We’ve been talking about energy and the president’s campaign commitment to increase domestic oil and natural gas production. There are a number of ways he can follow through – approve the full Keystone XL pipeline, open new areas for oil and gas development, rein in unnecessary federal efforts to regulate hydraulic fracturing. There’s another issue: liquefied natural gas exports. Reuters had this story last week:
"The United States will not fully permit additional liquefied natural gas export projects before late 2013 or 2014, a Cheniere Energy Inc. executive said…Natural gas exports to all but a handful of countries with free trade agreements require approval from the Energy Department. Projects must also receive a permit from FERC. After approving Cheniere's project, the department said it would hold off on allowing any more exports until a study on the economic effects of exports was completed. The release of this study has been repeatedly delayed and is now scheduled to be issued before the end of this year."
Then there are some cautionary vibes on LNG exports coming from incoming Senate Energy and Natural Resources Committee Chairman Ron Wyden of Oregon. The Hill’s E2 Wire Blog reports that Wyden “is skeptical of an array of companies' applications to export liquefied natural gas, fearing it could raise prices at a time when low costs and abundant supplies are helping manufacturers that rely on the fuel.” Sen. Wyden in an interview with Platts Energy Week TV:
“Natural gas is a strategic American advantage. When you recognize that we’ve got it, the world wants it and their prices are a lot higher than ours, I start with the proposition, let’s wring every bit of value out of it. Let’s look for the sweet spot where we can make sure the…wells are operating, we’re seeing American job creation and we’re not making mistakes with respect to prices that will harm this effort to create more jobs in manufacturing.”
It’s likely the two points above have some connection: The Energy Department’s go-slow approach on granting permits for export projects reflects some policymakers’ view that U.S. natural gas should be restricted or perhaps blocked altogether. The question is, what’s the effect of a restricted or capped market on producers?
Imagine what could result if there were artificial limits on other U.S. commodities, like wheat. You don’t need to be an economist to sense that if the domestic supply of wheat exceeded demand the value of the wheat probably would be less and farmers would tend to produce less of it. The same economic laws apply to natural gas. Energy blogger Geoff Styles:
"A US gas market with no export outlets would likely produce less gas in the long run, and that would constrain opportunities to use our abundant gas resources…"
The issue of LNG exports is another measure of President Obama’s commitment to more domestic natural gas and oil. A policy of slow-walking federal permits for export facilities has a likely market impact.
Restricting exports could cause less production, resulting in fewer energy jobs and associated employment and a ripple effect on overall economic growth. If the president is serious about an all-of-the-above energy approach, he’ll let markets work by keeping federal regulators from unnecessarily standing in the way. Styles:
…"all of the above" – if not merely a slogan – implies more than just producing energy from a variety of sources. It also entails competition among all these sources within a market in which some sectors of demand are declining, others growing, and new ones – including exports – are appearing all the time. Pushing back on one part of this market will have large consequences in other parts, and regulators could soon be overwhelmed by unintended consequences.
Sen. Wyden is correct in saying there’s great value associated with U.S. natural gas. But to tap its real value we shouldn’t artificially restrict it. Rather, an approach is needed that capitalizes on the proven benefits of free markets – for our economy and overall energy security.