He noted that after some “undershooting” in natural gas prices, they have begun to tack upwards, and will continue to do so, particularly in response to anticipated LNG exports.

Exports Vs. Manufacturing

While rising gas prices will a boon to proved US gas reserves, they will also lift feedstock costs for US manufacturers, some of whom are lobbying against unrestricted LNG exports, arguing that higher natural gas prices will make their businesses less competitive.

But Rühl sees export restrictions as more likely to harm than help US industry competitiveness over the long term.

“There’s an economically sound argument in favor of US gas exports which has to do with the domestic structure of industry,” Rühl said. “If you limit exports with the argument to use cheap gas for cheap American production, then what you get is a less effective and less efficient and less competitive industry.”

“US industry, like any other industry, is globalized. They [manufacturers] competes in global markets. If you give them cheaper fuel to produce goods, then these goods will be more energy-intensive, less competitive in global markets than the goods from countries which were built with world market prices.”

Rühl added that extremely low gas prices are acting like subsidies in that they are leaving natural gas production capacity underutilised. Countries that subsidize natural gas or electricity consumption drive up domestic use and reduce incentives for producers to produce more gas, he said.

“All of these consequences are better avoided by facing international prices and international competition.”