Opponents of LNG exports miss the paradigm shift

January 11, 2013 | Posted by Ken Cohen

The technological revolution that has unleashed the tremendous increase in U.S. domestic energy production has turned traditional thinking about America’s energy and economic policies on its head.

As a result, in just a short period of time our public policy debates have transitioned from multi-decade discussions of scarcity and limits to growth, to discussions of American energy abundance and the enormous benefits that it can offer.

Yet not everyone appreciates or even understands the fundamental shifts underway in our economy as a result of the nation’s increased production of natural gas and oil from unconventional sources such as shale.

Yesterday, for instance, a handful of opportunistic companies held a press conference in Washington, D.C., calling on the federal government to restrict the free trade of America’s abundant energy supplies. The group argues that unrestricted exports of liquefied natural gas (LNG) pose risks that the U.S. economy cannot afford.

That protectionist argument seems to assume that energy production and use is a zero-sum game, but it’s not. The group’s warnings that “unfettered exports” will put upward pressure on the prices that manufacturers pay for natural gas feedstocks are rooted in what Jack Gerard, head of the American Petroleum Institute, describes as “misguided economic theories.

It’s a false choice to claim that increasing exports comes at the expense of domestic manufacturing. In fact, says Jack, the coalition’s “ill-considered policies could have disastrous consequences” for our economy.

I have to agree, and would add several points.

One is that increased exports of LNG will likely end up increasing domestic gas production. That’s because domestic energy supplies are not static – they expand and contract as they become more or less economic to produce. If more markets are opened to their sale, then there will be more demand, more investment and more production. In other words more trade means more supply – and with it, more jobs and economic expansion.

That insight was supported by analysis last year from the U.S. Energy Information Administration (EIA) examining a variety of export-related scenarios (see chart).

According to the EIA, moving toward the most robust pro-trade scenario would likely yield an additional 2 trillion cubic feet of U.S. natural gas production. That translates to more American jobs, growth and government revenues.

Trade expands the pie. That wisdom is well understood when it comes to our major exports of chemicals, cars and agricultural products – and so it should be with energy as well.

The broader point to remember is that society has long recognized the tremendous benefits of free trade, regardless of the commodity or product being traded. Secretary of State Clinton eloquently reinforced that point in a speech last fall, one the members of the coalition calling for import restrictions would be wise to read.

When it comes to the subject of LNG exports, a recent study commissioned by the Department of Energy showed that under all trading scenarios, the economic benefits to the country from LNG exports are significant and exceed any localized impacts; in fact, the benefits increase as exports expand.

Finally, in a curious twist, the group of companies demanding protectionist trade policies from Washington calls its coalition America’s Energy Advantage.

But is preventing exports really to America’s advantage?  The U.S. Department of Energy doesn’t think so. Neither do scholars at the Brookings Institution, Manhattan Institute and Rice University, not to mention trade groups like the National Association of Manufacturers, the American Chemistry Council, the Small Business & Entrepreneurship Council and the U.S. Chamber of Commerce. Then there are the editorial boards of the Wall Street Journal, New York Times and Washington Post, among others. And don’t forget award-winning economics columnist Robert Samuelson. Or the bipartisan pairing of former energy secretaries Bill Richardson (Democrat) and Spencer Abraham (Republican). They understand that American consumers would suffer if the federal government moved to limit energy exports.

Protectionist trade policies may work to the advantage of the special interests that lobby for them, but they don’t serve the nation’s interest as a whole.