Earlier this week, the U.S. Department of Energy announced that it conditionally approved the first West Coast LNG terminal, the Jordan Cove Energy Project in Coos Bay, Oregon, for the export of up to 800 million cubic feet of gas per day to Asian countries without free trade agreements with the U.S., such as Japan and India.

The approval of exports to non-free trade agreement countries in Asia bodes well for exports to Europe in the future. All signs, in fact, are appropriately pointing to greater U.S. natural gas exports to Europe in the future – and none too soon, given Russia’s recent power move in the Ukraine. Russia has been the leading natural gas supplier to Europe for some time. Indeed, certain nations in northeastern Europe, including Sweden and Finland, receive 100% of their supplies from Russia. While Russia still has an astonishing level of proven reserves (first or second in the world, depending on which source you believe, with something over 30 trillion cubic meters), in recent years, the United States has rivaled Russia as the world’s largest producer of natural gas, with each nation representing about 20% of world production.

Several other proposed LNG terminal projects, most of which are either on the Gulf of Mexico or the Atlantic coast, have been awaiting approval. Meanwhile, it was recently announced that a coalition of more than a dozen European nations has been formed to lobby the U.S. to ease restrictions on natural gas exports. Currently, the Natural Gas Act of 1938 requires that anyone who wants to import or export natural gas, as LNG or otherwise, must apply to the Department of Energy for permission. If a country with a free trade agreement with the U.S. is the intended recipient, then the Department is required to approve; if the country is not a party to a free trade agreement, the Department has discretion to approve such exports unless it finds that the exports “will not be consistent with the public interest.” There are currently no free trade agreements with any European countries.

What effect can we expect on gas prices if U.S. LNG export activity increases? Although LNG exports are only one determinant of the shape of the natural gas market, one would expect natural gas prices in the U.S. to rise, but this effect may be limited by a softening of prices in the worldwide export market. As more U.S. natural gas becomes available through export, the export price should decrease. Also, U.S. LNG export contracts would likely be pegged to U.S. gas price indexes, such as the Henry Hub, rather than to oil indexes, thereby encouraging the further “decoupling” of gas from oil in world markets and resulting in an overall price decrease. The real wild card here, however, continues to be political instability; the more that Russia is marginalized politically and economically by the world community, the higher the likelihood of supply disruptions and price increases. The bottom line is that increased U.S. exports are likely to help to increase gas prices marginally in the absence of market instability, and drastically if relations between Russia and the West deteriorate further.

None of that, necessarily, is very good for U.S. consumers of natural gas, but higher gas prices would help to support further investment and job creation in the Marcellus and Utica Shale areas. Here in the Appalachian basin, we will continue to monitor both the Department of Energy’s actions with respect to LNG exports as well as potential initiatives in Congress to loosen LNG export restrictions as these circumstances will continue to have an effect on our regional oil and gas industry.