If Stupid really did burn we could power the world on Trump’s emissions.
Even now, most people probably don’t realize that we I ly in the Midwest via pipelines. Further, we import about 3 Trillion cubic feet (Tcf) per year of natural gas, again, mostly in the Midwest and Pacific Northwest, while exporting about 1 Tcf/yr to the Canadian Northeast.
President Trump is suggesting that he might impose 25% tariffs on Canadian exports to the U.S., possibly including oil and gas, which could have some serious negative consequences particularly for gas consumers. Obviously, it is not clear if he will actually do so or if the threats are posturing to influence other negotiations, and conceivably he might implement tariffs but exclude oil and gas. But even then, Canada might retaliate with export fees on energy exports.
First, it is obvious that the tariffs on natural gas would mean an increase in prices of about $0.75/Mcf assuming the border price of $3/Mcf. The figure below shows the historical import price for pipeline gas and what an additional 25% would look like. Admittedly, for residential customers, where the import price is only a fraction of the delivered price, these tariffs could add only 5 to 10%, depending on location, season, and distribution costs. Not major, but not trivial.
THE AUTHOR FROM EIA DATA.
But the impact is not straightforward. Washington and Idaho are almost completely dependent on Canadian gas since pipeline connections from other areas are negligible, meaning rebalancing supplies would require major new pipeline construction. Further east, the situation is more complicated by interstate transfers as well as a more robust pipeline system, albeit one oriented to shipping gas south. The result is that Canadian natural gas faces minimal competition from other sources in its primary markets, given lack of infrastructure. LNG tankers will not flow to Iowa and Wisconsin, no matter the natural gas price.
For example, if Canadian gas becomes more expensive in North Dakota, will that state import less and ship less of its own production to other U.S. states (the figure below shows the balance)? In which case, more gas theoretically flows northward from the Gulf to replace curtailed supplies to, for example, Minnesota which gets 460 billion cubic feet (Bcf) per year from Canada, but also 494 Bcf per year from North Dakota, while transferring 1,629 Bcf per year to other states in the region.
Thus, loss of Canada gas to North Dakota and Minnesota would mean that over 1 Tcf/year of new supply has to be found for the states of Iowa and Wisconsin, the primary recipients of natural gas from Minnesota. In theory, gas from the Southwest (now in surplus) could be shipped northward, since about 1 Tcf/yr already goes to Arkansas and Kansas from Texas and Oklahoma, but adding 1 Tcf/yr to that amount and extending the pipelines northward would require take at least several years to accomplish. Instead, consumers are likely to see higher natural gas prices on the order of $0.5-$1.0/Mcf, again only a small portion of the residential price but for industries and utilities, it represents something on the order of a 15-20% increase.
And the contribution to inflation would be pernicious, as electricity prices in the region rise and industries raise prices for their goods. In some ways, this is reminiscent of the supply chain problems brought on by the pandemic, where second- and third-order effects proved damaging and inflationary. While gas to electricity to consumer represents a much simpler supply chain than the production of automobiles and consumer electronics, the impact is no less real.
Unlike the oil industry, where tanker shipping is relatively easy and cheap, natural gas trade relies on fixed, immobile infrastructure which does not allow for rapid reconfiguration to meet a sudden change in relative prices. On the margin, the industry will be able to adjust in response to a sudden increase in the border price of natural gas, but shifting 2-3 Tcf/yr of supply from either Appalachia or the Southwest to the upper Midwest, Great Plains, and Pacific Northwest cannot be readily accomplished, especially if pipeline companies think the next Administration will remove the tariffs.