Both Oars In Got gas? Yeah, a lot!

Jul 24, 2012

Even with the invasion of campaign ads on YouTube and the copious coverage of the candidates’ stump speeches, there is one topic that we have not yet heard President Obama or Mr. Romney address sufficiently. It’s natural gas. Voters need to know where the candidates stand on whether or not the government should allow the exportation of liquefied natural gas (LNG) to Europe and Asia. This is an important question; it deserves more public debate.

Thanks to a technique called hydraulic fracturing, aka “fracking,” the US now has access to a century’s worth of natural gas right under our feet. Assuming that practice will make perfect, and that environmental concerns with fracking will dissipate, these humongous pockets of gas could be just what we need to achieve greater energy independence and to once again become a competitive manufacturer. Managed wisely, domestically produced natural gas, which can be brought to the surface at a fraction of the cost of importing LNG, could help us out of harm’s way in the world and back to work at home.

Seems like a no brainer to keep the bounty of domestic shale gas for domestic use. However, there are potential political and economic issues with limiting the exportation of LNG. For starters, it is not only China that wants our natural gas. Our closest allies are also hungry for cheaper fuel. Japan is especially needy since the Fukushima nuclear disaster caused preventive plant shutdowns nationwide. Neither our friends nor our enemies are going to like it if we are stingy with our new found glut of natural gas. Restricting exportation could lead to retaliation in other markets and a lot of international ill-will.

There is also significant domestic pressure by energy companies that want to export LNG to maximize their profits. Several companies are lobbying Washington for the permits to build export facilities and trade LNG to Europe and Asia – where prices are two to four times higher than in the US. These companies are working quietly for now; however, any politician who sticks his or her neck out to pass legislation to limit the export of natural gas will likely suffer significant and very loud public criticism.

There is also the concern that access to a cheap energy source will delay the development of renewable energy. The respite from more costly fossil fuels could undermine the further development of wind and solar. Natural gas is cleaner than oil or coal, but it is not zero-emissions, nor is it renewable. This is a very long-term, but valid concern – one that could make strange bed partners out of environmentalists and free market advocates.

The most compelling argument for not allowing exports of LNG is not as obvious as those in favor of exportation, but it very well may trump all of them. A country can become very poor by selling its natural resources outright, even when the market is high. There are several natural resource rich, economically poor, underdeveloped countries that provide painful witness to this point. Whenever possible, smart countries sell their natural resources to the world as products, not commodities.

The availability of inexpensive natural gas provides a real opportunity for the US to get back into manufacturing. Selling our natural gas as a value added product to the world will bring a lot more wealth to our nation than exporting LNG. It will also tip the trade deficit in our favor and lower the cost of products at home. It will increase our GDP creating more tax revenue and lessen our indebtedness to China.

Another good reason to hold on to the gas is cleaner, less expensive transportation. Once battery technology improves, there is no doubt that more vehicles will be charging up rather than fueling up. The ability to generate electricity inexpensively is integral to making this environmentally friendly transition possible in the future.

The question of whether or not to export LNG is far more complex than a 700 word column can unpack. But, it is a perfect topic to start a debate. Let’s hope the candidates can move beyond Bain Capital and whether or not government contributes to business creation when they go toe-to-toe this fall and answer questions that really matter – like this one. 

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