The Mysterious US Natural Gas Market

15 November 2020
Dr. Jeff D. Makholm

In an article in the November 2020 issue of the Wiley journal Climate and Energy, NERA Managing Director Dr. Jeff D. Makholm explores mysterious elements present in US natural gas markets. Part of the mystery of the gas industry is that it is very difficult to study as these markets are stubbornly dissimilar from country to country. The institutions and historical development from one region does not reflect others, and those differences are often buried in documents and histories reflecting local controversies and political developments.

Dr. Makholm notes that European natural gas prices followed the Brent crude oil prices while gas prices in the United States have diverted from international oil prices since 2009, driven instead by competitive entry of unconventional gas production. The cumulative benefit to US consumers of such competitive gas prices in the United States from 2009 to 2019 is more than $1 trillion. Another source of benefit to electricity consumers resides in states that have restructured their power markets to “unbundle” electricity generation into its own competitive business. The success of the natural gas industry for US consumers and industry extends to sharp growth in the production of “Y-grade” petrochemicals.

The mystery is that with all these successes to show for encouraging competitive entry in the US, no other country, or regional market, such as the European Union, has followed. The gas industry is genuinely the most complex and difficult commodity for which to make a market based on competitive entry. The market potential is quite evidently there—it is other institutions or inefficiencies in other markets that get in the way.

Makholm, Jeff D. (November, 2020). “The Mysterious US Natural Gas Market,” 37/4, ©2020 Wiley Periodicals, Inc., a Wiley company.