For Higher Costs, Restrict Exports
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By Donald J. Boudreaux
On his recent trip to Warsaw, Secretary of State John Kerry heard arguments for expanding U.S. natural gas exports to Poland. Polish officials made the case that letting liquefied natural gas (LNG) flow from the United States to Poland would benefit European economies as well as the environment.
When it comes to lifting restrictions on gas exports, U.S. officials shouldn't need convincing. If policymakers want to continue denying our economy the benefits of free trade, they should be the ones to explain why.
By selling more of our natural-gas supplies abroad, we Americans will increase the number of goods and services that we import, thereby improving living standards here at home. And despite claims to the contrary, boosting gas exports will actually drive down domestic energy costs over the long-term. Officials seeking to restrict natural-gas exports are preventing the United States from realizing the full rewards of the current domestic energy boom.
Since 2007, the widespread adoption of hydraulic fracturing techniques has increased America's shale gas production sixfold. And in the next five years, domestic production is expected to accelerate, according to the International Energy Agency.
The dramatic rise in domestic gas extraction has made our country the largest producer of an energy source that is increasingly in demand around the world. LNG prices in Europe, for example, are roughly three times higher than here in the United States, while Asia pays more than four times as much for the resource. Both regions are eager to buy America's gas supplies. Yet, for reasons that are fantastical at best, U.S. producers still face serious barriers to selling overseas.
In particular, energy firms looking to export to countries who lack a free-trade agreement with the United States require approval from the Department of Energy (DOE). And while the DOE has granted four such approvals in the last few years, more than twenty others remain under review.
Those opposed to expanding exports argue that selling more natural gas to foreign countries will drive up energy costs for Americans. Sen. Ron Wyden has argued that, before the DOE approves anymore LNG exports, the agency must first "prove to American families and manufacturers that these exports will not have a significant impact on domestic prices."
This is crazy talk.
Wyden, who said this in September, must have missed the DOE-commissioned study from last year detailing the benefits of gas exportation. The report concludes that "the U.S. was projected to gain net economic benefits from allowing LNG exports. Moreover, for every one of the market scenarios examined, net economic benefits increased as the level of LNG exports increased."
This conclusion is hardly surprising, as obstructing trade is always an economic loser. To artificially restrict exports is to artificially reduce export earnings and, thus, to decrease the volume of imports that can be purchased. If the United States can't sell its most valuable natural resources to those most eager to buy them, we'll be less able to import the foreign-made products we rely on the most. The result will be fewer low-cost electronics, cars, clothes, and countless other imported goods that significantly improve our standard of living.
As for the threat of higher domestic energy prices, this too has little basis in economic reality. The only way America's natural-gas supplies will remain high is if businesses continue to invest heavily in the costly process of production. By limiting access to the global market, U.S. officials weaken the incentive to develop domestic gas resources. And as gas supplies fall, prices will rise. We don't need a government study to tell us that, if Apple could only sell its products in a handful of federally approved countries, Americans would pay a lot more for iPhones and MacBooks. Natural gas is no different.
What's more, it's simply backwards that the burden of proof is on businesses looking to sell their product to willing customers, rather than on those wishing to impose protectionist policies. The dangers of trade restrictions have been readily apparent since the days of Adam Smith, who warned that "prohibition of exportation limits the improvement and cultivation of the country to what the supply of its own inhabitants requires."
Opponents of natural-gas exports have abandoned basic economic logic for an ill-reasoned hunch about energy costs. In doing so, they stand in the way of the enormous economic benefits that come with being a world leader in energy production.
Donald J. Boudreaux is a senior fellow at the Mercatus Center and a professor of economics and former economics-department chair at George Mason University. He holds the Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center.