Critics of LNG Exports Undermine Its Strategic Benefits

The U.S. can be a player again in global energy

Published Feb 15, 2013 4:15 PM by Dr. Michael Economides

In recent weeks there has been a growing debate over whether to allow American liquefied natural gas (LNG) to be exported to the global market. Dow Chemical, ALCOA and others launched a new campaign, dubbed America’s Energy Advantage, to fight the export of LNG in an attempt to artificially suppress domestic natural gas prices for their own benefit.  Unfortunately, what’s good for these few companies is not good for the U.S. economy. Ultimately, LNG exports benefit the entire U.S. economy and promote economic growth globally.

By increasing demand, exports increase domestic production of shale gas. The economic benefits of shale to landowners, steelworkers, and communities across the country readily displace the modest increase in domestic gas prices that consumers might face. In a recent study, the Department of Energy verified that fact, finding that across all scenarios analyzed, the benefits of exporting LNG far outweighed the costs. Moreover, the DOE study concluded there was a direct correlation between exports and economic gains: The more LNG that is exported, the greater the net benefits to the U.S. economy in the form of real income.  Put another way, DOE found that exports helped everyone on average.

The benefits don’t stop at the water’s edge, however. Deloitte recently studied the global implications of allowing American LNG exports, finding that it would bolster global energy security and American foreign interests. According to the study, exporting LNG would boost the U.S.’s LNG global market share at the expense of countries such as Russia, decrease the price of natural gas for allies such as those in Europe, and still maintain comparatively low domestic natural gas prices.

Future Fuel
Natural gas is clearly poised to become the premier fuel of the world economy. According to the IEA’s Annual Energy Outlook, while total global energy demand will increase by 35 percent between 2010 and 2035, natural gas will increase by 57 percent, and this a conservative estimate. China, as usual, will lead, and its natural gas demand increase will be something to behold. By 2020, the government’s goal is to increase the market share of natural gas in Chinese energy demand from four to 10 percent, still way off the international share, expected to be at least 25 percent. The Chinese demand increase means a total use of 12 Tcf of gas, quadrupling the current level and about 50 percent of current U.S. use. Where will all this gas come from?

LNG exports represent an opportunity for the U.S. to become a real player in the global energy sector. The global marketplace is demanding increased supplies of LNG. Should the U.S. fail to satisfy that demand, others, such as China and Russia, are more than willing to step up to the plate. The Obama Administration would be making a critical strategic mistake by ignoring this opportunity.

The ongoing shale gas boom here in the U.S. has proven itself to be no flash in the pan. Estimates of domestic shale reserves range from 300 Tcf to as much as 900 Tcf. Investment in natural gas extraction projects has poured into regions across the country, from North Dakota to Pennsylvania. However, the domestic market for natural gas will soon be saturated with such high levels of production – and perhaps already is – resulting in lower domestic prices. That, in turn, could lead to a decline in the investment in manufacturing and equipment that has come with the shale gas boom.
Critics are being terribly shortsighted in attempting to enact protectionist policy in regards to LNG. Dow, for example, was one of the original benefactors of importing LNG. Its position against LNG exports has shown it to be completely self-serving. Blocking exports to benefit Dow essentially provides the Russians and other gas exporters a huge economic subsidy at the expense of the U.S. economy and its ongoing recovery.

What Are We Waiting For?
Moreover, the energy industry will not invest in a market without consumer demand. The government must create a regulatory and policy environment that incentivizes private investment. Halting our ability to export LNG is counterproductive to fostering the demand that leads to greater investment in America’s domestic energy resources. Without investments, natural gas-related jobs and manufacturing will decrease and reverse any previous economic gains. Blocking exports would make long-term natural gas production an unreliable investment. With such a positive economic, domestic, and international outlook, there is no reason to allow the shortsighted interests of a few companies to dictate our energy future.  

The U.S. has an opportunity to become a real player in the global energy sector – it’s time to embrace it.

The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.