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Banning Natural Gas Exports: Economic Illiteracy in the Extreme




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January 3, 2013 | 2,665 views | Post a comment

By Donald J. Boudreaux

Researchers at the Energy Department recently released a comprehensive economic analysis, finding that the United States can reap massive economic benefits from allowing the export of natural gas. Will the Obama administration go for the gold -- or continue yielding to anti-export hysteria?

In recent years, the nation has seen astonishing technological innovation in the natural-gas sector. Companies have discovered vast, gas-rich shale deposits under US soil. And they've developed new, high-tech means of extraction. The estimated reserves of recoverable domestic gas are now over 2.2 trillion cubic feet.

The expansion in supply has already brought a dramatic drop in natural-gas prices, now at a 10-year low. Other countries, mostly in Asia, are eager to buy some of America's low-cost gas. So 17 US energy companies have applied to export gas. And two proposals for new gas-export terminals -- at Coos Bay and the Port of Astoria, both in Oregon - now await federal approval.

But these efforts have met with concerted and growing opposition. The chief complaint is that exporting natural gas will shrink domestic supply and drive up prices paid by American customers. The Energy Department put a hold all the pending applications for natural-gas exports until the now-released study could be completed. But will that clear green light be overruled?

The leader of the anti-export crusade, Rep. Ed Markey (D-Mass.), has introduced two bills to choke off exports. His allies include Sen. Ron Wyden (D-Oregon), who is set to be the next chairmen of the Energy and Natural Resources Committee and has called for a "timeout" on natural-gas exports. More important, the White House seems to be dragging its feet on this issue.

The administration commissioned the Energy study specifically to answer any final concerns about the economic impact of exports; now it has an indisputable answer that exports will benefit the domestic economy.

Meanwhile, the administration has taken active steps to drag down the export approval process with even more bureaucratic hoops. The Energy Department is scheduled to hold at least two months of "public comment" hearings on the report this year, and has no hard deadline for a concrete regulatory decision after that.

The argument that exporting gas would lead to significantly higher energy prices at home suffers two notable flaws.

First, it's overstated. Charles Ebinger, director of the Brookings Energy Security Initiative, recently released a study showing that allowing natural-gas exports would have a "very minimal" impact on domestic prices. The consulting firm Deloitte projects that allowing exports would cause a 20-year price increase of just 1.7 percent.

This isn't surprising. With their market spanning the globe rather than merely the United States, American producers would build larger-scale and more efficient production facilities, as well as invest more in exploration and cutting-edge research. These "supply-side" effects would push gas prices downward.

On the other hand, if Uncle Sam obstructs exports, entrepreneurs would be less likely to take the risk of starting new projects, given that regulators have demonstrated an eagerness to step in and suppress profits available in foreign markets.

Cheniere Energy was one of the last natural-gas companies to get export approval before the regulatory hold; it's now building a massive new liquefaction facility in Sabine Pass, La. (Natural gas is liquefied for export.) This operation is expected to create between 30,000 and 50,000 new jobs - all positions that wouldn't exist if Cheniere had been banned from exporting.

The argument against natural-gas exports is also economically backward. A nation prospers through international trade precisely by exporting those goods and services that it can produce at relatively low cost.

Indeed, the Energy Department report found that gas exports benefit the economy despite higher domestic prices - in part because they also mean a corresponding fall in the prices that Americans pay for other goods and services that we import. That is, lucrative exports allow our nation to import more of those goods and services that can be produced at home only at relatively high costs.

The anti-natural-gas-export movement is dangerously misguided; let us hope the Obama administration realizes that fact - and soon.

Donald J. Boudreaux is a professor of economics and the Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at George Mason University in Fairfax, Virginia.
 
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